What You Need to Know

Top 10 Trends in Wealth Management 2018

Contents

Introduction 3

Trend 01: Applications of Cognitive Computing, Machine Learning, and AI Expand Across Wealth Management Industry 5

Trend 02: Robotic Process Automation Can Help Firms Keep Costs Down and Accelerate Digital Transformation 8

Trend 03: Innovation is Key for Firms to be Future-Ready 11

Trend 04: Introduction of Marketplace Models for Wealth Management Products 13

Trend 05: Focus on Enhanced Customer Experience is Becoming a Wealth Management Priority 15

Trend 06: Cybersecurity Continues to be an Important Concern for Wealth Management Firms 17

Trend 07: Increase in Cost of Doing Business for Firms Due to Complex Regulations 19

Trend 08: Advent of Hybrid Advice Solutions to Set Wealth Management on a New Course 21

Trend 09: Development of Next-Gen Genome-Based Segmentation and Increased Focus on Traditionally Underserved Segments 23

Trend 10: Evolution of Fee Models Due to Client Demands, Regulatory Mandates, and Competitive Pressure 25

References 27

About the Authors 27

1 Ouruseoftheterm‘FinTech’referstotheuseofdigitaltechnologiesformakingwealthmanagementproducts,servicesanddistributionmoreeffectiveforfirms,wealthmanagers,and/orHNWclients.ThisincludesbothdigitaltechnologiesthatareprovidedascompletelynewandstandaloneservicestoHNWclients,aswellasthosewhichsupport/enabletraditionalwealthmanagementservices.Forourdefinition,wearemostfocusedontheservicesdevelopedandprovidedbystartups(aswellaslarge,innovativetechnologycompanies)

Introduction

Thewealthmanagementindustryisfacedwithchallengessuchasintensecompetition,feecompression,stricterregulations,andevolvingcustomerneeds.Theimpactoftheseforcesandtheresponseofindustrystakeholdersgiverisetocriticaltrendsincustomerpreferences,newtechnologies,changingadvisorymodels,andsecurityandcompliance.

Wealthmanagementclientsarebecomingmoreastuteaboutfinancialplanning,andtheyareseekingdigitalcapabilitiesandbetteradvisoryoptions.Astechnologycontinuestochangerapidly,firmsmustbeagiletoenhancetheoverallexperienceofboththeircustomersandwealthmanagers.Tostaveoffrisingcompetition,manyfirmswillcollaboratewithFinTechs1 via innovative business models such as marketplacestostayrelevantandcompetitive.

IncreasedfinancialawarenessofHighNetWorthIndividuals(HNWIs)isleadingtoincreaseddemandsforsophisticatedandcustomizedservices.ProductinnovationcanhelpfirmsimprovethecurrentmodestHNWIsatisfactionlevelsandhelpthemdifferentiateinarapidlysaturatingmarket.Whileemerging technologies such asArtificialIntelligence(AI)andRoboticProcessAutomation(RPA)aredevelopingrapidlyinthewealthmanagementspace,ApplicationProgrammingInterfaces(APIs)andblockchainisalsoseeingasurgeinitsuseandadoption.

Ontheregulatoryfront,myriadcompliancemandatesthatwealthmanagementfirmsfacecanseemquitecomplex,butfromthecybersecuritypointofview,almostallrequirementsfocusonprotectingclientsandtheirinformation.Security and compliancerequirementsaregivingfirmsahardtimewithrisingcostsandoverallspendingintheseareas;however,inthelongrun,thesemayreflectgreaterstabilityforfirmsandwillhelpinestablishingtrustoftheirclients.

The industry’s advisory model has also been transforming, shifting from commission-based to performance-based models, increasing focus on the traditionallyunderservedsegments,andtheriseofhybridadvisoryservices.Increasingcompetitionandclientdemandfortransparencyisforcingfirmstorelookattheirstrategiestoacquireandretainclients.

Inthenextsection,weprovideananalysisofthetop10wealthmanagementindustrytrendsthatfirmsneedtonavigateintheneartermintheirpursuittobecomeagileandcompetitiveintheindustry(Exhibit1).

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Exhibit 1: Top 10 Trends in Wealth Management

Source: Capgemini Financial Services Analysis, 2017

Focus Area Trend

Applications of Cognitive Computing, Machine Learning, and AI expand across wealth management industry

Robotic process automation can help firms keep costs down and accelerate digital transformation

Innovation is key for firms to be future-ready

Emerging Technologies

Introduction of marketplace models for wealth management products

Focus on enhanced customer experience is becoming a wealth management priority

Evolving Customer Needs

Cybersecurity continues to be an important concern for wealth management firms

Increase in cost of doing business for firms due to complex regulations

Compliance and Security

Advent of hybrid advice solutions to set wealth management on a new course

Development of next-gen genome-based segmentation and increased focus on traditionally underserved segments

Evolution of fee models in wealth management due to client demands, regulatory mandates, and competitive pressure

Changing Advisory Trends

4 Top 10 Trends in Wealth Management 20184

Background

• AdvancesintechnologiessuchasArtificialIntelligence(AI),MachineLearning(ML),andCognitiveInsightshavestartedtomakewealthmanagementinroadsastheindustryrealizesthattheabilitytoextractvaluefrombigdataisakeydifferentiator.

• Analyticsapplicationsinwealthmanagementfirmsarealreadymovingbeyondmarketing and customer segmentation to more robust fact-based behavioral datacapture,asittapsintostreamsofstructuredandunstructureddata.

• Forexample,firmsareimplementingtheNextBestAction(NBA)enginetoenabletheirdigitaltransformationjourneybyleveraginganalytics,insightsandmachine-learningalgorithmsasacompetitiveadvantageacrossfront-to-backvalue-chain.

Key Drivers

• Exponentialincreasesincomputerpoweranddatastoragehaveledtotheriseinartificialintelligenceandmachinelearningsystems:

– Thisincreaseisalsodrivenbythefactthatmoredataisbeingcreatedwhichisexpectedtoincreasethree-foldfrom2016-2021.2

– ThisexplosionofcustomerdatameansfirmscanleveragetheNextBestActionframeworktoshifttoacustomer-centricapproachanddesignpersonalized,versusstandardproducts.

• The rise in passive investing and move toward lower fees has also led asset managerstoinvestheavilyintechnologytoreduceoperatingcostsandtocomplywithregulatoryscrutiny.

• ManyfirmsarealsomovingtowardBigDataandanalyticsapplicationsastheirclientsbecomemoredemandingtowardpersonalizedanddata-driveninsights.

Trend Overview

• Thewealthmanagementindustryisanearlyadopterofartificialintelligence: – AutomatedadvisorsutilizingAIareexpectedtohaveassetsworthUS$2.2trillionby2020.3

– Cognitiveapplicationsinwealthfirmsarealsohelpingdeliverdeeppersonalization,andanswercomplexclientquestionsinrealtimethroughexpertvirtualadvisorsthatactasaconversationalinterfacewithclients

Innovative applications using emerging technologies are now moving beyond marketing analytics toward more strategic functions.

Trend 01: Applications of Cognitive Computing, Machine Learning, and AI Expand Across Wealth Management Industry

2 “TheZetaByteEra:Trendsandanalysis”,Cisco,June7,2017accessedOctober2017at https://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/vni-hyperconnectivity-wp.html

3 “By2025,AIWillHavea5-Trillion-DollarDirectImpactontheWorkforce”,LetsTalkPayments,May5,2016accessedOctober2017at https://letstalkpayments.com/by-2015-ai-will-have-a-5-trillion-dollar-direct-impact-on-the-workforce/

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(Exhibit2).Forexample,WellsFargopilotedanAI-drivensolutiononFacebookMessengerasachanneltopersonallyaddresscustomerqueries.4

• High-speedautomatedassettradingandreal-timeregulatorycomplianceareexamplesofgrowingindustryinnovations:

– AI-enablednaturallanguagegeneration(NLG)isincreasinglyclosingthegapbetweendataanalysisandinvestmentdecisions,whichwillhelpprogressautomatedadvisorytechnologyanddrivemoreefficiencytoautomatedtradingstrategies.

