Written by Nilesh Vaidya, Global Industry Head of Retail Banking and Wealth Management, Capgemini
The wealth management sector continues to face pressure to meet and exceed client expectations in a cost-conscious environment.
The challenge lies in maintaining profitability and adding value to clients while navigating geopolitical instability, a complex regulatory environment, high interest rates, and intense competition. Unsurprisingly, industry players are turning to emerging technologies, stable returns, and newer customer bases to tip the scales.
As firms navigate the post-pandemic era with highly connected clients, digital readiness will be a critical focus area in shaping the path forward in 2024.
Generative AI-based client engagement enriches the client experience
With generative AI taking industries across the globe by storm, wealth management firms will integrate this technology across their value chain, from client-facing chatbots to empowering relationship managers, with powerful insights and streamlined middle- and back-office workflows. Faced with a pressing need for greater efficiency, this transformative technology has the potential to boost productivity concerns. It can also guide wealth managers to generate realistic financial scenarios, optimize asset allocations, and provide personalized recommendations based on risk tolerance, expected returns, and investment horizons. We anticipate positive influences on financial results and customer satisfaction as generative AI use matures throughout the industry.
Reliable and traceable ESG metrics are now a must
Wealth managers continue to face several difficult challenges when adopting a suitable Environmental, Social, and Governance (ESG) framework. The lack of standard measurements and guidelines means that third-party ESG ratings agencies use different methodologies in their calculations, often producing quite different results. It is common to hear financial services companies complain about inconsistent ESG data.
The industry is taking an innovative approach using AI, natural language processing (NLP), and machine learning to bring more rigor to the management of data. For instance, a company may report through traditional structured data from financial reports that it is doing well on the social component of ESG, but unstructured data, such as local reporting from around the world might indicate that its overseas suppliers are engaged in prohibited employment practices. Such insights can be shaped into an NLP-enabled sentiment engine’s analysis that classifies information into positive, negative, or neutral categories to provide a deeper understanding of ESG performance. Today, we are seeing some investment banks leverage a real-time ESG sentiment system that integrates more than 70,000 global news sources and enables traders to quickly understand the impact of events on the ESG profile of companies.
As the regulatory environment around ESG scoring and metrics becomes clearer, we will see increased appetite for ESG-linked investments and an improvement in the trust of investors that their ESG investments are being executed as intended.
Firms target affluent customers with personalized products and services
In pursuing the next growth phase, we will see a strategic focus towards the burgeoning affluent class, recognizing the immense potential within this demographic. The affluent segment controls nearly USD 27 trillion in wealth (and a large population base of 53.8 million people. Additionally, betting on the likelihood
of these customers garnering more wealth later, financial institutions are developing products and services targeting this group and tailoring premium experiences to win loyalty. Consumers say they want more personalized experiences, and recent cost-of-living anxieties only amplify their need for financial advice. Affluents’ satisfaction with their existing wealth management provider is tepid: only 18% say they are pleased with their current provider. Hence, there is pent-up demand for top-notch financial advice and convenience.
Capitalizing on the ongoing intergenerational wealth transfer
The industry is on the brink of a significant transformation with about $85 trillion dollars of wealth set to transfer to the next generation. In response to the evolving preferences of this younger demographic, a fresh approach will help to bridge seamlessly the generational gap. Firms will need to engage with heirs early through targeted initiatives and utilize digital channels to communicate effectively with next generation of digitally savvy investors. Most importantly, to give them the best chance of retaining them. The current landscape presents an excellent opportunity for the financial community with a surging population of inheritors searching for guidance for managing their newfound wealth.
