The wealth management trends for 2025, heavily influenced by technology, demand new strategies to succeed in a fast-changing environment.
Inflation is cooling, but high costs and its ramifications still linger. Technology advances at a rapid pace, and clients expect their advisor to keep up. Investment strategies need to be reviewed and changed accordingly.
Then, combine all that with the societal changes and political pendulum swings...
Ultimately, all these factors will affect the way wealth managers think, invest, and operate. While there will be challenges, there are opportunities for those who adjust and adapt.
Machine learning for wealth managers is no longer a “tomorrow” thing: it’s now!
And it seems most firms know that, with 9 out of 10 financial advisors having positive views of AI.
And according to a survey from the London Stock Exchange Group and ThoughtLab, 62% of wealth management firms have acknowledged that AI will significantly transform their operations:
AI algorithms identify market trends, optimize portfolios, and uncover hidden risks, giving advisors more informed decision-making.
AI-powered chatbots and virtual assistants can handle routine inquiries and provide basic guidance, freeing human advisors for complex tasks.
AI can analyze client behavior and large volumes of data, anticipating life events like retirement, allowing advisors to proactively offer tailored solutions.
AI algorithms can detect anomalies, flag suspicious activities, and assess risk in real-time, enabling dynamic portfolio adjustments.
The technology has come a long way even within the last year, and while a useful tool, wealth managers cannot be 100% reliant on the output.
Human intervention is still needed.
AI algorithms heavily rely on data, which can sometimes be biased or incomplete, potentially leading to inaccurate predictions or recommendations.
Additionally, AI may struggle to grasp the nuances of human emotion and complex financial situations that require empathy and subjective judgment.
Wealth management clients expect seamless digital experiences, including onboarding and ongoing portfolio management.
This is especially true as tech-savvy, digital native younger millennials and Gen Z enter the picture.
They will demand AI and cloud platforms for instant access to financial details, analyses, and advice, and they know that if one firm doesn’t have these offerings, another firm does!
Many wealth advisors struggle to meet expectations, and if they don’t, clients might leave.
25% of investors globally would consider moving away from wealth managers who don't modernize and adopt new technologies. (Avaloq)
Considering many wealth managers surveyed view their own technology as outdated (44%) and not appropriate for their purposes (31%), that’s not a promising prospect for client retention.
The Avaloq survey also found adopting technology is a significant factor in building trust, with 66% of investors reporting that having access to analytics and portfolio visualization was essential to developing confidence in their adviser.
In short, firms must upgrade their tech stacks and deliver. It may be easier said than done, but if they do it right, they will retain clients and generate more revenue.
Firms that leverage AI in the investment process can grow AUM by 8% and raise productivity by 14%, according to Deloitte.
“The responsibility is not all on the wealth manager, technology providers must also step up to ensure they are delivering the analytics, automation and visualization needed by both wealth managers and their clients.”
- Suman Rao, UK Managing Director, Avaloq
Inflation slowed to 2.4% and might not be the hot topic it once was, but high (and still rising) costs persist.
According to a Morgan Stanley Wealth Management Survey, inflation is the top concern for half (54%) of investors surveyed, followed by the US election (34%), market volatility (22%), and recession (20%).
Labor costs in particular stand out.
Robert Pearl, co-founder and wealth advisor at G&P Financial, says labor costs have been the largest increase for his him over the last few years.
Jordan Hutchinson, vice president of technology and operations at RFG Advisory, agrees, saying increased labor costs have been one of the most direct impacts on advisors' teams because of talent shortages in the profession as a whole.
The general sentiment is mostly optimistic and bullish, according to this Forbes publication.
That optimism assumes falling inflation and lower interest rates, limited fallout from geopolitical tensions, as well as stronger performance from technology, energy, and health care sectors.
Conversely, market performance will weaken with high inflation and interest rates, increased tariffs and trade disputes, intensifying global conflicts, and limited global growth overall, particularly in China.
Wealth managers should adjust portfolios and risk exposures accordingly.
“This is a good time to allocate to the asset class. Entry valuations for new portfolio companies are back to pre-Covid averages (unlike public equities), offering an opportunity to acquire assets at a reasonable price.” - UBS
Private markets were once the exclusive domain of institutional investors, but now they’re increasingly accessible to retail investors.
