THE FUTURE OF WEALTH MANAGEMENT

As a new group of millennials work hard for prosperity, can the traditional players fight back in Europe? How is entrepreneurship redefining a generation in the Middle East? And what’s in store for Digital Wealth Management in 2019? Lennart Asshoff, CEO of Exo Investing looks at digital wealth management trends across Europe and the Middle East.

In 2018, Ernst & Young stated that digital wealth platforms could be managing almost a third of the global wealth market by 2025. To put that into perspective, that will likely be around $17,000 billion (USD).
Now, a lot of that growth is set to come from the USA, Europe and the Far East, but let’s pause for a moment and look at a part of the world that has created an enormous wealth in the last 100 years, but until now has taken quite a traditional approach to its management. The Middle East. The demographic, habits and behaviour of people living in the Middle East are changing, with the Gulf Cooperation Council predicting that traditional wealth managers are going to struggle to compete against the services that embrace digital wealth management technologies.
But it’s actually no surprise that digital wealth management in the Middle East is experiencing such rapid growth. Ernst & Young’s report also stated that the amount of wealth being managed in the Middle East is on target to grow by over 7% by Compare that with a global average of 4.7% and you can see that something is clearly changing.

A report from HSBC’s Private Banking division claimed there are now more millennial entrepreneurs in the
Middle East than anywhere else in the world.

So what is it?
Well, rather poignantly it’s the millennial generation that is really driving this change. A report from HSBC’s Private Banking division claimed there are now more millennial entrepreneurs in the Middle East than anywhere else in the world. This entrepreneurial drive from those born in the 80s and 90s has created a Middle Eastern middle class
of some 150 million people and rising. This generation, in particular, seems to be more engaged with building businesses and driving prosperity across all social strata than in any other region. Interestingly they seem to favour
financial worth over class, status and influence. They’re starting businesses at school, raising their own seed funding (rather than relying on the bank of mum and dad) and while being respectful to their culture and heritage, they see technology and innovation as a way to break down barriers and expand horizons for their business.

The average age of a millennial Middle Eastern entrepreneur? 26! What’s the length of their average working day? 12.5 hours. Suddenly we have a generation of hungry, influential, digitally native, middle-class entrepreneurs that are engineering social change. Obviously with such a dedicated demographic there will be substantial wealth to manage in both the short and long term. The question is what role will traditional wealth managers fulfil for this tech
savvy group of millennials?

Artificial intelligence and quantum computing
It’s just as likely, if not more, that these future clients will turn to artificial intelligence and quantum computing to manage their money over an individual or institution. Perhaps if some of their families have been using traditional face to face management methods there will be some use of legacy relationships, but with technology advancing so quickly these could be more and more unjustifiable to the younger generations.

“Suddenly we have a generation of hungry, influential, digitally native, middle-class entrepreneurs that are engineering social change.”

This is where a specialist technology provider like Exo can help. On top of building our own investment platform in the UK, we’re helping everyone from top tier private banks to small IFA practices by building digital services based around
our sophisticated investment engine. Exo’s investment engine is powered by our technology partner ETS Asset Management Factory, one of the largest quantitative asset managers in the Europe.

So, with a burgeoning, talented, dedicated and driven middle class, a next generation communications network (and of course with 2020 bringing both the World Cup in Qatar and the Dubai Expo), the Middle East is probably one of the most exciting places on the planet to be right now when it comes to the digital future of wealth management.

“So, with a burgeoning, talented, dedicated and driven middle class, a next generation communications network, the Middle East is probably one of the most exciting places on the planet to be in right now when it comes to the digital future of wealth management.”

And what of Europe and the Brexit battered UK?
Technology again is a catalyst for innovation in financial services. Recent years have seen the rise of digital banking offerings with the likes of N26 and Monese making their way across mainland Europe, and the UK witnessing the battle of Monzo vs Starling. For savings, we can look at the likes of Tandem and Marcus by Goldman Sachs. But for investing, while we’ve seen the rise of ‘robo advice’, it still hasn’t made the impact that was initially predicted. Overall, we’re still yet to see the true disruption of the wealth management model, and that’s why we built Exo.
For many people, a smartphone is now a TV, a ticket, a wallet, a boarding pass, a newspaper, and much more on top of being a communications device. We’re quite literally living via our phones.
So, for traditional wealth managers to keep up, they need to start reaching their clients at the point nearly every other service in their life is already able to.

“Technology again is a catalyst for innovation in financial services.”

This brings cost and scalability into question. There’s often talk of the ‘advice gap’ which has grown out of younger generations being deemed unprofitable to advisers and private banks. All despite there now being a generation (or two) of young, experimental and aspirational investors available, who simply don’t want to pay thousands
in fees for traditional investment advice. In the UK, the Financial Conduct Authority says that £200 is about the limit this demographic would pay for advice. If the large financial institutions want to reach the next generation
and widen their services to cater for the low to medium end of the market, they need to provide cost effective, flexible digital wealth management. It’s this need for disruption and putting the client first that inspired us to build Exo Investing, and then leverage our technologies to go on to build solutions for others. Private banks, IFAs, wealth
managers and everyone sticking to a traditional model shouldn’t be afraid of incorporating a digital offering.

We’ve started to see this change from a few of the largest players. For example, JP Morgan, a financial institution that can trace its legacy back to 1799, has set aside $5 billion (USD) for technology investment in 2019, and one of their co-presidents commented that the companies that don’t invest in new technologies “will lose ground and will have a
long, difficult catch-up process.” Also, in March last year, Larry Fink, CEO of BlackRock, took an axe to their underperforming stockpicking business, firing seven of his top fund managers and shifting the billions of dollars
they managed into what was then just a small quantitative arm of the company. All of this he committed to with the eventual hope that this approach will help transform the wider business in the coming years.

Even Exo itself is a mark of change, with our lead investors being Ariane and Benjamin de Rothschild. The husband and wife sit atop the management of the Edmond de Rothschild Group, with Ariane as its CEO and Benjamin as the Chairman, and to date the group manages over €150bn through its private banking and asset management divisions.
So, at first sight, while the wealth management space has felt a little dormant, the trends through 2018 are pointing towards a digital future. All we’d say is, watch this space.

Backed by Ariane and Benjamin de Rothschild, Exo leverages technology to make personalised wealth management
accessible to everyone. We offer modular solutions for institutional clients to digitalise their back office and customer experience and have built our own AI powered platform for retail investors.

To find out more about Exo please visit www.exoinvesting.com.

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