Wealth Management’s Transformation in an Era of Disruption

The wealth management industry is at an inflection point, facing a confluence of disruptive forces reshaping its landscape. As a significant wealth transfer from the older generation meets the digital-first expectations of the young, the demand for technological sophistication and personalized services is intensifying. As new players emerge and the market landscape shifts, incumbents must adapt to safeguard their position. 

To investigate these developments, ThoughtLab is conducting a multi-client research program, Wealth Management Megatrends: Building a Future-Ready Investment Firm. As part of the study, we asked industry experts and study sponsors their views on trends in the industry, investor behaviors and preferences, and the implications for their businesses. This is the first of a set of articles providing their perspective on the wealth management industry’s future. 

 

What are the biggest disruptors the wealth management industry faces today? What impact do you expect them to have on the industry in the future? 

Chris McDonald, Industry Specialist, Capital Markets, AWS: The most significant disruptors the wealth management industry faces today stem from developments in artificial intelligence and machine learning. More specifically, the focus is currently on the potential and possible impact of generative AI, a type of AI that can create new content and ideas, including conversations, stories, images, videos, and music. Generative AI is poised to drive change and innovation, particularly in personalization, customer interaction, education, and customer insights for advisors. While the full potential of generative AI remains unexplored, one of the greatest impacts expected in the near term is increased advisor efficiency. For example, generative AI is showing promise for its ability to enable advisors to use text from various touchpoints to automatically create customized investment insights, recommendations, and educational content. This use would free up time advisors spend on administrative tasks, allowing them to focus on high-value work and improved customer service. Once firms start deploying generative AI use cases, developing data strategies, and addressing legal, regulatory, and compliance concerns, we can expect a substantial shift in the way the wealth management industry conducts business. 

Yoni Assia, Founder and CEO, eToro: Technological transformation (first digital and now AI) has lowered the barriers to entry and significantly increased retail participation. You no longer need six figures to invest. This means that there is a vast and growing total addressable market for wealth managers and other direct- to-consumer investment providers/brokers. While the opportunity is growing, those wishing to benefit will need to understand and be able to meet the increasingly demanding needs of these consumers. Consumers expect an intuitive, digital-first user experience coupled with a high degree of personalization. We expect technology-driven disruption to only accelerate: within the past decade we’ve begun to see the impact of digital transformation, blockchain technology and AI, to name just three. 

Mark Smedley, Financial Services Industry Executive, Genesys: Providers should be planning to bring the best of online digital and voice-based digital services to the mass affluent market, paying special attention to Gen Z expectations.  Gen Z-earned wealth and intergenerational transfers will likely behave differently in interesting ways. The client experience will come with very high digital and mobile expectations.  Given digital natives’ unprecedented access to data and technology, the challenge to advisors will be to provide clients with knowledge and context they can’t find on their own. Gen Zers are more likely to take into account specific environmental and social values when looking at investment options and portfolio returns. But they will expect both measurable social investing outcomes and  financial returns. The expectation bar is likely to continue to rise, requiring savvy advisors and technology-enabled providers to take full advantage of leading AI and data. 

April Rudin, CEO and Founder, The Rudin Group: The biggest disruptor is the shortage of human advisors necessary to fulfill the needs of investors. With inheritors, wealth creators, and under-served investors on the rise, juxtaposed with the number of financial advisors who are aging out and not being replaced by younger advisors, it is a very pressing problem. 

Dean Butler, Managing Director for Retail Direct and Advice, Standard Like UK: Customers now expect digital-first propositions with exceptional UI/UX that accommodate evolving and complex needs. Those who fail to meet these expectations risk falling behind. There is a noticeable trend of new entrants in the market, characterized by fintechs partnering with traditional firms. This collaboration is set to disrupt traditional business models and significantly affect monetary flows. Traditional incumbents that do not adapt swiftly to meet customer needs will find themselves negatively impacting their financial flows. Furthermore, there is a rising trend towards democratizing financial advice. Businesses that fail to leverage technology for enhancing engagement and delivery will find their models becoming outdated.  

Jaime Lázaro, Head Asset Management and Global Wealth, BBVA: There are both regulatory and technological disruptors. On the regulatory side, recent proposals will mean that advisory and discretionary managed accounts will grow faster in the coming years. Regarding technology, AI and blockchain will become more relevant, generating both operational efficiencies and the tokenization of assets. 

