The wealth management sector is undergoing a profound transformation on the back of macroeconomic, technological and social shifts. High-net-worth-individuals (HNWIs) are increasingly investing in emerging asset classes, evolving client profiles and behaviors are creating service gaps, and non-traditional players and wealthtechs are rising in popularity, says Capgemini’s annual World Wealth Report.

The World Wealth Report 2021, released on June 29, looks at megatrends, new wealth drivers and technology’s enabling role in the rapidly changing wealth space. It shares findings from surveys of both HNWIs and wealth managers to understand investment behavior, customer preferences, digital transformation efforts, collaboration strategies, and more.

Crypto, sustainable investing surge in popularity

According to research, new asset classes, including cryptocurrencies and sustainable businesses, are taking off. Out of 2,900 HNWIs across 26 markets surveyed, 72% have invested in cryptocurrencies, and 74% have invested in other digital asset such as website domain names.

Recognizing the need to meet clients’ evolving needs, several banks and financial institutions have expanded their offerings to include digital assets. Goldman Sachs, for example, is planning to offer its first investment vehicles for bitcoin and other digital assets to clients of its private wealth management group. Fidelity Investments is preparing to launch its own bitcoin fund as it seeks cement its clout in the market for digital assets. And robo-advisory platform Wealthfront will start allowing clients to invest in cryptocurrencies later this year, it said in April.

In addition to cryptocurrencies, demand for sustainable investing is accelerating. A separate Capgemini Research Institute survey of +11,000 consumers found that the proportion of consumers who prefer to invest in assets with a positive societal impact but lesser returns increased from 31% before the COVID-19 outbreak to 46% by November 2020.

Demand for sustainable investment opportunities is also maturing, with HNWIs now expecting more information on sustainable investment opportunities as well as more customized solutions. The Capgemini survey found that 43% of ultra-HNWIs and 39% of HNWIs age 40 or younger are likely to request an environmental, social and governance score for products offered by their firm.

Rise of wealthtech

Another key trend outlined in the report is the rise of wealthtech companies. These companies are emerging as both competitors to traditional wealth management firms and enabling partners.

In 2020, wealthtech companies generated robust funding, reaching an annual record of US$3.7 billion across 157 deals through November 2020, the report notes. Investments grew more than 50% compared with US$2.4 billion throughout 2019, showcasing investor rising appetite for the segment amid the global pandemic.

This comes on the back of renewed consumer interest in robo-advisory platforms, the report says, citing that 34% of HNWIs surveyed are actively using a wealthtech firm to manage their assets.

In addition to the rise of tech-enabled wealth management specialists, the report notes that non-traditional players are increasingly exploring investment services. In Asia, the fintech arm of Singapore-based ride-hailing giant Grab acquired robo-advisory startup Bento to offer retail wealth management solutions to users, driver-partners and merchant-partners via the Grab app.

At the same time, traditional wealth management firms continue to partner with wealthtechs to reach new client segments (32%) and to provide new and unique offerings to clients (29%), the survey found.

Delivering superior customer experience

As industry boundaries blur and as bigtechs’ entry looms, customer experience is becoming the latest battleground for wealth management firms. While steps have been taken to address HNWIs’ rising demand for personalization and seamless digital interfaces, customers are still overall underwhelmed by traditional players’ offerings.

51% of surveyed HNWIs said they are not satisfied with their firm’s personalized offerings or digital interfaces. Moreover, clients increasingly seek support beyond investments, with 36% saying that a firm’s lack of value-added services might drive them elsewhere.

Despite an overall realization that the industry must embrace digital tools and technology, executives are still lacking so-called “new-age competencies,” the research found.

Fewer than half of the executives surveyed said they are confident in their firm’s data readiness, and although wealth management firms are doing relatively well in the soft skills of data governance and building a data-driven culture, there are more notable gaps in infrastructure implementation and data-driven organizations processes.

New investment avenues

Finally, another trend highlighted in the report is the emergence of new investment avenues, including special purpose acquisition companies (SPACs).

SPACs debuted in the early 1990s but have exploded in popularity since 2020. This year alone, an estimated US$100 billion have been raised through 370 SPAC listings globally, according to data provider Refinitiv. More than 400 SPACs are currently hunting for companies to buy.

SPACs have also become the go-to listing vehicle for fintech companies. In Q1 2021, 17 blank check companies announced plans to merge with fintech firms, totaling a combined valuation of US$62 billion, data from fintech-focused investment bank Financial Technology Partners (FT Partners) show.

These figures are a new record for the industry and surpass those for the whole year 2020 during which 15 SPACs merged with fintechs for a combined valuation of US$57 billion.

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