By Julia Khandoshko, CEO at Mind Money, a leading European investment technology and financial engineering hub
The world of finance has been around for centuries. And what has always been the talk of the town—how can we make financial services more efficient and client-centric and build a long-lasting business in finance and consulting? The historical answer was to go niche, focus on what your company can do best, and delegate the rest.
The Global Financial Crisis of 2007-2008 served as the first serious call for action, proving this approach to be ineffective. Although today we see banks and other institutional market players better capitalized and better regulated than they were 15 years ago, the Covid era has shown a stronger tendency of clients to walk away from niche approaches. Instead, they look for companies that can offer 360°-investment and wealth planning services that are better equipped for their needs.
With European assets under management (AUM) value expected to grow from $41 trillion in 2023 to $51 trillion by 2028, we see a growing demand for comprehensive all-around investment solutions. Let’s look into the major trends that will shape the industry’s demand to help wealth managers better asses their work in 2024.
Aiming for a holistic data-based approach
The Covid pandemic and its aftermath have made it abundantly clear that the market faces disruption. Old financial structures no longer act as effectively, and new ones are still in the making. Between 2021 and 2022, financial products underwent significant diversification. Gone are the days when there were a few universally safe bets—index funds, bonds, stocks, IPOs, and pre-IPO investment strategies.
Now, with the accessibility of artificial intelligence (AI) and machine learning (MI) tools, adhering to traditional investment strategies while maintaining a competitive edge has become challenging. European investment brokers should now shift their focus toward proactive portfolio management, and the Environmental, Social, and Governance (ESG) agenda plays a pivotal role in this transition. ESG exemplifies a holistic and proactive solution that clients are increasingly seeking. It encompasses sustainable development and encourages asset managers to adopt a broader perspective, assessing the potential and future of projects rather than narrowly focusing on very niche financial functions.
An Aasset manager’s proactiveness is also evident in leveraging ML, AI, and robust evidence-based data analytics. In 2024, any niche asset manager will likely find themselves outperformed by robo advisors. These data-driven tools encompass a wide array of arbitrage opportunities, with risk levels tailored to each individual client. This brings us to the next crucial point—personalization and customization of offerings, which are poised to be pivotal next year.
Addressing personalization and interoperability of services
A major trend driven by both clients and the industry emphasizes tailored solutions and a personalized approach to financial services. While the Know Your Customer concept (KYC) has been discussed for years, it remained somewhat elusive as the products themselves were quite homogenous.
This is precisely what’s fueling the surge in popularity of exchange-traded fund (ETF) assets today. For clients, securitization has become a common means of investment. People want to invest in securities, seeking highly personalized solutions from portfolio managers. However, as the level of diversification varies among products, the ETF trend has emerged as a quasi-substitute for a truly individualized approach.
In 2024, merely serving as an asset manager will no longer suffice for the industry. Clients now anticipate a comprehensive solution that addresses questions like where they’ll trade assets, which country they’ll be tax residents in, and where their primary interests lie. Clients are willing to meet their financial obligations, provided these obligations align with their primary interests. By addressing these questions, asset managers can enhance the value of their services and offerings. These solutions extend beyond asset trading, encompassing services for individual process oversight and communication support, both of which are vital to clients.
For instance, a successful trading strategy that generates income for the client is no longer the sole criterion in today’s financial landscape. Clients also want to ensure that financial solutions can seamlessly integrate with other platforms, such as transitioning from one trading platform to another. This ability for financial solutions to work harmoniously with other systems, promoting interoperability, is crucial.
Ways for wealth managers to succeed in 2024
It’s clear that the financial industry is undergoing a significant transformation, with the Covid pandemic underscoring a shift in client preferences. The traditional approach of going niche is no longer effective, and clients now seek comprehensive, personalized solutions that are better equipped for their investment needs. And European asset managers must adapt to stay competitive.
Major trends such as a data-driven approach, personalization of offerings, interoperability of cross-border services, and proactive portfolio management are redefining the industry. By embracing these trends, asset managers can better meet the evolving needs of their clients and build long-lasting relationships in the years to come.
