Future of Wealth Management March 2016
Agenda Context Forces of change and implications 2016 Deloitte Consulting Pte Ltd 2
Context Current industry challenges Growth Imperatives Increasing regulatory / tax burden: Need for enhancement in controls, compliance and transparency Customer acquisition: Competition between onshore and offshore wealth centers, coupled with challenges in cracking the onshore market Revenue mix: The battle for non-capital market solutions is intensifying Efficiency: Cost-to-income ratio under pressure as Hong Kong and Singapore become too expensive as booking centers Digital: 80% of Asian HNWIs prefer their wealth management relationships to be digital by 2018 Inter-generational wealth transfer: 80% of the Asian wealth to be transferred in the next 15 year Understand current and emerging trends impacting the industry and your bank Plan for uncertainties that will potentially influence the industry and your bank Establish framework for recognizing and adapting to change over time ahead of time Source: RBC Wealth Report; Hubbis 2016 Deloitte Consulting Pte Ltd 3
Agenda Context Forces of change and implications 2016 Deloitte Consulting Pte Ltd 4
There are two types of forces of change outside the organization that will shape future dynamics in predictable and unpredictable ways Two Types of Driving Forces Predictable Unpredictable Predetermined Trends Forces of change that are relatively certain within the relevant timeframe, such as population aging It is a given that predetermined elements will play out in the future, though how they interact with and impact other variables remain uncertain Uncertainties Unpredictable driving forces, such as public opinion or the state of the economy, that will impact the environment and/or market conditions but whose outcomes are highly uncertain or unknown in the planning timeframe How uncertainties may unfold form the basis of a divergent set of scenarios 2016 Deloitte Consulting Pte Ltd 5
Looking ahead to 2025, the wealth management industry will be impacted by seven predetermined trends and may be shaped by six uncertainties in the environment Predetermined trends Uncertainties 1 EXPONENTIAL IMPROVEMENT OF TECHNOLOGY 2 AGING ASIA 4 3 EMPOWERED WOMEN SHARING ECONOMY 1 PRESSURES ON COMPANIES 6 5 URBANIZ- ATION 6 LOCAL CHAMPIONS 7 RISE OF THE GLOBAL CITIZEN 3 4 FRAGMENT- ATION 5 CONCENTRAT- ION 2 Source: Deloitte Hero s journey through the landscape of the future 2016 Deloitte Consulting Pte Ltd 6
Today, we will discuss implications of selected predetermined trends and uncertainty scenarios on how Service Providers will and should operate in the future Predetermined Trends 1. 1 Exponential improvement of technology 2. 2 Aging Asia 3. 3 Empowered women 4. 4 Sharing economy 5. 5 Urbanization 6. 6 Local champions 7. 7 Rise of the global citizen 1. 1 Pressures on companies 2. 2 Pressures on individuals 3. 3 Barriers to entry, commercialization and learning 4. 4 Fragmentation 5. 5 Concentration 6. 6 Mobilizers Uncertainties Focus of today s discussion 2016 Deloitte Consulting Pte Ltd 7
4 Illustrative impact of predetermined trends on WM industry and Service Providers In a sharing economy, Service Providers need to enhance product and value propositions to differentiate their platforms (RMs, advice, products) Predetermined trend: Sharing economy Shared creation, production and consumption of goods and services by people and organizations 78% of consumers in Asia are willing to participate in the sharing economy vs. 68% globally Examples Impact on WM industry Growing interest in interactions and collaboration amongst HNW peers, e.g. co-investments Industry competitiveness and cost pressures intensify as FinTechs enter the wealth management space, leveraging virtual networks and crowdsourcing to provide services to clients and to Service Providers Service provided HNW networking Co-investing Structured product super mart Example FinTechs Erosion of exclusivity of opportunities traditionally only available to HNWIs, e.g. ownership of hospitality assets, early stage investing Proliferation of investment ideas and advice due to sharing Where to play? How to win? Strategic questions for Service Providers Products: What exclusive investment opportunities can Service Providers offer that are unavailable to crowd investors? Value proposition: How can Service Providers rethink relationship model to co-create and co-produce with clients or foster collaboration amongst clients? How can Service Providers support clients to distill information and in decision making in a world of information and choice overload? Profit management: How can Service Providers compete with lower cost providers that rely on crowdsourced ideas rather than cost-intensive proprietary insights? How can Service Providers achieve differentiation with greater transparency and availability of alternative platforms? Source: Tech in Asia; Deloitte Analysis 2016 Deloitte Consulting Pte Ltd 8
