Young Fundpicker: How can wealth managers stay relevant?

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Wealth managers’ client base is changing too. A new generation of investors, whose lives have been irreversibly transformed by digitalisation and the shared experience of living through Covid-19 are joining the ranks of the wealthy.

According to research undertaken by Deloitte, we are in the midst of ‘the greatest wealth transfer in history’, with roughly $30trn set to change generational hands between 2017 and 2060, primarily from baby boomers to Gen Zs. With data suggesting that wealth transfers from one generation to the next result in 90% of heirs changing advisers, wealth managers are presented with both an opportunity and a threat.

Importantly, they must fight to keep up with industry disruptors if they are to continue to play a role in the financial wellbeing of their client-base; fintech, robo and DIY offerings, equipped with sophisticated digital capabilities and low-cost investment advice, are all vying for market share.

It strikes me that it is now more important than ever to really try to understand what clients are looking for and what their investment priorities are.

What are clients looking for?

This question is, and certainly should be, right at the heart of wealth management. At the very least, clients want to see strong portfolio performance and safe custodianship of their assets, and at a reasonable cost. If they are to ‘pay up’ for a DFM service, they should expect excellent – tailored and personable – customer service too.

Indeed, consumer research has shown that clients are becoming increasingly more focused on whether their adviser ‘gets’ them. Deloitte speaks of the ‘re-wired’ generation of investors, one that wants to be in control of their finances and to fully understand the advice they receive. This comes with a ‘just me’ approach, to be treated as unique with specific goals and preferences.

Younger clients looking for wealth management services are likely to seek out managers who share similar values and world views, yet another reason why diversity in the industry is so important. Clients want to find advisers who they can resonate with, and it is easier to create empathy and build stronger relationships if you share beliefs and experiences.

It is therefore an exciting time to be embarking on a career in the industry: the world has seen great changes in the last few decades, particularly in respect of globalisation and technology. Growing up through that gives a perspective on how fast things can change, which makes you more aware of the possibilities but also the risks, especially in respect of financial markets.

What are clients’ investment priorities?

ESG is certainly the buzzword of our generation, and many see the pandemic as a global wake-up call that enables us to ‘build back better’. Clients are increasingly concerned about how their money is being put to work and want to see that their wealth managers are considering investments that have real-world impact.

For years, and in the wake of COP26, there has been great attention to the ‘E’ issues, particularly regarding climate change-related impacts and risks. ‘G’, too, gets a large share of attention. Significant progress has been made on both fronts, not least because they are easy to measure, define and understand.

The more subjective ‘S’ has historically been somewhat left behind, but, in the aftermath of Covid, along with the Black Lives Matter and #MeToo movements, this is being moved to the forefront of client agendas. Issues such as workplace equality, homelessness and the cost-of-living crisis are gaining traction, and new investment vehicles dedicated to tackling these issues are coming to market.

Wealth industry missing out on $230bn opportunity in lower HNW and affluent segments

A case in point is Home REIT, launched in 2020 to provide accommodation to the homeless. It is in the process of raising a further £150m after 222,000 people – almost equivalent to the population of the city of Westminster – lost their homes in the pandemic. For socially minded income investors, this provides an exciting opportunity to make a material difference in local communities.

The trust leases properties to charities on inflation-linked (caps and collars), long-term contracts. With a structural supply and demand imbalance in the sector, and steady stream of government-backed income (rents are underpinned by the Homeless Reduction Act which places a statutory duty on local authorities to house homeless people) it is easy to see why the manager expects the trust to reach £1bn in the next three to five years.

In a potentially kinder post-pandemic world, clients want to hold investments that benefit the planet and its people, and social impact investing allows them to do just that, but not at the expense of financial return.

It is easy to feel cynical about ESG investing and to see it as a marketing ploy, but beyond that, ESG cannot just be about morals and principles. In 2020, Larry Fink, director of Blackrock, argued that ‘a fundamental shift in capitalism was underway to which companies and investors needed to respond if they wished to prosper’. He suggested that principled investing was neither ideological, nor ‘woke’, but the best route to obtaining long-term rewards from businesses. Given the lengthy investment horizons of the next-gen investors of today, social investing seems like a good place to start.

Georgia Barham is assistant investment manager at Tyndall Investment Management

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