McKinsey’s take on the future of wealth management

By Daniel Lanyon on Wednesday 11 October 2017

Savings and InvestmentDigital Banking

So far, 2017 has been a big one for ‘wealthtech’ firms and while the market remains small in comparison to incumbents that could be about to change.

So far, 2017 has been a big one for ‘wealthtech’ firms and while the market remains small in comparison to incumbents that could be about to change.


Investors are often known for their herd-like behaviour but so far one of the biggest shifts in wealth management, digital disruption, is mostly the preserve of a small group of in-the-know enthusiasts and millennials.

Call it what you like: robo-advice, digital wealth management or wealthtech, firms such as Nutmeg and Scalable Capital are growing rapidly but still just represent a drop in the ocean of investable assets and clients of incumbent wealth managers.

The consultancy McKinsey has identified several key trends that explain the development of this much-hyped but potentially enormously profitable market.

“The digital tide is still rising.”

It thinks ‘digital attackers’ aren’t scaling AUM as quickly as many might have hoped or expected but that customer awareness has overtly shifted toward the digital sphere.

“Today, about 30 per cent to 35 per cent of searches for investment products go through digital channels rather than through family and friends, word-of-mouth and other sources,” McKinsey said.

To catch this huge shift to digital, incumbent firms must to ramp up their own digital marketing capabilities.

While uptake from investors to open accounts is somewhat slow, McKinsey says “digital attackers’ clients are happier” also.

“The amount of assets migrating to automated advisory portfolios (i.e., portfolios with rule-based allocation recommendations, automated rebalancing, and the like) from both digital attackers and incumbents is relatively low.”

“Clients of digital attackers report high levels of satisfaction— 5 to 10 times higher than clients of traditional wealth managers—due in large part to their improved experiences.”

This happiness is not just concerning ease of access during the customer on-boarding but also to the entire digital experience such as adding funds, changing investment allocations, and viewing all their accounts, Mckinsey says.

“If digital upstarts can crack the client acquisition code and drive down costs, they will be able to continue their fast growth and gain real market share.”

Follow the money

Another bullish signal: more affluent clients are moving their assets to wealthtech firms. A commonality across incumbents is that accounts are quite sticky, but more recently affluent clients’ assets are a bit less so. Last year, the firm says, 12 per cent of all affluent clients’ investable assets move on an annual basis.”

“Roughly $2trn (or 7 per cent) of those assets moved directly between institutions, i.e., one institution won and one institution lost. We expect that with further digital evolution and regulatory changes, this movement will accelerate.”

Much of this is being driven by the growing demand for mobile and digital experiences – “the new currency of success across the wealth management industry.”

In fact, the mobile experience, including apps and the mobile web, is one of the two most important channels for affluent clients when considering whether and where to move assets.

“Clients who engaged through a mobile experience (e.g., the mobile web or an app) were 3.5 times more likely to move assets than clients using other channels.”

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