Brie Williams, Head of Practice Management, State Street Global Advisors: In today’s rapidly changing landscape, the wealth industry is undergoing a wave of consolidation that is reshaping the entire sector. To ensure the long-term viability of their businesses, wealth management providers must adapt to the evolving paradigm. This seismic shift coincides with the largest generational wealth transfer the industry has ever seen, and next generation clients who demand  cutting-edge technologies, and seamless digital client experiences.  These factors converge to create a dynamic environment requiring a thoughtful response. 

The emergence of new wealth, global market uncertainties, and evolving regulations, adds additional complexity, compelling the industry to confront fundamental challenges in maintaining and expanding client relationships. This is resulting in an unprecedented focus on client experience, with an emphasis on the digital journey.  

The future of the industry is undeniably intertwined with its ability to adapt, innovate, and transform in the face of disruption, positioning those who embrace this evolution for growth and success. To build resilience, providers must transform their operational, technological, and service models. The status quo is no longer viable; it’s time to reimagine the way business is conducted. 

Michael Hunwick, Management Consulting Director, Deloitte UK: As the financial services industry increasingly recognizes the significance of the advisory relationship in fostering loyalty and intimacy, all players are shifting their focus towards delivering comprehensive advisory experiences at the point of sale and beyond. This shift is driving the traditional wealth management industry to elevate its offerings and provide greater flexibility. 

Jean-Francois Lagasse, Global Wealth Management Leader, Deloitte: The single most important disruptor in the industry today is the client. Investors and families have higher financial awareness, literacy, and access to information than at any other point in our history. Their attitudes, expectations, and behaviours—often conditioned in industries outside of financial services—are compelling wealth managers to innovate across their business models. We’re observing comprehensive innovation across products, services, experiences, non-traditional partnerships, and revenue models.  

Tony Wood, Asia Pacific Banking Leader and Partner, Deloitte Hong Kong: The debate about what is possible has ended, and now the race is on to see who can modernize in the most compelling and efficient way. The ultimate winner will not only prioritize enhancing the customer experience but also focus on reducing the cost of service and scaling advice for all types of investors. 

Peyman Pardis, Management Consultant, Wealth Management, Deloitte: There are multiple disruptions of note. Investment products are turning into commodities as firm-led portfolios and ETFs proliferate, making value-add services and broader wealth offerings crucial for fee preservation and differentiation. Heightened client expectations for personalized, accessible, digital, and straightforward experiences will continue to drive the success of scalable digital-first, hybrid advice solutions for mass-market and mass affluent accounts. Developing and maintaining financial relationships will require deliberate efforts as data and fund portability increase, necessitating cross-business advice and relationship models to protect in-house customers.  

The proliferation of firm-led strategies will elevate the significance of alternative investment products as the key differentiator among wealth managers, with partnerships playing a vital role as enablers. And clients’ desire to align their investments with their beliefs and values will increase across segments, driven by the empowerment of information, resulting in separately managed accounts and thematic funds becoming differentiators through direct indexing and algorithmic trading solutions. 

 

Will emerging market trends and new competitive players lead to market shakeout over the decade? Who will be the winners and losers? What will incumbents need to do differently to preserve their place? 

Yoni Assia, Founder and CEO, eToro: In 2019, the total global wealth invested in stocks was $78 trillion, with digital platforms accounting for approximately 20% of wealth invested in equities. This market remains highly fragmented and served by a number of local and pan-regional competitors, mainly characterized by online platforms and large, traditional financial institutions, such as retail banks, private banks, and wealth management firms and high growth fintechs. Online multi-asset platforms such as eToro have been able to capitalize on the secular trends towards self-directed investing, by offering an engaging user experience, accessible educational materials, and a wide range of assets at a competitive cost. They have been growing their share of an increasing market. We expect this growth to continue, and we anticipate ongoing consolidation amongst market participants. 

Mark Smedley, Financial Services Industry Executive, Genesys: On the topic of disruptors overtaking  incumbents in financial services, the Mark Twain quote comes to mind: “The reports of my death are greatly exaggerated.” Picking winners and losers in this context seems the domain of soothsayers and tech writers. A pragmatic way of thinking about the future is to observe trendlines from recent history. While technology and business model innovation has greatly impacted incumbents, they have largely not been replaced. Cloud, crypto, Web3, and AI are far more likely to enhance operations and customer experiences offered by incumbents rather than replacing them. That said, new entrants properly capitalized and with client-facing value propositions remain a threat. One thing seems certain: all providers need to maintain a keen awareness of emerging technologies. This, coupled with a mature understanding of how and when to deploy them, is and will remain a key competitive differentiator. 

