The role of wealth management is simple: to help individuals make the most of their money.

Not so simple is what lies beneath this vast and diversified market: from stocks and bonds to financial planning, total asset and liability management, customised goals-based portfolios, tax-mitigation strategies, family legacy planning and more.

All over the world, the rapid reinvention of wealth management is in the air, fuelled by technology, an operational drive for efficiency and the shifting needs of a new demographic, as the client base changes and wealth transfers into younger generations.

Beyond mutuals

Decades ago, mutual funds changed the face of investing. For the first time, they enabled the regular man and woman on the street to access the markets with the built-in diversification, professional management and safety of a regulated fund.

Today, everything suggests the best days of mutual funds are behind them, and they are haemorrhaging assets in favour of exchange traded funds (ETFs). ETFs now have $5.6tn in assets under management and are particularly popular among 25 to 38 year olds, and the investment of choice for 90% of millennials.

In the early days, ETFs were attractive due to their low cost, but are nowadays becoming increasingly sophisticated too, offering innovative investment solutions for institutional investors, advisers and individuals.

As a result, in the US the balance of power has shifted from traditional investment fund and commission-based brokers towards low cost investment vehicles, advice-centric platforms and the increasingly influential client facing financial adviser.

Independence rules

The narrower discipline of investment advice is being replaced by a massive growth in the fee-based investment advisory channel. In this model, firms offer holistic and independent financial planning at the expense of the commission-based brokerage model and proprietary investment products.

Even at traditional brokerage firms, fee-based, advice-driven revenue from advisers has eclipsed sales of commission products. That won’t change, and it is also creating new opportunities and challenges for other service providers.

Brokerage firms and advisory custodial platforms alike have recently reduced trading fees to zero, which will inevitably have an impact on revenue and spend. On the independent side, Charles Schwab’s acquisition of TD Ameritrade has shrunk the largest independent custodians to a mere three players, which together hold some 80% of US independent advisory assets.

New technology for new answers

In an industry that is highly focused on streamlining and cost reduction, wealth managers are heavily investing in new technology and new solutions for staffing, operations, compliance and intelligence.

With the emergence of a broader range of investment customers, marketing by the wealth ecosystem that connects product firms, advisers and investors is growing.

It is anticipated that the US financial services industry will increase its digital ad spending by 16.3% to $18.3bn in 2020, in part to reach younger audiences through mobile, search and social ads.

The one constant for wealth management firms throughout this period however, will need to be an unwavering focus on the conversations and products that benefit their clients, the investors, no matter who they are, what they choose and how that investment is enabled.

William O'Connor, Finance & Investment, Informa Connect