Wealth Management Analyst Nicole Douglas has been working on our “Advisory Asset Management: HNW Demand and Drivers” report. Here, we ask her about the findings of her research and how she expects advisory asset management to develop over the coming years.
What was the most surprising discovery when researching this topic?
One of the more interesting findings is the extent to which HNW investors in emerging markets prefer to hold wealth through advisory services, more so than in developed countries. In most mature economies discretionary mandates are the first choice for HNW investors. Meanwhile, millionaires in Taiwan for example hold 71.2% of their portfolios in advisory services – the highest proportion of all the markets covered by our 2016 Global Wealth Managers Survey. And this is mostly due to the nature of advisory services, which enable investors to work alongside their wealth managers to make portfolio decisions.
What opportunities are there for wealth managers to leverage advisory services?
For wealth managers looking to develop or strengthen strategies in emerging markets, they will do well to offer advisory services. For some emerging markets such as China, professional portfolio management is relatively new and the bonds between investors and advisors have just started developing. Hence clients are not ready yet to opt for discretionary mandates and give up any control over their portfolios. Also, with a more prevalent affluent population compared to HNW, wealth managers will need to tailor their services and minimum thresholds in order to pique the interest of this target audience. Basically, wealth managers will require a different strategy for targeting HNW individuals compared to individuals with less than $50,000 in investible assets.
What challenges do asset managers face, and how can advisory mandates alleviate these?
Gone are the days when advisory asset management services were delivered exclusively via human advisors. Nowadays, robo-advice and automation have a larger role when it comes to wealth management; they afford investors competitive pricing, interactivity, and immediacy. There will no doubt be demand for advisory asset management in the future; however, wealth managers have to respond to robo-advice. Indeed, many have already done so, launching their own automated investment services on the back of existing platforms. This has allowed them to resonate with audiences who are attracted to automation. Going forward, wealth managers can stay relevant and cost-efficient by incorporating automated components into advisory services.
By Nicole Douglas, Wealth Management Analyst