Wealth And Asset Management 2021

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Wealth and AssetManagement 2021:Preparing for Transformative ChangeWhite PaperA white paper produced in conjunction with:Bank of Montreal, Broadridge, CFA Institute, Cisco, eToro,Schroders, SEI, and State Street

Table of ContentsPreface.21. The Big Shift.52. The Rapidly Evolving Investor.133. Rethinking Product and Market Approaches.194. The Future Wealth Advisor.285. The Road Ahead: Driving Digital Transformation.38

PrefaceEverywhere you look, the signs of change are there. Thedemographics of wealth are shifting dramatically around theworld—from the growing dominance of women investorsin North America to the rising middle class in emergingmarkets. As part of this shift, the wealth industry will seetrillions of dollars of wealth transfer from baby boomersto a new generation of digital natives with very differentinvestment behaviors.At the same time, technology is linking billions of peopleand devices through real-time connections, reinventinghow investors communicate, interact, and make decisions.Artificial intellignece, virtual reality, blockchain, and real-timeanalytics are just some of the smart technologies investmentproviders are embracing. Over the next five years, theimpact of these economic, demographic, and technologicalmegachanges on the wealth profession will be profound.To help wealth executives understand the far-reachingimplications, Roubini ThoughtLab, an independent thoughtleadership consultancy, teamed up with a coalition ofleading organizations from the wealth industry to conduct arigorous study, titled Wealth and Asset Management 2021:Preparing for Transformative Change. The complexityof these issues and the scope of the project required acomprehensive research program based on extensivequantitative analysis of 2,000 investors and 500 wealthfirms across 10 world markets; economic modeling andforecasting across 25 countries; and expert opinions frommore than 40 market leaders, economists, technologists, andinvestment specialists.We would like to thank the sponsors of Wealth and AssetManagement 2021: Preparing for Transformative Change,who contributed financial and intellectual support to thisground-breaking research program. Without their kindsupport, this study would not have been possible.PREFACE 2

Bank of Montreal Terry McDougall, Head of Marketing, US WealthManagement and Global Asset ManagementBroadridge Steve Scruton, President of Broadridge AdvisorSolutions Traci Mabrey, Head of Wealth Solutions at BroadridgeFinancial SolutionsCisco Systems Leni Selvaggio, Global Marketing Lead, FinancialServices Industry Joseph Pagano, Practice Advisor, Financial ServicesDigital Transformation GroupCFA Institute Bob Dannhauser, Head of Global Private WealthManagement John Bowman, Managing Director, AmericasSchroders Duncan Lamont, Head of Research and Analytics Magnus Grimond, Research ContributorSEI Investment Al Chiaradonna, Senior Vice President, SEI WealthPlatformSM, North America Private Banking Kevin P. Barr, Executive Vice President of SEI andHead of SEI’s Investment ManagementState Street John Bolton, Vice President, Thought Leadership,Global Marketing Meredith Kaplan, Vice President, Research, GlobalMarketingeToro Yoni Assia, Founder and CEO Elad Lavi, Executive Assistant to CEO3 PREFACE

We would also like to thank the advisors to our project,who offered their guidance and valuable insights. Theseinclude Bill Janeway, Managing Director, Warburg Pincus;Rodolfo Castilla, Global Head, Wealth ManagementProducts and Platforms, Citi Consumer Bank; Daniel Tu,Chief Innovation Officer, Ping An; Amit Sahasrabudhe, Headof Wealth Management Strategy and Digital Solutions,RBC; Stefan Tirtey, Managing Director, CommerzVentures;Joseph Pawson, Vice President, Bank of Tokyo-MitsubishiUFG; Andy Nusbickel, Senior Manager, Financial AdvisorsMarketing, Vanguard; Dimple Shah, Senior Vice President,Head of Corporate Strategy, LPL; and Nancy Davis,Managing Partner and Chief Investment Officer, QuadraticsCapital.We would like to extend special thanks to Dr. NourielRoubini, who generously shared his time and providedus with a valuable vision of the future. His team ofmacroeconomists modeled the impact of demographic andeconomic trends on the wealth landscape.The project has brought together an extraordinary group ofexecutives and experts from across the wealth ecosystem– including private banks, family offices, personal wealthadvisors, mutual funds companies, full-service banks,alternative investment firms, fintechs, technology companies,and consultancies. The result is fresh, evidence-basedresearch providing actionable insights into how investmentproviders are rethinking their strategies, products, andprocesses to succeed in a rapidly transforming marketplace.We are proud to be part of this initiative and hope it will helpwealth executives cope with the challenges and enormousopportunities that lie ahead.Lou CeliCEORoubini ThoughtLabPREFACE 4

