The wealth management industry is currently undergoing a period of rapid transformation. Emerging technologies, innovative future-proof concepts and shifting demographics are all giving rise to groundbreaking changes that are creating new paradigms in asset management. With modern-day customers expecting a comprehensive array of investment options, as well as real-time data and instant accessibility, wealth management firms need to look to new tech-driven innovations to continue to evolve as the 21st century progresses.
From new developments in crypto via decentralised finance to the global uptake in private credit, this article will explore the most impactful new approaches to wealth management in 2023 and beyond.
Cryptocurrency will be Boosted by DeFi Developments
The use cases of leading cryptocurrencies, including Bitcoin, Ethereum and Litecoin, have increased dramatically in number in recent years. Today, customers have a wide range of ways to utilise their coins, whether that’s through playing in an online casino with crypto deposit opportunity or purchasing big-ticket items, including luxury cars.
The jury’s still out on whether crypto makes for a sensible long-term investment approach, especially since the 2022 bear market caused such a devastating crash. However, the crypto industry is now being boosted by key DeFi developments that will enable investors to be part of promising latest trends.
DeFi, aka decentralised finance, is a fintech solution that harnesses blockchain technology to facilitate financial transactions without the need for centralised intermediaries, such as banks and financial institutions. DeFi protocols foster peer-to-peer transactions that are recorded on a public ledger, enabling users to send, borrow or trade digital assets privately and securely.
Key trends that will raise the profile of DeFi in the coming months include an increased range of options in the derivatives market, scaling solutions, and a surge of non-custodial dApps, enabling users to keep full control over their funds.
Private Credit Hits the Spotlight
Private credit — the broad category of financial management that involves the provision of debt investments and loans from private equity firms and hedge funds to borrowers who are not publicly traded companies — has been experiencing considerable growth for decades. While its rise has been steady over the years, in 2023, it’s now well on the way to being classed as an asset management “engine”, particularly in the US.
Investors are increasingly recognising the value of private credit above more traditional lending systems. We’ve now reached a time when the appetite for private debt is booming,
enabling money management firms to tap into a venture debt sector currently worth $1.4 trillion. With tougher capital requirements being imposed on banks and fiat currency institutions following the recent global financial crisis, the shift towards private credit will benefit both investors and debtors alike.
The viability of private credit as an impactful wealth management trend has been strengthened by BlackRock’s recent acquisition of UK-based Kreos Capital. Since 1998, the business has lent over $5.6 billion in venture capital to tech, healthcare, travel and FMCG start-ups. This move by the world’s largest asset manager indicates an industry-wide shift in attitudes towards private debt.
Leveraging Tech for Bespoke Services
Central to the success of any wealth management company is its ability to tailor the client experience. Here in the digital era, firms are now being presented with an array of tools at their disposal to create truly bespoke services that will enable them to stand out in an increasingly competitive market.
Leading the charge are Artificial intelligence (AI) and process automation. AI is proving to be a tool with immense potential for disruption in the wealth management sector. Machine learning can be utilised to predict future events and challenges by recognising patterns, as well as help to set new standards for business practices. According to Gartner, 75% of global organisations will make a move to operationalising AI, with 68% of wealth management firms likely to embrace process automation tools by 2024.
An Industry in Flux
The wealth management industry today is an industry in flux. Profound changes have already begun to take place as the new wave of investors, whose perspectives have been shaped by technological advancements and the lingering aftermath of the fiscal crisis, demand a fresh approach to advisory services and investment products.
To succeed in this dynamic environment, wealth management firms need to embrace innovation and adapt their strategies to set new industry standards. Armed with a heightened understanding of technology and its potential, contemporary investors expect a seamless integration of cutting-edge tools into their wealth management experience. Firms that can deliver innovative solutions to cater to a tech-savvy clientele will have a distinct advantage.
Furthermore, it’s vital that wealth management firms and advisors adopt a forward-thinking mindset that’s attuned to the unique challenges and opportunities posed by the current climate. With traditional investment strategies now facing headwinds, unconventional asset classes and alternative approaches hold the key to generating superior returns.