Younger generations are becoming increasingly prevalent in wealth management where the industry faces mounting demands for change. New thinking patterns – among the younger demographic – may be popular among Generation X and Y but have also been mildly exhibited among the current senior group (baby boomers) who have been influenced by their younger peers. Industry reports have summarized this ‘way of thinking’ which feature 1) reduced favour of risk and 2) a preference towards digital & personal service among other characteristics. 

Wealth management nevertheless is facing some changes – due with the regular fate of time. However, recent trends in the industry direct focus on alternative trends which continue to make substantial differences. Technological disruption, zero-fee pressures, mounting regulation, and the aging (and departure) of advisors are among some of the elements demanding a pivot in the industry. Changing dynamics have led to convergence in the industry thus reshaping the competitive landscape.

On July 15th, 2019, it was reported that Charles Schwab Corp. (NYSE:SCHW) – a pioneer of discount-trading – was in talks to acquire the brokerage and wealth management operation from USAA for roughly $2 billion. With the news surfacing only two months after Goldman Sachs Group Inc. announced the acquisition of boutique wealth manager United Capital Financial Partners for $750 million, the move represents the extension of an emerging trend of general consolidation and mounting competition in the wealth management scene. Investments from retail banks and the emergence of new wealth management firms and business models imply heightened competition over some of the same clients and assets.

The convergence of brokerage and private banking practices follow a model where the two groups collaborate to better serve affluent clients. Cross-functional dynamics often lead brokerage teams, in this case, to spearhead the banks banking/lending practices while private banks concern themselves with optimizing their investment management and sales culture. Larger banks have exhibited the cross-selling of wealth and banking services to an existing client base – ensuring that their operations are optimized to better serve the individual needs of clients. 

Historically speaking, wealth management is proven to be a scalable practice – where expanded portfolios are often associated with reduced costs and optimal return metrics. However, with mounting competition, clients are beginning to demand greater value as they accelerate the standards of money management. In the meantime, the economic environment financial institutions face (including low interest rates, low inflation and the slowing momentum of global growth) have become a greater concern among times of larger volatility, greater leverage, and nevertheless global political concerns which have only accentuated the worrying tone that’s emerged among public investors and the U.S. Federal Reserve.

Despite the mounting challenges, wealth management continues to demonstrate resilient returns and a disciplined approach to money management – protecting its economic state. Larger levels of personalization have led to the emergence of niche wealth management divisions, thus inviting the scale capabilities of larger banks. The dynamic of wealth management will continue to evolve in this trajectory and the resources offered by newly participating retail banks will prove helpful in delivering unique solutions. With the addition of providing the scale needed to make specialized portfolio management possible, they have proven helpful in aiding the industry’s transition and are likely going to remain active as wealth management redefines itself for future generations.

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Writer: Sabeeh Zia