1. The Big ShiftBy 2021, the convergence of technological, economic,and demographic trends will transform the wealth industry,unlocking immense global wealth across a diverse universeof investors. But these investors will also have risingexpectations, and the willingness to switch providers if theirdemands are unmet. In such a fast-changing marketplace,investment providers need to fully understand theircustomers’ priorities and behaviors, and leverage technologyto meet their changing needs.Winds of changeChange is a constant in the global wealth industry. “The business movesin cycles, and some are severe,” says market veteran, Bob Reynolds,President and CEO of Putnam Investments. But even for experiencedprofessionals, recent market turns have been particularly tumultuous.Since the sub-prime meltdown and Great Recession of 2008, industryleaders have needed to navigate their firms through a Eurozone debtcrisis, an emerging market slowdown, and a collapse in oil prices.With monetary policy losing its efficacy, “mediocre growth and lowinterest rates have become the new normal,” according to economistDr. Nouriel Roubini. He sees a dangerous storm looming: a rising tide ofnationalism that can shake the very bedrock of global markets. “Brexitis the proverbial canary in the coalmine,” says Roubini, “It signals abroad populist backlash against globalization, labor migration, and openmarkets.” While Roubini does not think this is a “Lehman moment,” hesees a higher risk of EU and Eurozone disintegration and other potentialglobal disruptions.But Dirk Klee, COO of UBS, believes the biggest market upheaval willcome from within the industry itself. “The wealth sector is going througha tremendous, fast shift,” says Klee, “not because of regulation or lowinterest rates, but from customers and their desire for a digitally enabledexperience.” Investment advisors like Clark Blackman II, Founder andCEO of Alpha Wealth Strategies, agree: “This is a watershed moment forthe investment advisory business.”Indeed, our research shows that a convergence of technological,economic, demographic and consumer trends will turn the wealthprofession on its head by 2021, reshaping customer expectations,disrupting business models, and altering advisor roles. These newrealities will require investment providers to drive wide-ranging digitaltransformation or face extinction at the hands of competitors both old andnew.5 THE BIG SHIFT

Technology changes the gameWealth service providers and investors agreethat technology is revolutionizing the industry.Of the top five external forces of change citedby surveyed investment providers, three relateto technology: new technology, includingmobile, analytics, and social media; a greaterrange of competitors, including fintechs(financial technology companies); and threatsto cybersecurity. Similarly, in a separate survey,investors put three technology-related issues ontheir top-five list: cybersecurity threats; a greaterrange of wealth providers, including fintechs;and digital access to investment providers. (SeeFigure 1-1.)As Rodolfo Castilla, Global Head of WealthManagement Products and Platforms at CitiConsumer Bank, puts it: “Across all generations,all demographics, all segments, digital andomnichannel interaction will be mandatory forour clients in the very, very short term.”Likewise, Julius Baer, a Swiss private bank,sees technology as a game-changer. “It will havea tremendous impact on wealth managers inprivate banking,” says Burkhard Varnholt, untilrecently the bank’s Chief Investment Officer.“Technology will – and must – dramatically lowerthe cost of advisory services.”As always, technological change will haveits strongest impact through businesstransformation. Joseph Pagano, PracticeAdvisor, Financial Services DigitalTransformation Group at Cisco Systems,explains, “It’s very likely we’re going to see majorchanges in business models. The iPhone waslaunched only nine years ago. Think about allthe different industries that have changed indramatic fashion, and how quickly, since.”But technology is a double-edged sword able tostir up new competition, both from fintechs andnimble incumbents. Indeed, both providers(46%) and investors (52%) see heightenedcompetition and the rise of fintechs as the maindriver of change over the next five years. Someproviders, such as mutual funds (63%) andalternative investment firms (50%), foresee eventougher competition ahead.For Andrew Wilson, SVP and Head of AssetManagers Solutions EMEA at State Street, thedirection is clear: “Technology may endangermany existing players. But it will also providegreat opportunities to those who embrace itcorrectly.”The future trajectory of wealthDemographic shifts and continued wealthcreation, particularly in emerging markets, willwork symbiotically with technology to driveradical market change and fresh opportunities by2021. Roubini ThoughtLab economists forecastmassive wealth creation over the next five years,with household assets rising 89 trillion – from 207 trillion to 296 trillion – in 25 top worldmarkets (representing about 60% of world GDP).The rise in household assets in these marketsalone will pump about 50 trillion into the wealthindustry.Noted economist Dr. Nouriel Roubini seesseveral demographic forces driving wealthcreation. “In emerging markets, populations aregoing from low per-capita income to mediumper-capita income – and creating a middle classthat will save more. This is happening in manyparts of the world, from India to China, and fromLatin America to Asia.” Dr. Roubini also believesthe aging of populations, especially in maturemarkets, will boost savings. “If we’re going tolive longer, then when we work, we need to savemore to have enough savings for old age.”This tectonic shift will redefine the topographyof wealth, requiring investment providers toincrease their knowledge of a heterogeneous set“Technology may endanger many existing players. But itwill also provide great opportunities to those who embrace itcorrectly.”- ANDREW WILSON , HEAD OF ASSET MANAGERS SOLUTIONS EMEA at STATE STREETTHE BIG SHIFT 6