• Investmentmanagersareusingpredictiveanalyticstogenerateinvestmentideasorasanearlywarningsystemforassetsatrisk.AI-enhanceddataanalyticscancomplementtraditionalfinancialanalysisbyofferinguniqueinsights:

– BofAMerrillLynchisexperimentingwithanAIstock-pickingtooltohelpidentifyvalueinsmall-capstocksthatconventionalanalystsmightmiss.5

– JPMorganrecentlywonanawardforitsanalyticsplatform,SPARTA,whichincludes real-time calculation of performance, contribution, and attribution, in additiontoon-the-flygroupingandadvancedex-postriskanalytics.6

• AccordingtoarecentBofAMerrillLynchreport,advancesincomputingtechnology,machinelearning,anduser-friendlyinterfaceswillgenerateaUS$5.2–6.7trilliondirectimpactintheformofahigherefficiencyandoutput.(ibid.3)

• WealthfirmsareinthetechnologicalracetointegrateAI,MLanddataanalyticsapplicationswiththeirteamstoprovidehybridservices.

Implications

• Astechnologyadvancesbecomekeydifferentiators,competitionbetweennon-traditionalandtraditionalfirmsmayheatup,withfirmsfindingwaystodistinguishthroughbetterserviceandoperationalefficiencywithapplicationsofAI,MLandcognitiveanalyticsacrossallsignificantwealthmanagementstages(Exhibit2).

• TheNBAengineprovidesactionableinsightsthataddday-to-daybenefitstocall-centerrepresentatives,relationshipmanagers,operationalstaff,customers,andeventheirpilotBOTtodriveselfservice.

• Thetrendforservicinglowerendofthemarketmayemergeintosophisticatedautomatedpropositionsinthefuture,buttheremayalsobehighadoptionofsophisticated tools for traditional investment managers to service those clients whostillwantandneedamorepersonalizedapproach:

– Examplesoftheseinnovationsincludedigitalpersonalassistantstohelpclients plan their time and complete administrative tasks, and machine learningtoproactivelypredictclientneeds.

• Themovetowardsmoredataanalyticsapplicationswillgivefirmsanedgeonstockmarketpredictionssavingthemhugecostsandmargins.AutomatedadvisoryandotherAIapplicationsinfinancialservicescouldincreaseefficiencyby45-55%foratotaleconomicimpactestimatedtobeUS$0.6-0.8trillionin10years.(ibid.3)

4 “WellsFargoTestingBotForMessengerFeaturingNewCustomerServiceExperiences”,WellsFargo,April18,2017accessedNovember2017at https://newsroom.wf.com/press-release/community-banking-and-small-business/wells-fargo-testing-bot-messenger-featuring-new

5 “Machinelearningistransforminginvestmentstrategiesforassetmanagers”,CNBC,June6,2017accessedOctober2017at https://www.cnbc.com/2017/06/06/machine-learning-transforms-investment-strategies-for-asset-managers.html

6 “BestAnalyticsInitiative:BuySide—JPMorganAssetManagement”,WatersTechnology,January16,2017accessedOctober2017at https://www.waterstechnology.com/awards-rankings/2480253/aftas-2016-best-analytics-initiative-buy-side-jpmorgan-asset-management-sparta

6 Top 10 Trends in Wealth Management 2018

Exhibit 2: Key Application Areas of AI and ML in Wealth Management Firms

Source: Capgemini Financial Services Analysis, 2017

Key Applications

CustomerSegmentation and Targeting

Opportunity Management

Portfolio Management and Risk Management

Customer Service and

Engagement

Acquisition and

Onboarding

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Background

• Therearemanybasic,logic-basedandrepetitiveprocedureswhichcanbereplacedbyautomationinthewealthmanagementindustry.ThesesortofprocessesareidealforusingRoboticProcessAutomation(RPA).

• Anon-invasivetool,RPAdoesnotdisturbunderlyingcomputersystems.• RPAprocessesarebuiltstep-by-stepandnotcodedbyprogrammers,aboonfor

non-technicalusers.Itisuser-friendlyandhighlyscalable,withthepotentialtooffershortpay-backperiodscomparedwithothertechnologies.

• WorkforceinefficienciescanbeeliminatedusingRPA,withhighlylabor-intensiveprocessesanidealstartingpoint.

Key Drivers

• Ever-increasing,complexandstringentregulationsmakeitdifficultforwealthmanagementfirmstokeepcostsincheckwhileensuringapositivecustomerexperience:

– Forinstance,TheDepartmentofLabor’sfiduciaryruleintheUnitedStates8, theEU’sMarketsinFinancialInstrumentsDirectiveII(MiFIDII).

• YoungerHNWIsaredemandingbetterdigitalcapabilitiesfromtheirfirms.Atthe same time, wealth managers are seeking improved digital capabilities to helpthemserveclientsbetter.

• FinTechsandlowerinvestmentreturnspost-2008–coupledwithincreasingcompetition due to the emergence of automated advisors – have put marginpressureonfirms.Therefore,businessesarelookingtocutcostsbyimplementingRPAsolutions.

• Otherfactorssuchasenhancedproductivity,loweroperationalcosts,reducedresponsetime,fasterclienton-boarding,etc.aredrivingfirmstowardRPA(Exhibit3):

– Automationenableswealthmanagementfirmstofocusontheircorebusiness, strengthen their competitive advantage, and improve satisfaction forclientsaswellaswealthmanagersandstaff.

Utilizing Robotic Process Automation (RPA) can help firms save up to 60% on time-to-resolution of repetitive tasks.7

Trend 02: Robotic Process Automation Can Help Firms Keep Costs Down and Accelerate Digital Transformation

7 “Flawlessaccuracy,incredibleefficiency,shrinkingcosts”,CustomerThink,June14,2016accessedOctober,2017at http://customerthink.com/flawless-accuracy-incredible-efficiency-shrinking-costs-the-back-office-tech-that-makes-it-all-possible

8 TheU.S.DepartmentofLabor(DOL)FiduciaryRulewasoriginallyscheduledtobephasedinApril10,2017–Jan.1,2018,butwasdelayeduntilJune9,2017,includingatransitionperiodfortheapplicationofcertainexemptionstotheruleextendingthroughJan.1,2018.FullimplementationofallelementsoftherulehasbeenpushedbacktoJuly1,2019.Theruleexpandsthe“investmentadvicefiduciary”definitionundertheEmployeeRetirementIncomeSecurityAct of1974(ERISA)

8 Top 10 Trends in Wealth Management 2018

Trend Overview

• ManyfirmsareexperimentingwithRPAandhavecomeupwithsomeusecases.However,thesignificantcostsassociatedwithreplacinglegacysystemshaveprecludedmanyfirmsfromscalinguptoalevelthatyieldstangiblebenefits.

• RPAcanbeusedtoincreasecontrolsandexecutionconsistency,butitcannotreplacehumanoversightinriskandcompliance.9However,RPAcanhelpkeepcostsincheckbystreamliningcomplianceprocesses.

• TypicalRPAusecasesinclude: – Clientonboarding–KnowYourCustomer(KYC)andotherduediligence

processes during client onboarding are being automated and moved to digitalinsteadofhavinghardcopiesofmultipleforms.AlthoughRPAworkswithcontentthatisalreadyavailablewithinasystem,initialinformationhastobehandledbypeople.

