Wealth managers should tap digitally-oriented opportunities to deepen their client interactions and prune operating costs, suggests a JPMorgan report. JPMorgan Asset Management, in association with Oliver Wyman in a November 2014 report titled “The Future of European Wealth Management: Imperatives for Success,” notes that wealth managers must be prepared for sweeping changes in the European wealth management industry.

Growth in individual financial assets

According to the JPMorgan report, since 2010, growth in individual financial assets has outpaced nominal GDP growth by nearly 130 basis points per annum. The authors of the report anticipate that the financial assets of individuals in Europe will touch EUR 23 trillion by 2018, with HNWIs and UHNWIs accounting for EUR 9 trillion:

Wealth Managers Growth in total financial assets

 

According to the survey, growing regulatory and operational costs create high barriers to entry, and hence, new or smaller players find it difficult to compete with established firms. The survey conducted by JPMorgan points out that 82% of wealth managers anticipate that the market will be attractive or very attractive over the next five years:

Wealth Managers Attractiveness of the industry

 

Wealth managers: Changing competition landscape

Citing its survey respondents, the JPMorgan report points out that tailoring wealth management offerings to the next generation of clients is important, with 66% ranking it as a top priority. Citing a European Central Bank report, the JPMorgan report highlights that approximately half of all wealth in Europe is currently controlled by people over the age of 55 and will be transferred to their next generation over the next 20-30 years. Interestingly, even this next generation of clients is also likely be over the age of 55 when they inherit this wealth.

Wealth Managers Next generation of clients

 

According to the JPMorgan survey, the next generation of clients will have a strong preference for digital tools. Citing Financial Times research, the survey notes that 67% of millionaires below the age of 40 accessed their portfolios remotely in 2013.

The JPMorgan survey also found that digital is a threat to established participants in wealth management. Younger, technologically-savvy clients have a greater comfort level with self-directed investing than the older generation of today. The JPMorgan survey found that technology-driven business models are attracting new clients and assets in wealth management. For instance, today, 64% of respondents consider large wealth managers to be their primary competitors, but in five years, only 48% expect this to be the case.

Wealth Managers Changing competition landscape

 

New business models

According to the JPMorgan report, from a wealth manager perspective, 79% of respondents indicated that enhancing their advisory capabilities is a high priority. To address this requirement, the report suggests that wealth managers initiate various steps such as enhancing their investment management content and expertise and offering stronger investment solutions:

Wealth Managers Strengthening advisory model

 

The JPMorgan researchers expect approximately 9% growth in AUM per annum over the next five years. To capture this growth, 49% of respondents are planning to hire front-line staff, and 32% are expecting to hire product staff. The report suggests wealth managers will need to ensure that these new hires are provided with the tools and training that will maximize their productivity:

Wealth Managers Techniques to offset cost increase

 

The JP Morgan report concludes that as the industry changes, firms that can continue to deliver trusted solutions will be better positioned to achieve long-term success.

H/T ManagedFundsAssociation