Figure 1-1External shifts with largest impactProvidersInvestorsNew digital technology49%Data security and privacy threats57%More competitors, including fintechs43%Balancing investment and life goals53%Globalization of markets43%More competitors, including fintechs51%Economic and market volatility38%Concerns about ethics/transparency48%Data security and privacy threats38%Easy digital access to wealth firms47%Source: Roubini ThoughtLabof customers across new markets. Our analysisshows that the largest proportional increases inhousehold wealth between now and 2021 arelikely to be in emerging markets, such as Poland(106%), China (106%) and Mexico (84%). Somedeveloped markets are also likely to see robustgrowth, such as Australia (83%), Israel (62%),France (52%), and Canada (50%). (See Figure1-2.)Kevin Barr, EVP of SEI and Head of SEI’sInvestment Management, notes that “investmentproviders will need to serve clients in emergingeconomies that are now some of the wealthierparts of the world.” State Street’s Wilson agrees.The wealth services “industry will move,” hesays, because “other parts of the world, suchas the BRIC countries or other emergingeconomies, are going to be a mass area ofwealth, not just in the aggregate, but also in thenumber of high-net-worth individuals.”This is already happening: According toCapgemini, Asia’s millionaires saw their wealthgrow by 9.9% in 2015, driven partly by a 16.2%rise in China. More generally, BCG projects that,by 2020, the Asia Pacific (including Japan) willovertake Europe as the second-richest region ofthe world, after North America.Even in traditional wealth centers, money willbe growing and changing hands. The Roubinianalysis found that the US will enjoy the largestsingle absolute increase in householdassets between now and 2021, an estimated riseof more than 44 trillion, bringing total householdwealth to 152 trillion. (See Figure 1-3.)The asset owners, however, will differ. In theyears ahead, a large percentage of today’s 168trillion in global wealth will be transferred viainheritance from baby boomers to Gen X andmillennials – generations that have repeatedlyshown sharp differences in behavior. Thecomposition of the investor base by gender isalso changing, notes Amit Sahasrabudhe, Headof Wealth Management Strategy and DigitalSolutions at RBC: “In the next five to sevenyears, in Canada and the US, the majority ofwealth will be managed by women investors– because of both inheritance and their ownaccumulation.”At the same time, technology will enable wealthfirms to reach investors whose small savingswould have previously made them unprofitableto service. Pagano expects this development toreach a logical extreme. “Everyone with a bankaccount is going to become an investor,” aslarge numbers of technologically enabled microinvestors generate small average amounts, butan enormous aggregate pool of capital. FuturistAlex Tapscott, Founder and CEO of NorthwestPassage Ventures, concurs, “There are hugeuntapped markets made up of people who arecurrently unbanked. À la carte digital servicescould tap into trillions of dollars in the so-calledgray economy in the developing world.”“Everyone with a bank account is going to become an investor.”- JOSEPH PAGANO, PRACTICE ADVISOR, FINANCIAL SERVICES DIGITAL TRANSFORMATIONGROUP at CISCO SYSTEMS7 THE BIG SHIFT

dGreeceNetherlands0.5Chile10Czech 5Switzerland45Mexico4.0Germany50CanadaUKFigure FranceCanadaSwedenUnited StatesCzech RepublicUnited etherlands0%ChinaUSFigure 1-2Forecast percentage change in nominal household assets 2015-2021120%100%80%60%40%20%Sources: OECD, IMF, Roubini Global EconomicsForecast change in household assets 2015-2021 (US trillions)3.0302.52.01.5Sources: OECD, IMF, Roubini Global EconomicsTHE BIG SHIFT 8

