6 Trends to Watch in Wealth Management in 2023

In 2022, tightening financial conditions, slowing economic growth and geopolitical shifts profoundly affected wealth management firms and their clients.

As a result, assets under management (AUM) fell by 14.9% between the fourth quarter of 2021 and the third quarter of 2022 for the world’s 40 largest asset managers, translating to a decline in revenues of 22.9%. Market conditions are expected to remain weak in 2023, limiting the recovery in AUM. In addition, merger and acquisition (M&A) activity and increasing competitive pressures are rapidly transforming the industry landscape.

Today’s investors have increasingly complex and demanding expectations; young investors, in particular, are seeking to diversify their portfolios. Eager to keep pace with the competition, more than 70% of wealth firms believe investments in technology will be a significant driver of success in the next five years and expect to increase their tech spending this year. 

Given these challenging dynamics, where should wealth management firms focus their attention in 2023?

We’ve identified six key areas shaping the industry outlook for 2023. 

1. Client experience is critical for individual and high-net-worth investors 

To stay ahead of the pack, innovation is vital. As the world moves toward a more digitized and connected future, client experience is where firms will spend their money in 2023. 

Today’s retail investor profile is vastly different from previous years, and wealth managers are expanding their focus to new segments, like the mass affluent market. Over $70 trillion of assets are passing from older generations to millennials, making them a core investor class. 

Statistics show 80% of millennial heirs will seek new advisors after inheriting wealth. Financial services institutions can capitalize on this demographic by engaging and establishing relationships early. For this group, receiving personalized advice and seamless experiences across digital channels are non-negotiables, with over 70% preferring to transact remotely

As technology advances, investors will expect a higher level of service from firms through simplified, mobile-friendly solutions that enhance the end-to-end experience. 

2. The pendulum is swinging for institutional investors and their portfolio strategies

Market forces are significantly reshaping portfolio allocation strategies among institutional investors. With higher interest rates for the first time in over a decade, yield-driven investors are returning to bonds as treasuries yield over 4% and offer a more compelling risk-reward profile. Concurrently, the rise of digital assets and cryptocurrencies is catching the attention of young and tenured investors alike, offering potential high growth and a hedge against inflation.

Evolving investor allocations come with a documentation and process burden. These changes generally require modifying an investor’s investor services agreement (ISA) and investor advisory agreement (IAA). Investment managers should be ready to make such adjustments in a clean and scalable fashion based on the multi-layered dynamics in the market today.

3. ESG investments continue to trend upward 

Environmental, social and governance (ESG) investing will continue its recent hot streak, with 81% of institutional investors planning to increase their allocations to ESG products, and global ESG investing set to exceed $53 trillion by 2025. Today, 64% of high-net-worth (HNW) investors ask for an ESG score before investing in a fund, a strong indicator of their desire to invest in companies striving to improve the world. 

And as preferences for ESG assets grow, so will the related regulations. To limit the misuse of ESG-conscious language, asset managers and investment advisors will be required to show how their ESG strategies are being deployed. 

To comply, firms need to develop methods of demonstrating how much of their asset volume is allocated to ESG funds. However, current systems are complex and advisors are challenged to access accurate impact data. For this reason, deploying advanced technology to analyze, track and report on company- and portfolio-level ESG data will become critically important as this area matures.

4. M&A activity and advisor movement continue to shift books of business 

The wealth and asset management industry has experienced significant M&A activity over the past few years. According to CapGemini, M&A deals rose by a record 47% during the first six months of 2022 compared to the same period in 2021. Consolidation is so prevalent that the top twenty global asset managers account for half of AUM, and the number of original firms in the industry is shrinking. However, this record-high M&A activity will likely ease in 2023 due to ongoing market uncertainty. 

But industry consolidation is unlikely to cease altogether. Over a third of firms surveyed by RIA Edge report receiving or expressing interest in buying or selling their firm sometime in 2023. 

In addition, the coming deluge of advisor retirements offers wealth firms the option to consider M&A or external sales for succession planning. The new generation of advisors is shifting away from brokerages and wirehouses to RIAs or other independent channels. To repaper faster and with fewer headaches, investing in automated systems is critical. This will enable firms to utilize batch processes to move their books of business and transition legacy clients en masse, allowing them to scale quickly while maintaining client service standards. 

5. Mitigating security risks and unauthorized activity top the agenda

The financial services industry has seen a distinct rise in cybersecurity and fraud since the COVID-19 crisis began. 

To reduce the risks, the SEC released a proposed cyber incident reporting rule where wealth management firms will need to report cyber incidents within four business days of discovering a material incident and share information with their regulators and constituents. FINRA also issued a notice in August 2022, prompting firms to investigate instances of representatives signing documents on behalf of clients without consent.  

As guardians of sensitive financial data, firms must implement measures to protect the assets and personal information of clients. To do this, they must invest in tight access controls, strict authentication protocols, monitoring tools and encryption technologies that protect sensitive information from these threats. 

6. Expect greater regulatory scrutiny in 2023 

Compliance is critical in maintaining the industry’s integrity, and 2022 saw a considerable rise in regulatory scrutiny. This pattern of heavy enforcement is expected to continue into 2023. 

Last year, the SEC levied a record $6.5 billion fines on advisors and broker-dealers and audited sixteen large banks for using WhatsApp and messaging services not in line with record-keeping rules. Meanwhile, the agency began enforcing Regulation BI—which requires broker-dealers to disclose material facts about the relationship and product recommendations—for the first time.

Firms should deploy streamlined processes and automated document management systems to ensure they keep clear and proper documentation of key investor disclosures, maintain a transparent audit trail of correspondence, and safeguard all archived records to avoid landing in hot water with regulators like the SEC and FINRA.

Start developing tomorrow’s wealth management practice today

With the industry landscape shifting, firms must develop superior processes and invest in new technology to meet evolving investor demands and future-proof their operations. 

With DocuSign solutions, wealth management firms can modernize multiple aspects of their agreement process to deliver enhanced client experiences, operational efficiency and improved security and compliance.  

Start creating your blueprint for the wealth management firm of tomorrow by downloading our Wealth Guide to Digitization and learning more from our blog, Implementing eSignature to Modernize Wealth Management.

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Manas Baba
Financial Services Industry Expert