As customers and advisors navigate the volatile economic environment, next year will present a fresh set of challenges for wealth management firms looking to attract and retain an increasingly restless investor.
Globally, markets are down. Many investors who took their first steps into the markets during the pandemic have now lost money and stopped trading. At the same time, the share of self-directed investors has also increased. For many young investors, commission-free trading won’t be an adequate salve for the losses they’ve incurred. We expect many of those stung investors to move to firms with strong advisory capabilities. In 2023, wealth management firms with both digitally savvy financial advisors and digital financial advice will be best suited to win over these investors and convert them into profitable, long-term customers.
Meanwhile, a pioneer of commission-free trading, Robinhood, has seen its market capitalization drop by two-thirds since its public debut. Customers have left the platform, and trading volume has dried up. Even worse, crypto trading accounted for half of Robinhood’s $451 million in trading revenues last year — now, it’s bringing in only $58M. Incumbent firms will target companies like Robinhood that don’t have diverse revenue streams. What’s the attraction? A younger, digitally savvy customer looking for better service and a broader suite of wealth management solutions.
Many challenges lie ahead as digital acceleration reshapes the future of financial services and upstarts with innovative business models continue to take on incumbents. As the lines between the digital and physical worlds blur, wealth managers will have to react. The growing popularity of assets in the metaverse poses a challenge for customers and for their advisors. “Art” is no longer confined to the museum, so we predict that at least one wealth manager will offer NFT-related services to customers.
Even old business will get a fresh start: We see the rise of annuities, fueled by a combination of more attractive interest rates and favorable policy moves, becoming part of retirement plans. For US consumers in particular, the possibility of attractive, predictable income in retirement has long been missing from defined contribution plans. Many Boomers reaching retirement age will realize that a pile of savings is not a comprehensive retirement plan. More broadly, younger generations may see the value of accumulation annuities in their plans. Cue the advisor with a solution.
For a closer look at our wealth management predictions, clients can read our full report or dive even deeper by attending our wealth management Predictions webinar on January 18, 2023, at 11 a.m. ET. (Learn more and register here.)