![]() ![]() Agile private banks and niche asset managers have developed digitally enabled offerings and have provided access to illiquid asset classes. ![]() Just as private jets have taken much of airlines’ first-class business, bespoke services for the plutocrats have taken full advantage of financial engineering and regulatory arbitrage to deliver custom-made investment products. High-net-worth clients, meanwhile, have outgrown the bank adviser model. The cost of servicing affluent clients has become excessively high, yet many banks still overserve this segment and lose money. Capital requirements also put pressure on the lending side of the business.Īs a result, most current client-servicing models are not succeeding. Investor-protection regulations cut down on commission revenues, while the need for heavier compliance created significant costs for client advisers. Regulation in some countries also exacerbated the decline. As technology reduced the cost of servicing an investment portfolio, fees steadily eroded, barriers to entry dropped and many start-ups undercut incumbents with rock-bottom, transparent fees, such as Blooom in the US, which focuses on retirement savings. Technology did upend the wealth management business, just not in the way that many expected. Weak brands did not engender trust among wealthy clients, and companies found it difficult to expand abroad because of different regulatory regimes and customer preferences as well as high marketing costs associated with launching in new markets. That meant assets under management and fees per client remained low, even as acquiring clients remained costly. Many of the offerings lacked a distinctive value proposition to customers and failed to scale up. ![]() For challenger companies, robo advice held out an opportunity to scale up and disrupt the market.īut the stars did not align, and the current robo-advice business model for self-directed investors has largely disappointed. For incumbent banks and investment management firms, robo advice held the promise of reducing costs to serve clients and, at the same time, still meeting steeper regulatory requirements. Some companies aimed to build out wealth management ecosystems that would handle all aspects of personal finance for specific customer groups, such as the mass-affluent segment. After the financial crisis, robo advisers started with the ambition to democratize wealth management through highly standardized asset-allocation models at very low cost, using low-fee passive products. The hoped-for boost from robo advising-namely, digital tools that automate or partly automate consumers’ investments-has not materialized. Yet while revenue growth has been strong, fees and profits in the industry have stalled since the financial crisis of 2007. You would expect the wealth management industry to be thriving: Baby boomers in the US and many European countries are retiring in steady waves savings accounts in some countries, such as Germany, are flush and the middle class is expanding in China, India and other emerging markets. ![]()
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