– Backofficeoperations–Automatingtime-consumingtasksandprocesseswill lead to agile operations, and free up the time of the decision makers, in additiontoreducingcosts.10

– Chatbots–Chatbotsprovideanavenuetosignificantlyengagebothcustomersandwealthmanagers:

� Customerscanleveragethechatbotstoaccessportfoliosummariesandchanges in asset parameters in real time without the intervention of wealthmanagers.

� Voiceassistants(likeAmazon’sAlexa)canbeintegratedwithchatbotstoresolvevoicebasedqueries,thusreducingeffort.

� ChatbotscanbeusedtoanswerFAQsrelatedtonewstrends,andtransactions,thusdrivingself-service.

� Wealthmanagerscanleveragechatbotstoidentifynewclientleadsandautomatethefollow-upwithspecificinput.

Exhibit 3: Key Drivers of RPA

Source: Capgemini Financial Services Analysis, 2017

Key Drivers

Increasing, Complex and

Stringent Regulations

For example, DOL’s fiduciary rule in the United States, and MiFID II in European Union

HNWI demand for better digital

capabilities

With RPA, processes can be made more

efficient and error-free

Emergence of robo-advisors, FinTechs, and Bigtechs have put pressure on margins for firms

Changing Consumer Behavior

Increasing Competition

Workforce Inefficiencies

9 “Robotics:TheNextFrontierForAutomationInFinanceAndRiskManagement”,Forbes,April20,2016,accessedOctober2017at https://tinyurl.com/yc5dp6mk

10“WheretoStartwithRPAinFinancialServices”,Finextra,August1,2017,accessedOctober,2017at https://www.finextra.com/blogposting/14362/where-to-start-with-rpa-in-financial-services

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• Tocomplywithregulationsandtokeepthecost-incomeratiosincheck,improvingoperationalexcellenceinthebackandmiddleoffices(whichwouldhelpreducethecosts)isonlythestart.

• FirmsneedtolookatRPAbeyondjustatechnologyinitiativeandleverageittore-orient their business models, re-engineer their processes, and restructure theirpeople.

Implications

• RPAcanenablefirmsdothingsinafaster,cheaperandbettermanner,bringingefficienciesintothesystem.Additionally,thereisenhancedsecuritycomparedtohuman-drivenprocesses.

• Wealthmanagerscanconcentrateonvalue-addactivities,whichinturnhelpsdriverevenue.Asroutinetasksareautomated,customerexperienceisimproved.

• Asroutinefunctionsareautomated,employeescanlearnnewskillstomaintainandupgradetheircontributionstothefirm’sgrowth.

• OncecompaniesgraspthevalueofRPA,theycanacceleratetheirdigitaltransformationprogramsastheyscaleupoperations.

10 Top 10 Trends in Wealth Management 2018

Trend 03: Innovation is Key for Firms to be Future- Ready

Background

• Otherparticipantsinfinancialservicesretailbusinessarewayaheadinproductinnovationthanwealthmanagementfirms.Forexample,theVitalityprogramininsurancewithathree-stepprocess–one,discoverthestateofyourhealth,two, personal health goals based on the health status which can be used to earn points,andthird,enjoyrewardsaccordingtothepointsyouearn.

• AsHNWIsbecomemorefinanciallysavvy,theyaredemandingmoresophisticatedandcustomizedservices.ToimproveHNWIsatisfaction,productinnovationisessential.

• Wearenowobservingsuchinnovationinwealthmanagementtoo,asFinTechsdisrupttraditionalbusinessmodelswiththeintroductionofautomatedadvisoryservicesandotherdigitalcapabilities.

• AfurtherchallengetoincumbentsisthepossibleentryofBigTechs11 that bring not onlytechnologyexpertisebutthetrustofabroadcustomerbase.BigTechentryintowealthmanagementcouldspurintensecompetition,orfruitfulpartnerships.

Key Drivers

• Duetonon-differentiatedofferingsinthewealthmanagementindustry,therearecostpressuresanddownwardmovementofprofitmarginsfortheincumbents.Businessesmustinnovateinbothproductandtechnologyofferingstoimprovemarginsand,asaresult,customerexperience(Exhibit4).

• Lowinvestmentreturnsinthepost-crisisperiodhavemadeclientsconsiderswitchingtootherfirmsinhopesofbetteropportunities,thusmakingclientretentiondifficult.

• Theentryofnon-traditionalplayers,suchasFinTechswithbroaddigitalcapabilities,isdisruptingtheindustryandforcingincumbentstoinnovatetostayrelevantandcompetitive.

With subdued post-recession investment returns, disruptive innovation has become a powerful wealth management differentiator.

Exhibit 4: Key Drivers Behind Innovation in Wealth Management Industry

Source: Capgemini Financial Services Analysis, 2017

Text

Changing HNWI Behavior and Preferences

Non-differentiated Offerings

Key Drivers behind Innovation

Non-traditional Players

11BigTechisageneraltermtocoverdata-driventechnologyfirmsnottraditionallypresentinfinancialservices,suchasGoogle,Amazon,Alibaba,Apple, Tencent,andFacebook.

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• HNWIs,especiallythoseunder40,increasinglydemanddigitalcapabilitiestosupporttheirportfolioandrelationshipmanagementneeds.Atthesametime,wealth managers seek freedom from repetitive, routine activities to have more timetoengagedirectlywiththeclients–inrevenueincreasingactivities.

Trend Overview

• Opportunitiescreatedthroughspecifictechnologiesinclude: – Applicationprograminterfaces(APIs)–Usersuploadtheirbankaccountdetailsintoasingleapp,andwhiledoingtransactions,theycanpaythroughanyoftheaccounts.

– Blockchain–TheDistributedLedgerTechnology(DLT)basedsmart-contractconceptcantightenprocessesandremovesomerisksfromtransactionsinfinancialservices.

• Technologicalinnovationcanenhancetheservicedeliveryexperiencealongthevariouscustomerlifecyclephases:

– Forexample,BNPParibaswealthmanagementhasco-createdanewclientexperiencewithclientsandFinTechs–withafocusonthreenewservices:

� ‘myAdvisory,’ which boosts clients’ investments management and provides personalizedfinancialadvicedirectlyviaasmartphone.

� ‘myBioPass,’ whichenablesclientstoeasilyaccesstheironlinebankingservicesusingbiometrics.

� ‘The Leader’s Connection,’ which is a digital platform available on smartphone andtabletthatallowsBNPParibaswealthmanagerstoconnecteligibleinvestorstofacilitateco-investmentsandgivethemtheopportunitytosharetheirviewsonexclusiveprivateinvestmentopportunities.12

– CustomerAcquisition–FirmssuchasOCBCBank,HSBC,andMUFGhavecompletedaproofofconceptforaknow-your-customer(KYC)blockchain.13 OtherFinTechssuchasNetkiprovideopensourceandopenstandard-baseddigitalidentitysolutionsthatallowfinancialservicecompaniestomeettheircompliancerequirementsonbothpublicandprivateblockchains.14

Implications

• Withfirmsaggressivelypushingdigitaltechnologiesintothecurrentvaluechaininwealthmanagement,theindustryislikelygoingtoseehigherpenetrationofautomatedadvisoryanddigitalmarketplaceplatforms.

