2020 saw its fair share of deals in the wealth management space, including Charles Schwab’s acquisition of TD Ameritrade, Morgan Stanley’s purchase of E-Trade and LPL Financial’s deal to buy Waddell & Reed’s wealth management business, to name a few. But Aite says we’ll see even more industry consolidation this year on a global scale, driven by flat to negative interest rates, margin compression, increasing competition, saturated markets, vulnerable profitability and high advisor compensation expenses. Some firms will have to sell in order to survive, and Aite expects many of those firms will upgrade their tech stacks before selling, to get a better valuation.

In the U.S. in particular, the research shop expects there to be more interest in registered investment advisors, independent broker/dealers and defined contribution plan recordkeepers as acquisition targets.

Business-to-consumer (B2C) or direct-to-consumer was a popular strategy for asset managers looking to distribute their products in the late 1980s to early 2000s. But the strategy is making a comeback this year, Aite says, with many asset managers now exploring direct market distribution. This wave, however, is different. “The new B2C market is more advice-based versus basic investment planning,” the Aite report states. “Large asset managers have started to acquire digital advice providers to support advisors and broker-dealers seeking these types of capabilities.”

Take Invesco’s acquisition of digital advice provider Jemstep, BlackRock’s investments in Acorns and Scalable Capital, and Franklin Templeton buying AdvisorEngine.  T. Rowe Price and Capital Group also offer direct-to-consumer services, Aite says. The researchers also see this happening in the defined contribution plan market, with recordkeeper Empower acquiring Personal Capital as a way into the B2C market.

Investing based on environmental, social and governance (ESG) factors is only expected to rise, and as more of these products come to market, financial advisors will need to get to know their clients’ values and personal beliefs, Aite argues. Advisors will also need to report on the financial and nonfinancial impacts of their investments. “Not doing either will needlessly put the client relationship at risk, leaving it vulnerable to attrition,” the report states.

Aite expects wealth managers to create new partnerships with ESG data providers, and analysis of ESG investments across asset classes, including listed alternatives, will grow. ESG data will likely be pushed onto the advisor’s workstation, and vendors will try to standardize it.

The great wealth transfer is underway, but in order to capture these assets transferring to the younger generations, financial advisors cannot just focus on the financial aspects of clients lives, Aite argues. Advisors need to be trained to tackle the wealth transfer opportunity in a holistic way, taking into account clients’ causes, personal beliefs and values.

“In 2021, [financial institutions] will try to get that complete picture of the client through advanced technology tools and data capture, and also educate the advisors and relationship managers (RMs) around what to do with that information,” Aite says.

Philanthropy will also grow in importance in 2021, as a way to engage next generation clients in a meaningful way.

While multi-goal comprehensive financial planning is difficult to do for the advisor and client, Aite says planning tools and processes are helping firms break it down into more manageable components. Larger firms are embracing more nimble advice tools, as demand for financial planning and advice is only increasing; at the same time, providers of financial planning tools are coming out with modules that allow advisors to focus on specific advice areas. That includes such providers as MoneyGuide, eMoney Advisor and InvestCloud.

As digital and hybrid advice platforms gain market share, especially among younger investors, that competition has put renewed pressure on wealth management firms to focus on new client development, Aite says. The COVID-19 pandemic has shifted demand for financial advice in the industry’s favor, as investors are faced with disrupted goals, market volatility, impacted cash flow, levels of debt and general savings. These dynamics have caused many investors to seek financial advice for the first time, the report says.

The researchers also anticipate a rise in social selling—prospecting through social media channels. Advisors and firms are quickly expanding in this area, and are using it as a point of differentiation.

“Social selling is highly customized and personalized for each prospect; it’s more conversational/interactive and can supplement and/or complement phone, video, and in-person engagements,” the report said.

Wealth management firms and private banks are exploring different models for compensating their advisors, as regulations change and the fiduciary model becomes more prominent, Aite says. In the U.S., compensation models have already shifted due to the Securities and Exchange Commission’s Regulation Best Interest towards asset gathering, to increase fee-based assets.

“Firms will employ a wide range of incentives and disincentives, including adding qualitative factors in bonuses, conducting more financial planning, increasing focus on new client assets and prospecting/new client development, and retaining assets by engaging clients and their children/heirs,” the report said.

Some firms may shift towards salary and subscription models, Aite says, to “address advice needs beyond investment management and avoid potential conflicts of interest.”

As social distancing remains important and advisors continue to serve clients remotely, firms will need to have an efficient, automated client onboarding system to meet increased demand. Many of the big firms are making digital client onboarding a significant priority in 2021, including Merrill Lynch, which onboarded 17,000 new clients in the first three quarters of 2020.

Firms will focus on making the process as frictionless and quick as possible.

“Deploying technology tools that allow for simplified workflows, enhanced data capture, better risk management capabilities, intelligent Know Your Customer (KYC), and due diligence checks are crucial factors in achieving better onboarding goals,” the report said.

While wealth management firms have been honing their client data and analytics for years, Aite says they are finally sophisticated enough to power communications and enhance their service. One way they are using that data is to segment their client base and provide service in a differentiated way.

“Advisors can create in-depth customer profiles and better examine the content, context, and sentiment within client conversations in order to target these high-value customers with tailored products or advice at the right time.”

Firms are also using the data to better understand client needs, satisfaction and dissatisfaction. The wirehouses are using analytics to deliver digital communications to prospects and clients, as well as to suggest “next-best action” for advisors to take with a client.

While wealth management firms have historically been slow to adopt cloud services for technology deployments, Aite expects those reservations to slowly go away, as we see increased adoption of the cloud in 2021.

Firms are now more open to using the cloud, driven by market needs as well as local regulators and wealth managers becoming more educated about it. There are also more trusted vendors moving to the cloud. COVID-19 also contributed to the increased openness towards the cloud, as it exposed operational inefficiencies in firms’ middle and back offices. 

“Another lure of the cloud in 2021 will be the chance for wealth managers and private banks to rethink legacy applications as well as service offerings,” the report said. “Embracing the cloud can open up, for instance, the world of microservices for [financial institutions], allowing them to build apps at speed based on changing and new customer requirements.”