The Institutionalisation of Wealth Management: Five Key Shifts Reshaping the Industry
Change is afoot in wealth managers globally. While each face their own client, business and regulatory challenges, there is a common thread across the globe: wealth managers are becoming more ‘institutional’ in their approach to advising and managing client assets.
We see five key areas where this trend is taking hold.
1. Investment access
A common perception is that only the largest of investment institutions are afforded the best investment opportunities, at the best price. That assumption no longer necessarily holds.
Wealth managers are leveraging their buying power and demanding better access to esoteric, uncorrelated, and illiquid private market opportunities. This buying power is exploited by working with fewer partners more deeply, or through sheer size and scale in the case of the largest wealth managers.
Supporting this trend is innovation in the vehicles used to package private assets and shifting regulation. It also extends to the widening mix of sustainable opportunities as wealth managers better tailor portfolios to the beliefs of individual investors.
2. Investment process
Being institutional-grade is leading to more rigour in investment decision-making and, ultimately, a more-centralised investment process.
Unlike institutional managers, wealth managers manage and advise on many portfolios across a diverse mix of clients. Having an institutional process must not only improve the quality of investment decisions, but also ensure consistency in the way different client portfolios are managed and advised on. We see that reflected in the increasing use of model portfolios, used to better centralise, standardise and govern discretionary management and advice processes.
The increasing rigour of the investment process extends across all phases of portfolio management. For example, wealth managers are taking greater ownership of the strategic construction of portfolios. Today, it’s often their own research, capital market assumptions, stochastic simulations and optimisation models that underpin portfolio construction.
Wealth managers are also adopting a 'Total Portfolio Approach’ which has typically only been seen in the largest of asset owners. While in its early stages, wealth managers are moving from a strict separation between asset allocation and manager selection, and managing portfolios through a total risk factor lens.
3. Portfolio transparency
The clients of wealth managers are demanding better information on why their investment portfolio is positioned a certain way, how it’s performed and its characteristics. Faced with demand for dynamic and instantaneous interaction, notions of ‘client reporting’ or ‘factsheets’ have become antiquated.
This is particularly apparent in sustainability. Younger generations are taking an active stance by expecting their beliefs to be mirrored in their investment portfolio. Trends to increase transparency also come from regulation, as well as AI helping to scale processes to surface information.
4. Investment technology
Many wealth managers have been served by system providers specialised in wealth but with limited track record in institutional asset management. That dominance is shifting.
Already, systems used by top-tier institutional managers are in demand by investment teams in wealth. Firms such as Blackrock and MSCI make no secret of their ambitions here.
For incumbent providers, a significant upskill of their system capabilities is required to stay competitive. AI is also accelerating the transformation as more firms recognise the importance of flexible open-architecture platforms that allow them to truly connect processes across the entire value chain.
5. People
Long gone are the days of the cream of talent residing only in the largest institutional managers. Today, there are many examples of skills transfers across institutional asset managers and owners and wealth managers.
Importantly, all sides have something to learn from each other. Wealth managers have client-centricity deeply engrained and understand the power of scale. Asset owners are driven by long term goals and focused on delivering on ultimate objectives. Meanwhile, asset managers are highly adept at responding to new trends and market and investment opportunities.
Conclusion
The institutionalisation of wealth management is not a passing trend - it is a fundamental shift in how wealth managers operate, serve clients, and build portfolios. Clients can take confidence in the fact that traditional boundaries are breaking. Today, there is little reason why the investment opportunities, processes, systems and talent once the privilege of only the largest institution shouldn’t also be in reach through their wealth manager.
Model Portfolio Insights
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