The four trends driving change in wealth management

IN THE last few years, the wealth management ecosystem has changed at a very rapid pace, and I believe this change will accelerate further in the next decade, particularly in South-east Asia (SEA). Here are the four key trends driving the changes in wealth management in the region:

Trend 1: The number of investors will continue to increase across SEA

Encouraged by easier access to investment platforms and by the previous years’ bull run, many people have started investing. Despite markets being down in the short term, there’s strong reason to believe that investors are here to stay – and that their numbers will even grow. Including here, in SEA.

Why? The fact of the matter is that South-east Asian households are holding onto a whole lot of cash. Approximately 40 per cent of households’ financial wealth in SEA is uninvested. That amount of uninvested cash pales in comparison to the United States, where that figure is just 14 per cent; and Australia, where it’s 23 per cent. Moreover, today’s high inflation rate makes us all painfully aware that money, left uninvested, depreciates over time. That makes it even more costly to keep cash under the mattress, and all goes to show that there’s ample room for investment growth in the region.

Trend 2: The cost of investing will continue to decline, largely thanks to the growth of exchange-traded funds (ETFs)

ETFs have gradually been replacing unit trusts as the main way in which people access diversified investment portfolios. And due to the passive nature of ETFs, they’re also often more cost-effective than unit trusts. 

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Let’s take a look at this trend in numbers: In the US, the ETF market was worth US$7.19 trillion in 2021, up from just US$151 billion in 2003. ETFs now claim 20 per cent of the US$35 trillion fund market. 

This growth in ETFs has been slower in SEA. It’s simply because it’s less lucrative for banks to sell them. While banks can make more than 2 per cent per annum selling unit trusts, including fees, they’re only able to charge comparatively small transaction fees on ETFs.

But awareness around ETFs is growing. ETFs are gaining market share in SEA, and if its growth in more developed markets is to go by, we can expect ETFs to quickly become the go-to instrument for savvy investors to build their portfolios efficiently.

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Trend 3: Wealth advisers are going digital

If the rise of e-commerce has taught us anything, it’s that people are increasingly asking for self-service solutions that don’t require a meeting with anyone, least of all a salesperson. And that goes for investing, too.

Investors are becoming more aware of the implicit conflict of interest that their advisers have. And, they will more likely prefer to make investment decisions without being influenced by someone whose interests might not be aligned with theirs. So, the traditional model where a relationship manager or private banker is in charge of selling investment products will face a sharp decline.

So, what will be there to replace them? As investors seek more unbiased advice, technology can offer a more sophisticated solution: clients will be able to find personalised advice through self-service applications, and seek just the right level of human touch they need. This new balance between human interaction and automation will leave traditional relationship managers and private bankers to focus mostly on less digitally savvy clients or very specific situations that may require ad-hoc or highly specialised advice.

Trend 4: More financial services firms will go digital

Financial services firms will need to evolve to attract and retain very different types of talent: They’ll have a much smaller number of investment advisers and a much-larger number of computer scientists, product managers, UI/UX designers and engineers. Culturally, this shift will have deep implications, as many traditional financial services firms are still working towards a company culture that can attract such talent. 

In short, I believe there’s ample opportunity for investment growth in SEA: the size of the market is still yet to be realised; low-cost, diversified ETFs are lowering the boundaries for investing; and the rapid rise of digitisation alone is a megatrend that will outlast any bear market.

The writer is co-founder and chief executive, StashAway.