• Firmsandwealthmanagersareexpectedtoincreasinglyusesocialmediaandleveragedataanalyticsforprospectingclients.Thereareusecasesofmobileappsfeedingtherelevantinformationdailytowealthmanagersandclients:

– CitibankpartneredwithThomsonReuterstoenabletheircustomerstogetaccesstoseriesofstockmarketinsightsandanalysisontheirinternetandmobiletradingplatforms.15

• FirmsareexpectedtostrategicallyfocusonbigdataandadvancedanalyticstoenabledifferentiatedservicesandproductsolutionsforHNWIs.Innovationcan,inturn,improvecustomerexperiencebyprovidingcustomizedofferingstotheclientsandhelpfirmsmoveawayfromthe‘one-size-fits-all’approach.

• Theindustrycouldbelookingatincreasedoutsourcingofbackandmiddleofficefunctionsinresponsetothegrowingmarginpressuresandthecomplexregulatorystructure.

12 “BNPParibasWealthManagementreinventsitsClientExperienceleveragingdigitalsolutions”,January1,2017accessedOctober2017at https://group.bnpparibas/en/press-release/bnp-paribas-wealth-management-reinvents-client-experience-leveraging-digital-solutions

13 “HSBC,MUFGandOCBCcompleteKYCblockchainPOC”,FinTechInnovation,October4,2017accessedOctober2017at https://www.enterpriseinnovation.net/article/hsbc-mufg-and-ocbc-complete-kyc-blockchain-poc-937750511

14 “21CompaniesLeveragingBlockchainforIdentityManagementandAuthentication”,www.letstalkpayments.com,February13,2017accessedOctober2017at https://letstalkpayments.com/22-companies-leveraging-blockchain-for-identity-management-and-authentication

15 “ThomsonReutersStockAnalytics”,accessedNovember2017athttps://www.citibank.com.sg/gcb/investments/brokerage.htm

12 Top 10 Trends in Wealth Management 2018

Trend 04: Introduction of Marketplace Models for Wealth Management Products

Background

• Wealthmanagementproducts,likemostbankingproducts,arenowbeingunbundledfromthebankasawhole,andbeingofferedasmodulesorindividualproductstoclientswhomaynothavebeenassociatedwiththebank.

• WehaveseenthePlayStoreforAndroidandtheAppStorefromAppleevolvingintothrivingmarketplacesforthird-partyapps,alongwayfromtheinitialdayswhenonlyGoogleandAppleappswereavailablefordownload.

• WithhundredsofFinTechscomingupwithgreatideasforbetterproductsandhigherreturnsalongwithimprovedcustomerexperiencebyleveragingMLandAI,wealthmanagementfirmsneedtodecideiftheyonlywanttobecomeaproduct creator or also become a broad product distributor, in order to provide customer-centricholisticfinancialsolutionsbyofferingin-houseaswellasthird-partyproducts.

Key Drivers

• Thewealthmanagementindustryhasseenrapiddisruptionintheformoflowercostmodelsthatprovidehigh-techsolutionsatlowercosts.E.g.automated advisors that manage a huge amount of wealth without the help of humanadvisors.

• Suchbusinessmodels,mainlyonthedigitalmedium,offersolutionsespeciallytothemass-affluentsegmentatafractionofthecostoftraditionalwealthmanagers, driving out intermediaries to reduce fee costs, and eliminating the needofcostlyhumanadvisorstomanagethewealth(Exhibit5).

The increasing ease of access and low cost of switching between service providers and products could lead to marketplace models of wealth management.

Exhibit 5: Key Drivers behind Marketplace Models

Source: Capgemini Financial Services Analysis, 2017

Disruption by Low-cost Advisory Models

Proliferation of Digital Services

Services for the Mass-affluent Segment

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Trend Overview

• Themobilemarketplaceshaveaddedvaluetotheprimaryplatformownerandhelpedexpandthescaleofofferingsbyallowingproductsfromcreativedeveloperstobesoldtocustomersoverthisplatform:

– Similarly,inthewealthmanagementdomain,thereachofthedigitalmediumand the trusted brand of incumbents is perfect for FinTechs to leverage for scaleintheformofacollaborationwheretheirproductsaresoldtoexistingandnewclients.

– Customerswillbeabletouseawiderarrayofofferingsontheplatformfor holistic wealth management solutions, even though from multiple third-parties.

• Ifwealthmanagementfirmsdonotforayandexperimentwiththismodelsoon,aneventualentryofBigTechsintowealthmanagementservicescouldleadtolostopportunitiesandleavethemataseveredisadvantage.

• Thesemarketplacescouldinitiallyofferproductsthatarelessintensivew.r.t.humanadvisorsandrelyonautomatedadvisors:

– FinTechs could be onboarded to sell their products and services via the marketplace,tillacriticalnumberofclientsareacquired.

– Anearlymoverincumbentcouldalsohaveotherincumbentsselltheirproducts on the platform, thus improving the reach and attractiveness of the marketplacetoclients.

– The services and products that can be distributed via this model could includethosethatcanbemanagedbyautomatedplatformssuchasrisk-profiling,portfoliomanagement,andcashandcreditservicesamongothers.

– The marketplace model will encourage customer-centric solutions rather thanfirm/product-centricadvice.

• The faster such a marketplace can scale up and build a trusted brand, the harder will it be for others to gain a foothold, thus creating a competitive advantage in thelongterm.

Implications

• The marketplace model will mean that the incumbent platform owner will have toconstantlycompetewiththird-partyproductsandservicesinadditiontoothermarketplaces:

– Third-partysolutionsbeingsoldinthemarketplacewillcertainlyhavelowermarginsforthemarketplaceownercomparedtotheirownsolutions.

– Hence,thefocusshouldbetostayaheadofotherproductsw.r.t.innovation,brand,andcustomerexperience.

• Tostayaheadofthegame,evenaftersettingupthemarketplace,theincumbentswillhavetoattractFinTechs,saythroughaccelerators,andcollaborate with them to build better products and solutions to sell via the marketplaceathighermarginsthanthird-partyproducts.

• The marketplace model will allow the incumbent to collect massive amounts of data from clients who interact with the platform, thus opening up possibilities ofbetterinsightsoncustomerneedsandcustomerexperience.

• Thismodelisalsoahugeopportunityforthemarketplaceownerstograbaneverlargershareoftheclient’swalletbyhostingawidearrayofofferingsacrossthewealthportfolio.

• Hence,themarketplacemodelmaybeadefensiveplayintheshort-term(tothwarttheFinTechthreat)butcouldturnouttobeatremendousstrategicvalue-addasananalyticaltreasuretroveforafuture-proofdigitalwealthfirm.

14 Top 10 Trends in Wealth Management 2018

Trend 05: Focus on Enhanced Customer Experience is Becoming a Wealth Management Priority

Background

• Customerexperienceinwealthmanagementholdshigherweightforclientscomparedtootherproductstheyuse,asthisrelationshiphasfar-reachingimplicationsontheclient’sfinancialandlifegoals.

• Clientsareopentoswitchingtootherwealthmanagementprovidersinsearchofbetteruserexperience,thusforcingfirmstoinnovatetokeepupwiththeirdemands.

• ThecurrentHNWIsatisfactionlevelsaremodestandhavemuchscopeforimprovement:

– Themindsetofwealthmanagementfirmsisshiftingtowardputtingclient-specificneedsatthecenterofthewealthmanager-clientrelationship.Customerexperienceisacriticalinputforbuildingtrustandgainingclientconfidence.

• Customersarelookingtoengagewithclicksandinteractionsratherthanpapersandcharts.

Key Drivers

• FacedwithchangingdemographicsanddemandsofHNWIs,wealthmanagementfirmsmustadapttheirserviceofferings.AsHNWIsbecomemorefinanciallysavvy,theybecomemoreempoweredintheirwealthmanagementfirmrelationships.

