The Future of Investing: Future of advisory—Growing challenges for wealth platforms from demographic changes

Demographic timebomb is challenging the “one-size-fits-all” platform and approach to advisory

The economics of and approach to delivering wealth advice are changing across the world, and while the specifics may differ by country, there is a common direction of travel. The industry is becoming more competitive, more consumer-centric and more reliant upon tech-facilitated solutions. It is also becoming more regulated. Advisors are being held to higher standards of responsibility, and regulation is changing how they are remunerated, to align incentives, improve outcomes and increase consumer protections.

Four requirements are influencing the creation of platforms to service wealthy and mass- affluent clients:

• Become more client-centric: The ongoing shift from product- to client-centricity requires bankers/advisors to build deeper and wider profiles of their clients. This is to better understand their clients’ total wealth picture; to better consider and integrate not just their clients’ risk tolerance, but their values, goals and preferences when constructing their investment portfolios; and to better track the provision of advice to satisfy the regulatory standard of acting in the client’s best interests. More emphasis is being placed on understanding a client’s life journey, comparing and contrasting them within and across relevant cohorts and modeling peer behavior and preferences when advising them.

• Enhance existing wealth offerings: Investment products are evolving. In the United States, new investment approaches, such as direct indexing and the expanding use of separately managed accounts (SMAs) and model portfolios, offer opportunities to increase the relevance of a portfolio to the individual investor and to optimize their holdings and tax position. In the United Kingdom and Europe, the growth of multi-asset class solutions and the expanded use of exchange-traded funds (ETFs) are challenging the traditional focus on income products and creating demands for better and broader diversification. Several survey participants saw potential for the region to follow the United States’ lead and introduce more tailored, customized portfolios and flexible investment structures and vehicles. In Asia, the bias toward home markets is eroding and the desire for discretionary managed portfolios that offer global exposures across both equities and bonds is creating a new opportunity that could increase the region’s willingness to pay for advisory services and narrow the gap between Asian wealth offerings and those provided in the West.

• Offer new alternative investments: New investment products and wider asset-class exposures are being considered across all major regions. Alternative funds are being placed into more liquid wrappers to provide mass affluent and high-net-worth investors with a vehicle for exposure to private equity, credit and real assets. Interest in trading cryptocurrencies and altcoins is growing, especially as more regions put into place regulatory frameworks that provide consumer protections. Capital that is invested in both cryptocurrencies and private investments may sit outside the banker’s or advisor’s view in many platforms, undermining or constraining their ability to provide advice to maximize the benefit to the client's overall position. The ability to create consolidated reporting for the investor is difficult, if not impossible, as the result of assets that sit outside the advisor’s view.

• Improve the digital and omnichannel experience: Engagement channels are shifting. More investors are looking for digital consumer experiences, and their expectations are high as they are accustomed to the ease of use and streamlined processes of payment and financial apps. Demand for mobile offerings is especially strong, but customers will still expect equal ease of use and access to information and services whether visiting a website, collaborating via video, speaking on the phone or visiting a physical office.

All these requirements may be understood, but in many instances, they are yet to be addressed in the build-out of wealth-focused platforms. Overshadowing each of these challenges is also the complex question of how to best deploy and integrate new generative artificial intelligence (AI) tools. Survey participants saw many opportunities to use AI to capture low-hanging efficiency gains but were much less clear on how to create business “alpha” using the new capabilities.

Simply building more robust versions of current platforms for the future will not suffice. Firms must also manage their talent pool and navigate the changing role and demands of the banker or advisor. The demographics of today’s advisory workforce align too closely with the baby boomer generation, which risks many firms losing access to client capital when the generational turnover of wealth occurs. A 2021 Cerulli survey found that more than 70% of heirs are likely to change or fire financial advisors after inheriting their parents’ wealth.² As the role of the advisor evolves to meet the needs of the next generation, new or different skills will be needed.

For more information or to request a presentation on the 2024/25 Future of Investing findings, please contact your Franklin Templeton representative or reach us directly at [email protected]