The wealth services industry, then, will enjoya rising tide of investable capital that could liftmany boats. However, taking advantage ofthis opportunity will require more than changearound the edges. Investment providers willneed to sharpen their understanding of a diverseuniverse of clients around the world and find newways to reach and interact with them, particularlythrough digital technology.Evolving consumer expectationsAs a result of these shifts – and greater marketawareness – customers are expecting morefrom their investment providers. As Figure1-4 shows, investors are demanding greaterprofessionalism, and expecting providers toact with the highest ethical standards, possessdeep investment knowledge, and of course,have the proper certification. At the same time,they want investment providers to be highlyresponsive to their changing needs, able toprovide personalized advice geared to both theirfinancial and life goals.Investors also expect investment advisorsto manage their money better. This includesunderstanding their financial goals and risktolerance, coping with market volatility, andoffering innovative solutions. According to NancyDavis, Managing Partner and Chief InvestmentOfficer of Quadratics Capital, “I believe clientsare going to demand strategies that trulydiversify their portfolios – things they can’treplicate with a robot.”Just like other industries, the wealth professionis undergoing a wave of consumerization,causing investors to expect greater producttransparency and more competitive prices.Al Chiaradonna, SVP, SEI Wealth PlatformSM,North America Private Banking, believes thatthis consumerization is changing the economicsof the industry. “You can see it as consumersdemand more. You can see that pressure flowingback to big financial intermediaries and creatingopportunities for fintechs.”9 THE BIG SHIFTBecause of client sensitivities and regulatoryissues, consumerization is not likely to upendthe investment industry as profoundly as it didwith other sectors, such as entertainment andretail. But the disruption may still be enormous.Christopher Jones, EVP of InvestmentManagement and Chief Investment Officerof Financial Engines, the largest US definedcontribution managed account provider, givesa current example: “Look at the cumulativeflows that have suddenly gone out of traditionalactive fund managers to ETFs. It’s really quite astunning set of statistics.”Should wealth firms beoptimistic?Technology, globalization, and consumerizationare only the most visible drivers of change.As Figure 1-5 shows, substantial numbers ofinvestors will be affected by a wide range ofissues, from economic uncertainty and familyneeds to access to a broader range of assetclasses. The implications can vary by country:For example, investors in Switzerland areparticularly concerned about regulatory and taxcomplexity (58%) while those in Japan are morenervous about economic uncertainty (50%).Despite the challenges ahead, surveyedproviders are sanguine about the future. (SeeFigure 1-6.) Most feel that these market shiftsare already helping their businesses to attract,retain, and satisfy customers. Looking fiveyears out, the picture appears even rosier. Mostproviders expect a sizable upside on businessgrowth, improved margins, advisor efficiency,and better business models.Some of this confidence is justified: Technologyis already opening up new markets andmaking providers more productive. Moreover,incumbents in the investment services sector arewell positioned for future success, thanks to theirloyal customer bases, established brands, andproven track records.

Figure 1-4How investor expectations of wealth providers are changingAct with the highest ethical standards51%Ensure robust cybersecurity and data protection50%Be highly responsive to my changing needs49%Ensure product simplicity and transparency47%Of f er competitive prices and clarity on f ees47%Have deep knowledge of market, investment and tax issues44%Understand my f inancial goals and provide personalized support42%Use latest technology to provide sophisticated analytics39%Help me cope with market volatility and outperf orm the market38%Have proper wealth management certif ication and qualif ications37%Of f er innovative and customized f inancial solutions and products37%Draw on indexing methods to make good investments at low cost35%Provide personalized service geared to my f inancial goals28%Provide access to investment opportunities across as

megachanges on the wealth profession will be profound. To help wealth executives understand the far-reaching implications, Roubini ThoughtLab, an independent thought leadership consultancy, teamed up with a coalition of leading organizations from the wealth industry to conduct a rigorous study, titled . Wealth and Asset Management 2021:

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