• Lessthan50%ofHNWIsarefullycomfortablewiththefeestheypay(asnoted in the 2017 World Wealth Report),andthenewentrantsinthiscrowdedmarketarefullyexploitingthisopportunitybytailoringtheirofferingsandfeestructures,deliveringsuperiorclientexperienceunderbetterfeemodels.

• Clientexperiencemainlyrevolvesaroundsimplificationofclienttouch-points,creationofintuitiveandeasy-to-usefeatureswithincomplexinvestmentmanagementtools,andseamlessomnichannel(e.g.acrossmultipledevices)portfoliomanagementcapabilities.

• Firmsalsoneedtokeepthewealthmanagerexperienceaboveathresholdlevel,astechnologicalinnovationsintheindustrymakeiteasyforwealthmanagerstogoindependent.HNWIs,inturn,tendtofollowtheirwealthmanagersduetothealreadyestablishedrelationshipandtrust.

Trend Overview

• Withtheirstrategyrevolvingaroundcustomerexperience,firmsarefollowingabottom-upapproachtofindoutwhatthepain-pointsinthecustomerjourneyareandwhere“wowmoments”canbecreated.Itisnowimperativeforfirmstore-engineertheirbusinessmodelstokeepup(Exhibit6).

• Firms are looking to leverage the rising interest in digital channels such as socialmedia,mobileapplications,andimplementingautomatedadvisoryandautomatedinvestmentmanagementtoenhancetheoverallexperienceofboththeircustomersandthewealthmanagers.

Customer experience can be used to create a sustainable competitive advantage in a rapidly changing industry.

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• IncreasedHNWIawarenessandchangingdemographicshaveledtoincreasingdemandforcustomizedandsophisticatedadviceondigitalchannels.Wealthmanagersandclientsalikewanttheabilitytomaintainthewealthrelationshipremotely.

• Firmsarejustbeginningtoexperimentwithhybridmodelstostriketherighthuman-andautomated-advisorymix.

Exhibit 6: Levers to Enhance Customer Experience

Reengineering the Strategy to Create “WOW” Moments for Customers

Increasing Adoption of Big Data and Analytics

Rising Leverage of Digital Channels

Move toward Hybrid Models

Top-Down Simplification from Product to Platform

Source: Capgemini Financial Services Analysis, 2017

Customer Experience

Enhancement

Implications

• Firms need to train their wealth managers on digital capabilities – to ensure thatallcustomers,inturn,canhavethebestpossibleexperienceduringtheirinteractions.Severalwealthmanagementfirmsarelookingatafullyintegratedworkstationtoenablewealthmanagertohaveeverythingattheirfingertips,thusenhancingtheclientserviceexperiencethroughimprovedclient-facetime.

• Firmsneedtoanticipatecustomerneedsandidentifybehaviorpatternsbettertokeepupwithevolvingclientneedsandofferamorecollaborative,individualizedwealthexperienceandanintegratedcustomerjourneyacrossthevaluechain.

• Thisisexpectedtoleadtoincreasedadoptionofdataanalyticstocreatecustomized advice for clients, while enabling wealth managers to make better advisorydecisions,creating‘wowmoments’alongthewayforagreatclientexperience.

16 Top 10 Trends in Wealth Management 2018

Trend 06: Cybersecurity Continues to be an Important Concern for Wealth Management Firms

Background

• Wealthmanagementfirmsholdhugeamountsofhighlysensitiveinformation,whichmakescyber-defenceveryessentialasdatatheftcanleadtosignificantreputationalandfinancialdamages.

• Increasing digitization, outsourcing, and reliance on emerging technologies such asIOTandthecloudfurtherincreaseexposurerisk.

• CyberrisktopsthelistofconcernsforUKwealthmanagementfirms,with90%ofwealthmanagersratingthethreatofcybercrimeaseitherhighorvery-high.16

• AccordingtoareportreleasedinSeptember2016,cybersecurityisahighpriorityfor81%ofadvisors,butonly29%arefullypreparedtomanageandmitigatetherisksassociatedwithcybersecurity.17

Key Drivers

• Recentlarge-scalecyber-attacksacrossallindustriesdrivetheneedtosecuredata.

• Digitizationinvolvingmigrationtothecloud,IOTinfrastructures,etc.,haveprovidedseveralbenefitstowealthmanagementfirmsbutalsoexposedthemtoexternalthreats,drivingthemtoincreasetheirsecuritylevelstopreventlossofsensitivecustomerinformation.

• Stricterregulationsarenowcompellingthewealthmanagementindustryforstrongermeasuresincybersecurity:

– E.g.inEurope,theGeneralDataProtectionRegulation(GDPR)willrequiremandatorydataprotectionmeasurestobeimplementedbyfirmsandmayimposeheavypenaltiesonthemincasesofnegligence.

Trend Overview

• Aswealthmanagementfirmsexpandtheirdigitalservicestomeetclientdemands,theyfacemanyopenvulnerabilitiesforwhichtheyneedtopreparewithbroader,sustainable,andadaptivecyber-defencemodels.

• Thepossibilityandscaleofcyber-attacksonfirmscannotbeundermined(Exhibit7):

– Globally,damagesduetocybercrimeareexpectedtorisetoUS$6trillionannuallyby2021.18

Use of sensitive data, regulatory mandates, and digitization require firms to beef up their cybersecurity mitigation plans. A reactive approach is insufficient to stop fraud.

16“CyberriskstopsUKWealthManagementfirms’listofconcerns”,LarkInsuranceandCompeerLtdReport,January23,2017accessedOctober2017at https://tinyurl.com/yapkuoec

17 “IsYourDataSafe?The2016FinancialAdviserCybersecurityAssessment”,FPAResearchandPracticeInstituteTMaccessedNovember2017at https://tinyurl.com/ybms9noz

18“CyberCrimeReport”,CyberSecurityVentures,accessedOctober2017athttps://cybersecurityventures.com/hackerpocalypse-cybercrime-report-2016/

17

• Voice-enabledconnecteddevicesarecreatingnewopportunitiesforidentitytheftandfraud,andhencesuchasecosystemneedstobesecuredbeforeinvestmenttransactionscanberoutedthorughthem.

• CompaniessuchasPindropandNuancehelpdefendagainstfraudthroughvoicecalls.Theyusevoicebiometricstoauthenticatecallersanddetectidentitytheftthatmightleadtofraud.

• ManyfirmsareincreasingspendonITsecuritytopreventdisruptionorbreachduetocyber-attacks:

– Arecentsurveyrevealedthat86%offinancialservicesfirmsplantospendmoretimeandresourcesoncybersecurityinthecomingyear.19

• Theglobalcybersecuritymarketcontinuestoexpandwithananticipated2017-22CAGRof11.0%andisexpectedtoreachUS$231.9billionby2021.20

Exhibit 7: Impact of Cybercrime on Firms

Source: Capgemini Financial Services Analysis, 2017

Impact of Cybercrime

Loss of Trust in Brand

Financial Loss and High Costs

of Recovery

Reputational Loss

Loss ofBusiness

Continuity

PotentialBankruptcy

Loss of Operational Productivity

Implications

• Globally,thereisamovetowardproactiveprotectionwherefirmsemploysecurityanalyticsutilizingmachinelearningandartificialintelligencetoanalyzeinformationandpredictorthwartpotentialthreats.

• Demandforadvancedthreatprotectionproductsusingbigdataanalysistodetect and neutralize possible threats will grow at a much faster pace than demandfortraditionalenterprisesecurityproducts.

• Wealthfirmswillneedtostrengthentheircybersecuritycapabilitiestopreventcyber-attacksthatmightriskclientinformation:

– Theywillmostlikelyintegratenewtechnologiessuchasbiometrics,behavioralanalytics,andmachinelearningtobuildadaptiveandintelligentdefenses.

