AI, Hyper Personalization to Change Wealth Management in India- 5 Trends That Will Drive Wealth Advice in 2023

AI, Hyper Personalization to Change Wealth Management in India: 5 Trends That Will Drive Wealth Advice in 2023

By Sunil Sharma

For the past two decades, accommodative central bank policies have been tailwinds for wealth creation. Global financial wealth has tripled, rising from $80 trillion in 1999 to $226 trillion in 2020. The drivers for wealth creation in India remain strong. India has the second highest number of HNIs amongst BRICS nations. India’s HNI population is expected to grow from 3.5 Lakhs in 2020 to 6.2 Lakhs in 2025. Ultra HNIs are expected to increase from 13,600 in 2021 to 19,000 in 2026.

There are key pressures across the value chain.Global tailwinds such as central bank liquidity have dissipated. Fee compression and passive investing are leading to persistent downward pressure on margins. Regulatory requirements are an additional drag on profitability. There remains a skills deficit and a paucity of knowledgeable, skilled, experienced talent. New entrants pose significant threats, whether it be Big Tech, FinTech or WealthTech. On the flip side, large global players have exited the market. Growing the business profitably remains a challenge.

There are five key trends that will define the wealth industry moving forward:The Hybrid, Full Stack Service Model is the Future of Wealth Advice

Effectively serving the world’s wealthy will continue to get more complicated. Hybrid models that bring digital access alongside human advice will be the base expectation moving forward.The good news is that digital technologies will open up new revenue channels at fairly low costs.

Millennials are digital by nature, rapidly assuming decision making functions in many UHNI families, and prefer low value interactions to be driven by tech. Meanwhile, UHNIs prefer high touch, trust, experience and competence driven engagement. For UHNIs, the human interaction with a trusted advisor will continue to be a dominant input in client interactions; however, hybrid human and online always on, anytime, anywhere access technology alongside trustworthy, competent advice will rapidly garner traction across the wealth spectrum.

Hybrid services will provide high margins, new revenue streams, higher valuations and larger opportunity sets.

Converting Complexity into Simplicity & Insights

More than ever, clients are encountering information overload in their lives. Clients desire simpler, personalized, holistic and meaningful advice. Insightful advice is more valuable than ever. Anytime online access to portfolio reporting and analytics, reliable recommendations that take into account client return objectives, risk and constraints will be the base expectation. The advisor will overlay additional business intelligence, interpretation and advice.

Instead of a plethora of offerings, the wealth advisor will provide clients personalized recommendations. Visualization tools and scenario analysis will enable advisors to walk clients through different financial outcomes, giving clients comfort that their financial plans are prudent and reliable. For UHNIs, the depth of individualized attention in addressing their most complex needs will be an additional key expectation.

Performance and goal achievement will remain key evaluation criteria as always, but competent, prudent advice, ease of interaction, platform and service will be essential considerations in evaluating services.

Hyper Personalization at Scale – Innovative Client Experience

Personalization – frequency, format and style of interaction, customized recommendations, curated ideas – at scale with superior data analytics will enhance engagement, and advisors will move easily between personal and digital channels.

Getting personalization right will drive the top-line.Hyper-personalization will be useful in customer acquisition and servicing. The right offers and recommendations to the right client at the right time, will see higher rates of sell through, and higher client satisfaction.Personalization will extend to portfolio reviews, and formats will move from static to adaptive, reflecting client preferences and market conditions.Companies able to create repeatable, customized solutions at scale will be big winners, with sticky assets.

The Affluents

Online platforms today routinely offer affluent customers the ability to transact online with a fair amount of ease. However, fees, true ease of execution, quality of experience and outcome effectiveness leave a lot to be desired. The next evolution will be offering wealth management services to the affluent and low-end HNIs, via digital platform solutions.

Creating plays for the affluent segment is promising, given the segment’s size, potential for growth, and history of being underserved. Affluent individuals are likely to be open to digital-only solutions, because their needs are generally less complex.Wealth management providers that get this right will experience meaningful revenue growth.

Artificial Intelligence and Automation

AI bots will soon create holistic plans that accept key client requirements, recommend a customized investment plan, strategic asset allocation, create bespoke portfolios, implement tactical tilts, provide analytics, recommend tax mitigation strategies, perform complex portfolio optimization, and create meaningful reports on the fly.

Artificial Intelligence will create customized prospecting emails, automate compliance checks and order verification, perform mundane tasks, and free up the time and resources for human staff, while providing a faster, more reliable level of service and satisfaction to clients, and the wow factor. AI bots will provide reminders for portfolio rebalancing, maturity dates, client events, corporate actions, provide always on portfolio monitoring and efficient execution.

Explainable AI (XAI) is an emerging technology that isn’t black box like ChatGPT. XAI will allow developers to hone algorithms to work as required by business heads.

In the middle of difficulty lies opportunity…

While the wealth management space has long advertised itself as a personal, relationship-based business, complacency in this regard to evolving trends could prove costly. This preference will change over time as technological solutions gain traction and trust is established in new entrants. Low fees, cloud-based portfolio access, easy-to-use interfaces will continue to attract assets, small at first and then larger.

Some 20 million in the mass affluent segment are potential new customers. The industry will be disrupted in the next five years. Three-fourths of interactions between clients and relationship managers are likely to go digital in coming years. For wealth managers that seize the opportunity, the rewards will be tangible!

(Sunil Sharma, Chief Investment Strategist, Ambit Global Private Client. Views expressed are the author’s own. Please consult your financial advisor before investing.)