April Rudin, CEO and Founder, The Rudin Group: Here comes something controversial: I think that the growth of the RIA channel will be a “fad” as more and more consolidate to form larger organizations. Today’s next gen will turn out to be much more conservative than what others have predicted. Considering all of the world events, Covid, and financial-market volatility, I predict that bank and wire house wealth management will be growing channels and that other more independent channels risk being left behind. Self-serve models can easily be incorporated into large enterprise models so that they can serve a wide variety of clients, in any manner that they want to be served! No more one-size-fits-all! Incumbents need to continue to partner with point solutions to improve their offerings and perhaps even offer “down brands” from their upper brands of service models. 

Brie Williams, Head of Practice Management, State Street Global Advisors: As financial advisors retire, investors will explore new transaction methods, fueling the rise of digital-first and hybrid approaches. Wealth managers who neglect adaptation risk falling behind.  

These industry shifts extend beyond servicing traditional segments, embracing a wide spectrum of investor profiles, from HENRYs (High Earners, Not Rich Yet) to those within the realms of high-net-worth categories, including the hybrid affluent investor—individuals balancing self-directed accounts and traditional advisory services. These emerging investor segments value the guidance of human advisors while also prioritizing affordability and accessibility in their direct investing experiences.   

In response to these dynamic changes, wealth managers need to consider onboarding hybrid solutions and craft a seamless bridge between these two worlds. However, achieving this intricate balance is a multifaceted challenge, with attention to management of channel conflicts, including mitigating potential revenue impacts. 

Dean Butler, Managing Director for Retail Direct and Advice, Standard Life UK: The market will evolve, and disruption will happen. It happens in all industries over time. Incumbents will need to rapidly embrace new technology capabilities and the opportunities to engage with customers in a digital/hybrid environment. They will need to rapidly evolve both their customer and advisor proposition set—connected to an e2e aligned technology platform(s). Many incumbents are married to legacy platforms, and it will take bold leadership to first define and share the vision and then take action. The losers will be those that do not take action and keep with what they know today. The winners will be those that truly spot the opportunity and implement it; be it with their own teams focused on the same goal and/or by connecting with fintech’s to realize the vision. Ways of working will be key to this. Those who best harness a digital mindset married to Agile delivery will ensure that they do not launch multi-million programs of work that are set up to fail from day one.   

Dr Henning Stein, Fellow, Cambridge University Judge Business School: A clear trend has emerged: wealth managers are becoming increasingly selective on behalf of their clients, emphasizing stable, long-term performance in investments. This shift reflects a growing preference for stable, alpha-oriented strategies over short-term gains. Wealth managers are scrutinizing the plethora of products offered by asset managers more closely than ever. While some asset managers may operate numerous funds, frequently launching new ones focused on current hot topics to maximize short-term performance and attract client capital, this approach is being met with caution. Wealth managers recognize that such strategies, though potentially lucrative in the short term, can carry significant risks. If the strategy fails, it is the investors who face the consequences.  

This cautious approach is particularly pertinent when considering fund providers with a broad range of products, including both high-performing and underperforming funds. This pattern often suggests a reliance on high-risk or marketing-driven strategies, where the investor’s well-being may not be the primary focus. Wealth managers, acting in the best interest of their clients, are increasingly viewing such providers with skepticism, opting instead for asset managers who consistently demonstrate a commitment to long-term stability and performance.  

As wealth managers continue to advocate for their clients’ best interests, the emphasis is on aligning with asset managers who prioritize not just immediate returns, but sustainable growth and risk management, ensuring the long-term financial well-being of the investors.  

Jean-Francois Lagasse, Global Wealth Management Leader, Deloitte: We have confidence in incumbents, as they have consistently demonstrated their ability to adapt. New entrants have primarily served as catalysts for change and have showcased what is possible. This is a capital-intensive industry, and those with an established investor base and large balance sheet are likely to come out on top. However, the true winners in our industry’s modernization will be the end investors and their families, and that should be the primary metric by which we measure the future success. 

Matthew McWhirter, Strategy Leader, Wealth Management and Retail Financial Services, Deloitte: There is a potential “hollowing-out of the middle”—where new entrants carve-out pockets of the market with differentiation, innovation, and agility; and where super-scale incumbents further entrench their market leadership positions.