19 “86PercentofFinancialServicesFirmstoIncreaseCyberSecuritySpendin2017”,eSecurityPlanet,April2017accessedOctober2017at https://tinyurl.com/yb7afcgw

20“CybersecurityMarketworth231.94BillionUSDby2022”,Markets&Markets,July2017accessedOctober2017at http://www.marketsandmarkets.com/PressReleases/cyber-security.asp

18 Top 10 Trends in Wealth Management 2018

Trend 07: Increase in Cost of Doing Business for Firms Due to Complex Regulations

Post-recession regulatory mandates make the compliance function vital for wealth management firms.

Background

• Asanaftermathoftheglobalfinancialcrisis,thewealthmanagementindustrycameundermuchscrutiny.Theuncertaintyaroundthesheernumberofever-evolving regulations coming up in domestic as well as international markets has resultedinaparadigmshiftforthewealthmanagers.

• The cost of compliance, as well as the cost of non-compliance, is rising as the regulationsincreasebothinnumberandscope.Firmsneedtohaveastrategyinplacetoassessandcomplywiththeseregulationstoavoidfuturefinesandreputationaldamages.

Key Drivers

• Regulationsarecontinuallyevolvinginresponsetonewbusinessmodelswiththeentryofnon-traditionalplayersfocusingondigitalcapabilities.

• Fiduciaryrulesarebeingenforcedstrictlytopreventconflictofinterest,whereinsomeofthelargerwealthmanagementfirmscouldbetagainstwhattheyareadvisingtheirclientstodo.

• Regulationsarealsobecomingmorestringenttopreventfirmsfromcolludingovertransactionfeesandthepaymentmodels.

Trend Overview

• The cost of doing business in wealth management is rising with increased global regulatorychanges:

– In2016,ThomsonReutersRegulatoryIntelligencetracked52,506regulatoryupdatesgloballyfromaround500regulators,whichisabout201changesperday.21

• Regulationsareleadingtoanexpansionintheplayingfieldinthewealthmanagementindustry,withconsumersbeingtheultimatebeneficiaries.

• RegulatoryapproachestofinancialinnovationaredivergingintheUS,Europe,andAsia,potentiallyjeopardizingthelikelihoodofaconcertedglobalresponseinafuturefinancialcrisis.22

• Anupcomingregulation–GDPR(GeneralDataProtectionRegulation),whereinpeople have a right to be forgotten or a right to erasure of all personal informationheldonthembyaparticularcompany23–mayleadtoanincreaseintheoperationalcostsasfirmshavetogetsystemsinplaceinordertocomplywiththeregulation.

• Newregulationsareputtingsignificantfocusoninvestorprotectionandclientdisclosures.Organizationsarededicatingtimeandmoneytocombatthesechallenges.

21“9ForcesofChangeintheWealthManagementIndustry,andWhatItWillTaketoWin”,www.tabforum.com,April24,2017accessedOctober2017at https://tinyurl.com/k5vds9l

22“Startupsmaydrivefintechinnovation,butbigtechwillbewinnersinfinancialservices”,www.thenextsiliconvalley.com,August25,2017accessedOctober 2017athttps://tinyurl.com/y7xentwu

23“2018isshapinguptobearegulatorynightmareforfinancialservices”,www.information-age.com,April19,2017accessedOctober2017at http://www.information-age.com/2018-nightmare-financial-services-123465793

19

Implications

• Firms have to be up-to-speed with the latest regulations leading to increased compliance and operational costs, which is putting downward pressure on margins.Thiscouldspelltroubleforsmallerfirms,andconsolidationmaybetheonlyanswertosurviveinsuchasituation(Exhibit8).

• Intheshortterm,withthegrowingexpertiserequiredtokeepupwithcomplexregulations,outsourcingoftheback-officeandthemiddle-officemaybeanobvioussolutionformanyofthefirms.

• Amalgamationofthebestservices–acombinationofwhatRegTechsareofferingandtheexistingcomplianceframeworksofincumbents–cancreatebettercomplianceprocessesfortheindustry.Thiscouldeventuallystabilizecostsandmakefirmsmoreagileinthefaceofevolvingregulations:

– Wealthmanagementfirmsseekingtoquicklyrespondtoregulationsatlowercostsandwithoutneedingextensivesystemoverhaulsmaywishtoconsidertheuseofout-of-the-boxsolutionssuchasFenergoandSkience,thatsupportcomplyingwithrulesandregulationssuchasAML,KYC,MiFIDII,Dodd-Frank,etc.

Exhibit 8: Implications of Changing Regulations on Firms

Source: Capgemini Financial Services Analysis, 2017

Rising Compliance and Budgetary Costs

Outsourcing of Back- and Middle-office Functions

Amalgamation of Best Practices from RegTechs and Incumbents

20 Top 10 Trends in Wealth Management 2018

Trend 08: Advent of Hybrid Advice Solutions to Set Wealth Management on a New Course

The maturing of hybrid advice will have significant impact on the wealth management industry, although human element will remain a key differentiator.

Background

• AutomatedadvisoryserviceslikeBetterment,Wealthfront,etc.havedisruptedthewealthmanagementindustry,traditionallyreliantonwealthmanagerstodispenseadvice:

– However,automatedadvisorslackahumanface.Sincewealthmanagementdemandsahighlyfiduciaryservicethatahumanadvisorhasbuiltovertime,theseautomatedsolutionsfallshortastheyarenotabletobringthetrustandconfidenceofawell-recognizedbrandthatatraditionaladvisoryfirmoffers.

• Thisshortfallcanbemetbyahybridmodel,combiningself-serviceandwealthmanager-led advice, which has evolved to become as popular as the wealth manager-ledpath.

• Despitetheirsupportofhybrid-advicemodelsandthesignificantpotentialbenefitsonoffer,mostfirmshaveyettorollouteffectivesolutions.

Key Drivers

• Thewealthmanagementindustry,drivenbytheneedtogrowbusiness,reducecosts,andmeetregulatoryrequirements,isenthusiasticinitssupportofhybridservices:

– Wealthmanagementfirmswillstandtoimprovewealthmanagerproductivity,lowercosttoincomeratio,reduceerrors,andincreaseconversionsbyleveragingtechnologytoassistintraditionalmanuallyintensivejobs.

– Newregulationsareputtingabiggerfocusoninvestorprotectionsandclientdisclosures.

– Increasedagilityandcompetitivedifferentiationarealsocriticalbenefitsof arobusthybridadvisorysolution.

• Animprovedabilitytoattractmassaffluentclientswhoweretraditionallyunderservedbecauseoflowcustomerlifetimevalue,andtomeethigherHNWIexpectationsisalsospurringsomefirmstoleveragehybridcapabilities.

Trend Overview

• HNWIswanttheflexibilitytochoosefromself-servicedelivery,awealthmanager-ledapproach,oracombinationofthetwo–thehybrid-advisorymodel,asevidentfromtheresultsoftheGlobalHNWInsightsSurvey2017byCapgemini(Exhibit9):24

– HNWIsheartilyembracewealthmanagersattheprofilephaseoftherelationship(60.2%),whenfinancialgoalsarebeingoutlinedandrisktolerancesset.

– AlmosthalfofglobalHNWIsarepartialtoahybridapproachto‘manageongoingadviceandoptimization.’

– Outofthefivewealthmanagementlifecyclestages(‘Profile’,‘Develop’,‘Execute’,‘Manage’,and‘Report’),HNWIspreferthehybridroutefortwoofthe

24 2017 World Wealth Report, Capgemini

21

lifecyclestages(‘Manage’and‘Report’)andthewealthmanager-ledapproachfortwootherstages(‘Profile’and‘Execute’).

