FMF: The study “Building a Future-Ready Investment Firm” sheds light on various global megatrends in wealth management.
What key developments does the study highlight and what significance do these trends have for the future of wealth management?
Natalia Kluger: The results of our study are very comprehensive overall, but of course the most important trends include digitalization issues in particular. The use of state-of-the-art technologies and digital innovation play a particularly prominent role in this context. For example, companies can position themselves as digital market leaders, improve the skills of customer advisors, automate tasks and offer a more personalized and comprehensive customer experience.
All of this will be necessary to meet the changing customer needs of investors. As client diversity in terms of age, location, gender, wealth level and lifestyle will continue to increase, highly personalized solutions and a broader advisory base will be required. Wealth managers who are adept at using data and technology can take advantage of this and tailor their offerings to each investor in the best possible way. This includes developing innovative ESG offerings that balance market returns with positive environmental impact and address potential misconceptions.
In addition, technological advances and cost efficiencies are making it increasingly possible to broaden the range of services: investment opportunities and solutions that were previously only available to very wealthy clients can be made accessible to a wider audience. As a result, new entrants will shake up the industry and act as catalysts for change. As the wealth management industry is particularly capital intensive, it is likely that larger and more established companies will emerge as winners from this development.
The wealth management study shows that technological innovations such as AI will significantly change the industry.
How will AI and other digital technologies affect the future of the industry? What are the specific benefits of implementing AI for investors?
The use of artificial intelligence (AI) in the financial sector is nothing new, but the introduction of Generative AI (GenAI) and changing consumer expectations present new challenges and opportunities for the wealth management sector. As investors increasingly demand personalized, cost-effective solutions, the integration of AI is proving to be a transformative strategy for wealth managers. By harnessing the capabilities of AI, institutions can not only meet the evolving needs of their clients, but also improve their operational efficiency and overall competitiveness.
Over half of investors surveyed in Germany and globally said they plan to switch providers in the next three years. Technological advances such as AI can significantly support the retention of existing customers and the acquisition of new ones. When it comes to choosing a provider, low fees are the most important aspect for German customers. AI can help to optimize workflows and reduce overheads without compromising the quality of service.
Of course, the topic of innovation is also extremely popular. In this context, AI-supported analyses and predictive modelling can support the product and solution selection process as well as the optimization of the overall portfolio, including scenarios and analyses. In addition, German investors also place great value on trust and brand reputation. AI can play a crucial role in building and maintaining customer trust by enabling customized communication and supporting recommendations that are tailored to the customer’s individual needs and preferences.
In an international comparison, Germany differs in terms of the criteria that investors take into account when selecting an investment provider.
What differences are there in the priorities of German investors compared to global investors?
For private clients in Germany, the primary focus is on wealth preservation and the transfer of wealth to the next generation, particularly in the case of very large assets. This also applies to other countries, but is even more pronounced in Germany. Against this background, the inclusion of the respective tax situation also plays a special role for local investors. In this respect, services such as wealth planning are a real differentiator.
In addition, compared to Asian countries or countries in the Middle East, it has been shown that the use of and communication via digital media and support from AI are less of a priority. In addition, German customers prove to be more apprehensive in an international comparison: even if fear of inflation and concerns about data protection are also among the biggest worries elsewhere, these are more pronounced in Germany. Wealth managers in Germany must therefore prioritize the issue of cyber security and prove that they can generate returns above the inflation rate in the long term.
What insights does the study provide with regard to sustainable investments and ESG? Will this become increasingly important for investors?
The insights gained from clients and wealth managers in Germany also provide valuable insights into their preferences and expectations regarding ESG aspects: More than half of clients already agree that ESG will become an important financial criterion in their investment decisions. Wealth managers are therefore taking the only logical step and plan to significantly expand their ESG investments over the next three years.
However, as awareness of sustainable investing grows, so do the opportunities and skepticism – both among wealth managers and their clients. Wealth managers acknowledge the existence of conflicts between sustainable investment objectives and fiduciary/suitability standards and emphasize the need to align regulatory frameworks with sustainability objectives.
Clients also express considerable reservations about sustainable investments. The main issue here is that standards and key figures are not yet fully developed or are completely lacking. A significant proportion also believe that their client advisor lacks knowledge about sustainable investments or that ESG goals reduce financial returns. There are also concerns about greenwashing and the effectiveness of ESG funds. Asset managers therefore need to hone their ESG strategy more than ever and prove that effective and profitable sustainability investments are possible.
