The Challenges for Asset and Wealth Managers in 2024 / 5

Create - Implement - Distribute Series - Part 1?

Asset and Wealth management were long seen as growth industries, especially in the most dynamic regions of the world. However, by 2024, there are signs that unprecedented challenges are impacting the incumbents. From navigating increasing life spans to adapting to generational shifts, the industry is encountering a transformation. Market volatility, the rise of digital assets, and fee pressures further compound the complexities of the landscape. In this blog post, we delve into these challenges, emphasising the need for innovation and client-centric strategies to thrive in this rapidly evolving environment.

Longevity Extension

In recent years, advancements in technology and AI have significantly impacted the field of longevity, introducing new methods to maintain and extend life. From anti-aging to genetic therapies, these innovations raise critical questions for wealth and asset managers regarding the implications for retirement savings. Strategies for the accumulation and growth of retirement funds must be revisited to ensure they support individuals throughout longer life spans. Additionally, traditional withdrawal rates may need adjustment to account for extended longevity, while rising healthcare and long-term care costs will require careful financial planning. The dynamics of intergenerational wealth transfer are also affected, as longer life spans can delay asset transfer. Overall, a customer-centric, holistic investment strategy becomes essential to address these complex needs.

Generational Shift

The wealth management sector has been relatively slow to adopt digitalization due to its complex nature and regulatory constraints, alongside a preference for in-person advice. However, a significant evolution is occurring with the rise of a hybrid model that combines digital and face-to-face interactions, emphasising the importance of personalization. The COVID-19 pandemic accelerated this shift, highlighting clients' readiness for digital solutions. Moreover, a major generational wealth transfer from Baby Boomers to Millennials is underway, driving demand for discretionary portfolio management services. Asset and wealth managers must respond to these digitally-savvy clients seeking transparency and tailored experiences, or risk falling behind in a rapidly evolving landscape.

Market & Margin Uncertainty

The asset and wealth management industries are confronting formidable challenges amid rising market volatility and uncertainty, fueled by geopolitical risks and stubborn inflation. Investors are increasingly shunning long-term investments in favour of cash and short-term returns, posing a significant threat to market incumbents. Fee pressure is also increasing substantially, with active and passive funds experiencing declines of 20% to 25% since 2017 (source: PWC), posing a disadvantage to smaller firms. To survive, asset managers must urgently innovate to differentiate themselves, shift to higher value services, automate processes, and streamline their offerings. As market tailwinds diminish, the need for expertise in valuation and asset allocation becomes critical. Additionally, the shift to fee-based compensation threatens traditional business models, compelling wealth managers to deeply understand client needs and deliver personalised solutions or risk being left behind.

DLTs & Digital Assets

The asset and wealth management industries are grappling with significant challenges posed by distributed ledger technologies (DLTs) and digital assets, further complicated by a persistent regulatory gap and notable scandals. While institutional adoption of cryptocurrencies has been cautious, 2024 has seen a rise in cryptocurrency ETFs and regulated providers. However, an overemphasis on speculative cryptocurrencies could blind firms to the broader potential of blockchain technology. Many leading firms are investing heavily in proofs of concept, but the reality is that without a cohesive strategy, they risk falling behind. DLTs can revolutionise processes from onboarding to settlement, yet many remain unprepared for this transformation.

For blockchain innovations to reach their potential, a common currency is essential. Stablecoins could provide the stability needed, but if firms ignore traditional cryptocurrencies, they may miss out on critical opportunities. The industry must adapt urgently by digitising securities issuance, improving settlement times, and integrating compliance, or risk obsolescence in this rapidly evolving landscape.

In this rapidly evolving landscape, asset and wealth managers must adapt to survive. Embracing new technologies, reevaluating financial strategies, and understanding the changing needs of clients are essential. Those who fail to respond may find themselves at a significant disadvantage, while those who innovate will be well-positioned to thrive in the future.

This article is part of the Create - Implement - Distribute series from Privé Technologies. For more information, please download our recent White Paper: https://hubs.ly/Q02N76-c0

Disclaimer: This press release is for information purposes only. Some of the statements in this press release may be forward-looking statements or statements of future expectations based on currently available information. Such statements are naturally subject to risks and uncertainties. Factors such as the development of general economic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. Privé does not make any representation or warranty, express or implied, as to the accuracy, completeness or updated status of such statements. Therefore, in no case whatsoever will Privé and its affiliate companies be liable to anyone for any decision made or action taken in conjunction with the information and/or statements in this press release or for any related damages. Privé assumes no obligation to update any information contained herein.