– Fully-automatedservicescurrentlyappealtofewerHNWIsbutarestillimportant.Theyaremostpreferredatthe‘Report’stageby19.7%ofHNWIs.

• Wealthmanagementfirmshavealignedtorecognizetheimportanceofhybridadviceandarepushingtoimplementthem:

– Asperthe2017World Wealth Report,53.7%ofglobalwealthmanagementfirmshavehybridadviceprogramsunderway,butnonehasafullyimplementedsolution.

– Firmshaveyettoachieveverypositiveresultsfromtheirefforts,givingthemselvesaneffectivenessscoreofonly4.0outofamaximum7.0globally.

Exhibit 9: Interaction Preferences for Wealth Management Capabilitiesa, Q2 2017 (Global)

a: Respondents with experience with the interaction in the past year have been analyzed.Note: Question asked: “How would you like to interact with your primary wealth manager or wealth management firm for each of the following services?”; HNWIs were asked choose their preferred interaction between ‘Fully Wealth Manager-Led’, ‘Hybrid’ and ‘Fully Automated’ for 24 Capgemini Hybrid Framework Capabilities, the values represent the average of the capabilities in the 5-stages shown aboveSource: Capgemini Financial Services Analysis, 2017; Capgemini Global HNW Insights Survey 2017

60.2%48.0% 47.3% 41.4% 37.5%

37.1%48.2% 43.3% 49.6%

42.7%

2.7% 3.8% 9.4% 8.9% 19.7%

0%

25%

50%

75%

100%

Profile Develop Execute Manage Report

Per

cent

age

of

Res

po

nden

ts

Hybrid Automated/Self-ServiceWealth Manager-Led

Implications

• Advisorswilllikelyeaseoutofdirectinteractionsinthemassaffluentclientsegmentswhileprovidingcustomizedservicesatthehigherend.

• Wealthmanagementfirmsmayhavetoadjusttoslimmerrevenuemarginsincore areas of business as fee structure will be revised to accommodate higher self-servicecapabilities.

• NewagetechnologiessuchasNLP,AI,andMLmaybetakenupbywealthmanagementfirmsasclientexperiencewillbeacriticalfactorofcompetitivedifferentiation.

• Hybridmodeltransformationwillrequirewealthmanagementfirmstofocusonspecificactionsrelatedtothepeople,processes,andmarketingpropositions.

• TheriseofhybridmodelsislikelytoleadtotheentryofBigTechfirms(Google,Alibaba,etc.)intothewealthmanagementspace.

22 Top 10 Trends in Wealth Management 2018

Trend 09: Development of Next-Gen Genome-Based Segmentation and Increased Focus on Traditionally Underserved Segments

Background

• Traditionallyunderservedsegmentswhichwereoutoftheambitoftraditionalwealthmanagementindustryaregainingattentionasdigitaltoolsandtechnologymakeitpossibletoservecomplexinvestmentneedswhichwereeconomicallyunattractiveinthetraditionalinvestableasset-basedsegmentation.

• These segments have distinct needs and preferences, understanding which can unlockavastamountofassets:

– OftheUS$41trillioninglobalintergenerationalwealthtobetransferredoverthenextfourdecades,womenwillinherit70%,orastaggeringUS$29trillion.25

– TheglobalwealthofwomenisexpectedtogrowfromUS$13trilliontoUS$21trillionby2021,about1.6%fasteryear-on-yearthanthatcontrolledbymen.26

– Themassaffluentsegment(US$1million-US$5million)comprises90%ofglobalHNWIsbypopulationand43.0%oftotalwealth.27

• Firmscanalsoanalyzetheirclientbasetodetermineunserved/underservedsegmentstointroducedifferentiatedofferingsthatcatertotheunmetneedsofthosesegments:

– Forexample,anassetmanagementfirmanalysesadvisorpreferencesandsuggestions,alongwithhistoricalbehavior/purchasesofcustomersandusesthisdata(calledgenome)topushproductsthatarelikelytobepurchasedbytheclient.

Key Drivers

• Personalizedsolutionscateringtonichesegmentscanbeaclientacquisitiontooltoattractyounger,less-affluentcustomers,whomightpotentiallyrequireprivatebankingservicesinthefuture(Exhibit10).

• Ascompetitivenesswithinthewealthmanagementindustryincreases(withdigitalplatformsofferingsimilarservicesatafractionofthecost),makinginroadswiththefemaleandmassaffluentsectionswillprovidegrowthopportunitiesfororganizations.

• Forbanks,thisisanopportunitytoincreasecompetitivenessbyusingpersonalizedsolutionsasapointofdifferentiationtocompetewithFinTechsandtoprotectfuturerevenuestreams.

• Aswomencontinuetoattainfinancialindependence,theywillincreasinglymakeinvestmentdecisionstailoredtotheirneeds.

Accessing traditionally underserved segments can create the next big opportunity for the wealth management industry.

25“AGoldenAgeofPhilanthropyStillBeckons:NationalWealthTransferandPotentialforPhilanthropyTechnicalReport”,BostonCollege,May28,2014accessed October2017athttps://tinyurl.com/owhzxqt

26 “WealthyWomenTargetedbyUBS”,FinancialTimes,January2017accessedOctober2017at https://www.ft.com/content/d446ffe0-e23e-11e6-8405-9e5580d6e5fb

272017 World Wealth Report, Capgemini

23

Exhibit 10: Key Drivers for Firms to Focus on Traditionally Underserved Segments

Source: Capgemini Financial Services Analysis, 2017

RisingInvestable

Wealth

Advent of Cost Efficient Digital Solutions

Increasing Competition

ChangingCustomer

Expectations

Trend Overview

• Traditionally,mostofthebigbanksserveclientsacrossdifferentsegmentscoveringretail,massaffluent,andHNWIs:

– Wealthmanagementfirmsfitcustomerswithinrigidinvestablewealth-basedsegmentswithoutbeingsensitivetotheirdistinctlydifferentneeds.

• Wealthmanagementfirmsarenowbeingcognizantofthesesegments: – UBShasprioritizedattractingmorefemaleclientswithfocusedadvisoryservices.28

– PilatusBanknowoffersthoseservicestothemass-affluentmarketaswell,thatwereearlieravailableonlytoHNWIs.29

Implications

• Itiscriticalforfirmstocustomizetheirapproachandengagementtoattractwomeninvestors.

• Firms need to retrain and improve wealth manager capabilities to help understandthedistinctneedsofthenewclientsegments:

– Hybridsolutionsarelikelytohelpcatertothedistinctneedsofthese segments.

• Firms need to be agile to revamp their internal infrastructure and competencies toadjusttonewerbusinessmodels.

• Firms must create a robust feedback mechanism to become more receptive to theexpectationsandconcernsofthesesegmentstoofferpertinentservices.

28“WealthyWomenTargetedbyUBS”,FinancialTimes,January2017accessedOctober2017at https://www.ft.com/content/d446ffe0-e23e-11e6-8405-9e5580d6e5fb

29“PilatusBankissettoofferPrivateBankingtothemassaffluent”,Globenewswire,October2017accessedOctober2017athttps://tinyurl.com/y7y4cjq2

24 Top 10 Trends in Wealth Management 2018

Trend 10: Evolution of Fee Models Due to Client Demands, Regulatory Mandates, and Competitive Pressure

Background

• Wealthmanagementfeeshaveprimarilybeenchargedasapercentageofassetsundermanagementwiththewealthmanager:

– Withstrictersupervisionofinvestmentstrategiesandrestrictionsontrading,andacautiousfinancialmarketpostthe2008crisis,returnonassetsmanagedbywealthmanagershavemostlydeclined.

