European wealth management firms are being presented with a rare opportunity: the next wave of evolution and growth of the mass affluent market. While this could offer significant potential growth for these firms, realizing it will not be a simple matter.
Clients are looking today for solutions that address rising inflation, their growing interest in sustainability, and their need to self-provide for retirement. They also want and expect more affordable financial guidance and advice as well as help in building and protecting their personal wealth.
At the same time, competition is intensifying across the industry—from traditional wealth managers, asset managers, insurers, workplace providers, independent advisors, banks and new wealth techs. This has given rise to a fierce battle for mass affluent clients in which they are presented with many more options to choose from.
It’s no surprise that firms are repositioning themselves to capture this growth opportunity in the affluent market. As I wrote in an earlier blog post, some banks have, for example, started to combine their retail affluent wealth and private banking arms to better share and scale elements of their digital distribution, products and solutions as well as their technology platform capabilities. This is just one of the strategic plays designed to capitalize on this evolving opportunity.
To get a more in-depth view on this—and many other—trends and market changes, we collaborated with PIMFA on a research study aimed at the C- suite. The resulting new report on wealth investments and advice in Europe examines how European wealth managers could reframe themselves to win in a post-pandemic era characterized by, among others, the evolution of a fast-growing affluent investment market in which investors may shift more of their assets from savings to investments.
Three key steps to capture the opportunity
Let me begin with some further context. Europe’s wealth management industry is experiencing yet another wave of disruption. This is being driven by several structural trends including industry consolidation, increased cross-industry competition from incumbent firms and new wealth tech players, a shortage of talent, and the progressive impact of new technologies. Combining with these trends are cyclical factors such as rising inflation, geopolitical risks and market volatility. These forces are compelling all wealth managers to deal with compressed change—the kind that comes at you rapidly and all at once. Against this challenging backdrop, the respondents to our survey shared some views on their plans to make their businesses future-ready.
The firms we looked at as part of our research also included companies which in 2021—a very benign year for markets—managed to grow their AUM up to five times faster than some of their peers. The common factor differentiating these leaders from others? Our research suggests that it has to do with their degree of ambition, future-readiness, and ability to be more agile across various parts of their businesses. And an unwavering focus on reinventing the client and employee experiences—in part to also capture the high-growth affluent client opportunity. We also found that many of them are pursuing three specific priorities while accelerating their rate of change:
- First, discovering new growth opportunities. The democratization of wealth, accompanied by factors like inflation and growing interest in ESG, may be causing investors to shift from savings to investments, which include newer asset classes and advice solutions. Consider for a moment that, according to our estimates, the European affluent market is worth around €22.6 tn, of which approximately 40% was being held in cash in 2021. If only 10% of that cash were to be transferred into investments through targeted client propositions, this could amount to a very substantial windfall.
- Second, aligning future capabilities to reimagine the client and advisor experiences. This entails a strategic redesign of these experiences and the building, acquisition or collaboration needed to gain the capabilities to support new affluent business and technology models. The key points here are firstly that we now live in a world where education, experiences and the expectation of financial guidance and advice are as important as products. And secondly, the game is now beginning to move “beyond financial advice”. Other important aspects of transforming experiences include innovating around products and solutions; developing hybrid advice models where advisors handle high-value tasks and clients self-serve for commodity activities; upskilling advisory talent to fit in with the new models; and adopting a modern technology vision and enablers which could include a portal, CRM and cloud-based applications that allow for better experiences and more scalable and efficient delivery of affordable advice and solutions.
- The third priority is closing foundational maturity gaps. It may not be easy for firms that operate with legacy client and advisor models to develop the new capabilities that are needed to tackle the evolving mass affluent market. The key here would be to identify where change is most needed, based on the maturity of each area compared to current and evolving good practices. Having identified its most critical maturity gaps, a firm can sequence and prioritize investments across the near, medium and long terms. For some firms, this might include expanding the client focus through, for example, new ways of prospecting clients—platforms like social media are just one possibility. For others it might be vital to close any advisor maturity gaps relating to an understanding of mass affluent clients’ needs and journeys—and digital maturity gaps in key areas such as onboarding and the more automated provision of guidance and advice.
The opportunity presented by the changes in the European mass affluent segment is too attractive to ignore. Capturing that opportunity efficiently will be anything but an easy undertaking, but it could allow firms to significantly grow their assets under management and broaden their guidance and advice propositions between now and 2025. If you would like to learn more about this and other growth opportunities for your firm, read our full report, Creating the wealth management firm of tomorrow.
Should you have any specific questions on the topic of tackling the mass affluent market, please feel free to reach out to me over LinkedIn; I look forward to discussing it with you.