5 Illustrative impact of predetermined trends on WM industry and Service Providers It is imperative for Service Providers to strengthen play in upcoming domestic wealth centers to exploit opportunities from urbanization Predetermined trend: Urbanization There will be over 240 cities in Asia with >1 million people each by 2020 Smaller cities will grow faster than big cities, e.g.: City Population CAGR (2006-2020F) Beihai, China 11% Ghaziabad, India 5% Surat, India 5% : Size of the bubble represents urban share of population (2020) CAGR of per capita GDP (%, 2010-2020) 10 8 6 4 2 0 0.0 Malaysia 78% Korea 85% 0.5 Thailand 38% Vietnam India 35% 37% China 61% Japan 95% 1.0 Indonesia 57% 1.5 2.0 CAGR of urban share of population (%, 2010-2020) Faster economic growth where urbanization rate is higher Impact on WM industry Strategic questions for Service Providers Urbanization and changes in regulation (CRS / AEOI) will give rise to domestic wealth centers HNWIs spread out in urban centers large and small, with cross-generational families living in different cities Smaller cities accumulate HNW wealth rather than wealth only concentrated in capital cities and financial centers as faster urbanization drives greater economic growth Where to play? How to win? Geography: Will Service Providers need to expand onshore networks to capture new sources of wealth? Customers: Which urban segment will offer the highest value opportunities? Value proposition: How will the needs of HNWIs living in megacities differ from those at other urban centers? Coverage model: How can Service Providers reach new wealth in upcountry areas? Source: UN Data, IMF, City Mayors Foundation, Deloitte Analysis 2016 Deloitte Consulting Pte Ltd 9
2 Illustrative impact of uncertainty scenarios on WM industry and Service Providers In a scenario of mounting pressures on individuals, Service Providers need to rethink what clients to focus on and how Pressures on individuals High Low Potential scenario: Mounting pressures on individuals Conditions: Average lifespan of skills decreases Mid-skilled workers are replaced by outsourcing and automation Companies resort to layoffs and outsourcing to combat intensified competition How individuals may react / be affected Impact on WM industry Strategic questions for Service Providers Individuals prefer self-employment as traditional benefits of employment (e.g. job stability, pension) are eroded Compensation gap widens as mid-skilled workers are laid off to be replaced by automation or outsourcing Intensified skill shortage (In 2013, demand for private bankers already outstrips supply by 1,600 bankers in Asia) Demanding nature of running own business leads to less time to meet RMs and less time for wealth management Concentration of wealth less HNWs but UHNWs get richer Pressure on governments to scrutinize tax evasion by the privileged Where to play? How to win? Customers: With increased intelligence of clients and shorter tenure of PB skills, do Service Providers need to rethink what clients to focus on? Value proposition: How can Service Providers effectively redesign the relationship model to serve clients with less time? Defensible advantage: How can Service Providers address talent shortage improve talent management, engage freelancers, automate for efficiency, or establish capabilities-led partnerships (e.g. research)? Risk and cost management: How can Service Providers ensure compliance and manage cost with increased regulatory requirements? Source: Deloitte Hero s journey through the landscape of the future, David Autor U.S. Labor Market Challenges over the Longer Term 2016 Deloitte Consulting Pte Ltd 10
5,6 Illustrative impact of uncertainty scenarios on WM industry and Service Providers Where fragmentation and concentration coexist, Service Providers need to redefine their roles to become niche operators, infrastructure providers, aggregators or agents Low High Fragmentation Concentration High Some level of fragmentation and concentration Low Potential scenario: Fragmentation and concentration coexist Conditions: Parts of the economy fragment while other parts concentrate More niche operators driven by desire for autonomy and increased ease of managing a business of any scale Concentration driven by need for infrastructure, platforms, and agents to support niche operators What are the dynamics in this new ecosystem Niche operators Provide personalized, localized products and services Compete on specialization and customization Scale and scope operators Provide physical infrastructure, digital aggregation, or mass agent capability Compete on scale and scope Impact on WM industry FinTechs commoditize tailored investment advice (e.g. SigFig) HNWs demand private banking services when they want it where they want it Given more choices, HNWs demand transparency on product features, risks and pricing Service Providers forced to adopt one of four new roles: niche operator, infrastructure provider, aggregation platform or agent business Where to play? How to win? Strategic questions for Service Providers What should Service Providers become? Niche operators: offer goods and services that fit very specific preferences or Infrastructure providers: deliver high-volume, routine process services or Aggregation platforms: connect clients with resources and vendors or Agents: serve as a trusted advisor to clients Business model: will depend on which option Service Providers choose Source: Deloitte Hero s journey through the landscape of the future 2016 Deloitte Consulting Pte Ltd 11
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