– Diminishingreturnshavedrivenclientstoexaminethefeestheypayandhowtheyarecalculated.

• HNWIsarealsodemandingbettertransparencyaroundfees.• CompetitionfromFinTechsisforcingwealthmanagerstoassesstheirpricingstrategiesandtoconsiderbetterfeemodelstoacquireandretainclients.

Key Drivers

• Asnotedinthe2017World Wealth Report,HNWIsarenotverycomfortablewiththeleveloffeesbeingchargedbywealthmanagers:

– Only47.8%ofHNWIsgloballysaytheyarefullycomfortablewiththeleveloffeeschargedforwealthmanagementservices(Exhibit11).

Client discomfort with fee levels and rising demand for transparency are encouraging flexible performance-based and modular-fee models.

Exhibit 11: HNWI Comfort Level with Fees (%), Global, Q2 2017

Note: Question asked: “Given the performance of your assets and the service you received from your primary wealth management firm, how comfortable were you with the fees you were charged in 2016? Please indicate your response on a scale of 1–7. 1 = Not at all comfortable, 4 = Neither comfortable nor uncomfortable, 7 = Extremely comfortable”; Ratings of 6 and 7 have been shown in the chart aboveSource: Capgemini Financial Services Analysis, 2017; Capgemini Global HNW Insights Survey 2017

47.8%

61.6% 57.4%51.4%

44.1%

20.0%

0%

25%

50%

75%

100%

Global North America Asia-Pacific(excl. Japan)

Latin America Europe Japan

Per

cent

age

of

Res

po

nden

ts

25

• Thelackofcomfortalsooriginatedfromlackoftransparencyinfees,concernwithvalueofservicesdelivered,andavailabilityoflower-costalternativesfromnewentrantswhoaredisruptingtheindustry.

• RegulatorsintheUnitedStatesandEuropearemandatingstricterfeedisclosurerulesforinvestmentservicesandproducts,makingitdifficultforfirmstodesigntransparentpricingandtoputtheclientatthecenteroffeemodelsinwhichvaluedeliveredisacriticalparameter.

Trend Overview

• HNWIs,globally,payanaverageofUS$65,795inannualfees,whichamountstoafairlyhigh8.4%ofassetsundermanagement.

• Theoverallleveloffeesisslightlylessaconcernwith18.9%ofHNWIssayingso,thanthevaluedelivered(22.9%)andthetransparencyoffeesandservices(20.9%).30

• HNWIsarenowlookingforfeemodelswheretheypayforservicesthat add value to their portfolios and not just as a percentage of assets undermanagement.

• Asseeninthe2016World Wealth Report,28.1%ofHNWIswouldideallywanttopayfeesbyperformance,about10percentagepointsmorethanthe18.0%ofHNWIswhocurrentlypaybyperformance:

– While30.1%ofHNWIspaybasedonapercentageofassets,only23.6%saytheywouldprefertodosoinanidealworld.

– Preferenceforthepay-for-performancemodelcutsacrossalmostallwealthsegmentsandwasespeciallypopularamongtheultra-wealthy.

• Firmsarenowadaptingtoclientdemandandcompetitivepressurebydesigningbetterfeemodels:

– E.g.FidelityInternationalhasannouncedthatitsfeesonactiveequityfundswillbelinkedtohowwelltheyperformversusbenchmarks.Fidelitywill charge a baseline management fee, though it will be less than what is currentlycharged.31

Implications

• Wealthmanagementfirmsarelikelytodevisetransparentfeemodelsinlinewithwhatclientswant:

– Theyneedtomovetowardclient-friendlymodelssuchasfeesbasedonperformance,afee-by-servicemodule,fixedyearlyfees,oracombinationmodel.

• Withthepossibilityofmarketplacesthatselltheirownandthird-partyproducts,incumbentfirmswillhavetoseriouslyconsidermodularfees:

– Unbundlingofbankingservices,includingwealthmanagementofferings,willultimatelyleadtomodularfeesacrosstheboard,beingofferedbylargebankstoFinTechsalike.

• Therefore, the share of fees as a percentage of assets is destined to go down, thoughnotcompletely,butfeesbyperformanceandbymodulewilllikelybethemostpopularmodelsinthenearfuture.

302017 World Wealth Report, Capgemini

31“FundFeesWhackedAgaininActive-PassiveFight”,Bloomberg,October3,2017,accessedOctober2017athttps://tinyurl.com/y8kg2oo9

26 Top 10 Trends in Wealth Management 2018

Heena MehtaisaSeniorConsultantwiththeMarketIntelligenceteaminCapgeminiFinancialServiceswithoversixyearsofexperiencespecializingincapitalmarketsandwealthmanagement.

Anirban AcharyaisaSeniorConsultantwiththeMarketIntelligenceteaminCapgeminiFinancialServiceswithoverfiveyearsofexperiencespecializingincapitalmarketsandwealthmanagement.

Priyanka Arora isaSeniorConsultantwiththeMarketIntelligenceteaminCapgeminiFinancialServiceswiththreeyearsofexperiencespecializingincapitalmarketsandwealthmanagement.

Akshat GovilisaManagerintheE.L.I.T.E.GeneralManagementPrograminCapgeminiFinancialServiceswithatotalexperienceof1.5yearsintechnologyandwealthmanagement.

The authors would like to thank Ferreol de Naurois, Tej Vakta, William Sullivan, David Wilson, Chirag Thakral, and Tamara BerryfromCapgeminifortheircontributionstothispaper.

1. World Wealth Report, 2017,Capgemini, https://www.worldwealthreport.com/download

2. World Wealth Report, 2016,Capgemini, https://www.worldwealthreport.com/download

3. “Howmuchdoyoureallypayyourmoneymanager?”,FinancialTimes, Aug26,2016,accessedOctober2017at https://www.ft.com/content/56243606-6614-11e6-a08a-c7ac04ef00aa

4. “Riseinuseofbiometricsproductsforcyber-security”,SCMediaUK,accessedOctober2017athttps://tinyurl.com/y9zmjmuf

5. “SurveyshowsincreasingfocusoncybersecurityinUKfinancialservices”,OutLaw,accessedOctober2017athttps://tinyurl.com/y89759je

6. “MachinelearningistransforminginvestmentstrategiesforassetmanagersCNBCaccessedOctober2017athttps://tinyurl.com/y8y9t4kw

7. “TheRiseofAIFirstWorldinFinancialService”,accessedOctober2017athttps://tinyurl.com/y7wyk5oe

8. Fenergowebsite,accessedDecember2017at https://www.fenergo.com/solutions/compliance

9. Skiencewebsite,accessedDecember2017athttp://www.skience.com/solutions

10. Pindropwebsite,accessedDecember2017at https://www.pindrop.com/technologies

11. Nuancewebsite,accessedDecember2017athttps://www.nuance.com

References

About the Authors

27

About Capgemini

A global leader in consulting, technology services and digital transformation, Capgemini is at the forefront of innovation to address the entire breadth of clients’ opportunities in the evolving world of cloud, digital and platforms.

Building on its strong 50-year heritage and deep industry-specific expertise, Capgemini enables organizations to realize their business ambitions through an array of services from strategy to operations. Capgemini is driven by the conviction that the business value of technology comes from and through people. It is a multicultural company of 200,000 team members in over 40 countries. The Group reported 2016 global revenues of EUR 12.5 billion.

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The information contained in this document is proprietary. ©2017 Capgemini. All rights reserved. Rightshore® is a trademark belonging to Capgemini.

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