Wealth managers can leverage these alternative investments for their clients, delivering more diversification and potentially higher returns compared to volatile public equities markets.
In the UK, for example, 4 in 5 wealth managers had invested a portion of clients’ money in private assets.
Shenal Kakad, head of private markets at Barclays Private Bank, talks about the appeal of the asset class:
“A lot of our clients like private markets for their lack of volatility. Unlike public markets, where you can see daily fluctuations, private markets offer quarterly reporting. That infrequency of reporting means less volatility, which can be comforting to clients.”
Crypto has had its share of scandals and turbulence in recent years, but this digital asset class has shown staying power.
Despite the risks, a growing number of retail investors have crypto in the portfolios.
According to an EY-Parthenon survey, 64% are already invested in digital assets or related products, and another 69% plan to increase investment in digital assets over the next two to three years.
And these investors are in it for the long haul.
72% of those invested in digital assets consider it a key component of their wealth building strategy.
If wealth managers want a piece of this market, they need the investing, technological, and security wherewithal, and they can leverage cryptocurrency solutions like Binance Wealth.
Just as wealth managers look to alternative investments, the alternative investment firms look to wealth managers.
Private equity investing has driven record levels of consolidation in the wealth management industry, and acquisitions of wealth management firms nearly tripled from 2020 to 2023 and now account for approximately 78% of all wealth management M&A.
For wealth management organizations, private equity ownership means an injection of resources and expertise, which allows them to deliver new products and services to their customers.
Michael Wunderli, managing director for Echelon Partners, shared his take:
"The acquiring [private equity] firms are run by sophisticated management teams that have been designed to increase profitability and drive faster growth for acquisitions."
The “Great Wealth Transfer” is underway, and it’s just getting started.
The Baby Boomer generation, roughly defined as those born between the mid-1940s and mid-1960s, have already begun to retire, with more on the way.
As they do so, they will pass on wealth to children and grandchildren. By 2045, up to $84 trillion in wealth will be transferred, according to Cerulli Associates.
To retain assets amidst the Great Wealth Transfer, advisors must proactively engage with the next generation of investors. Building relationships with heirs of existing clients—young Gen X, Millennials, and older Gen Z—is crucial.
As it stands, just 19% of younger investors use their parents’ advisor.
To make those connections, it involves understanding their unique financial goals and demonstrating expertise in areas like sustainable investing and digital asset management.
Simultaneously, firms should actively position themselves to attract new clients from this emerging demographic, who are actively seeking advisors who align with their values and tech-savvy approach.
Big players like BlackRock and Vanguard have slashed fees in recent years, and other large wealth managers like Edward Jones have done similarly.
The increased presence of robo-advisors and automated wealth management platforms have pressured fees lower, not to mention there is great competition, with over 321,000 financial advisors in the US alone.
While it’s possible (as some firms have) to raise fees, it’s an uphill battle that relies on delivering clear, exceptional value.
Regardless, wealth managers must consider various pricing models and how they charge for their services, offering clear value propositions and justifications of fees.
Though some older advisors show no signs of slowing down or retiring, others are calling it a career.
Over 1/3 of financial advisors plan to retire within 10 years. In fact, there are more certified planners over the age of 70 than there are under 30.
For business owners close to retirement, they should think about succession planning for their business, as well as attracting new talent.
This includes outreach to college students, in particular women and minorities who are currently underrepresented in the investment industry. Expanding and cultivating the talent base is a win for all wealth management firms.
As of the date this post is published, the US presidential elections are taking place, with a winner to be determined. But it’s not just about the President.
Senate and congressional elections are taking place, and the results will determine the balance of power between Republicans and Democrats, and more importantly the policies enacted.
For wealth managers, tax policies are most notable.
Whichever party has majority control will affect policy on income and capital gains taxes, wealth transfers, and gifting, to name a few examples.
How the leaders handle tariffs/trade policies, fiscal and monetary policies, immigration, and geopolitics will also have great impact.
No matter the outcome, wealth management firms must prepare for all scenarios and adapt to the policies and ramifications that play out.
Learn more about navigating US political uncertainty in this J.P. Morgan Wealth Management publication.
But it’s not just about US elections.
Wealth managers, depending on the countries/regions they operate in, must also be aware of local regulations and policy changes that affect their clients.
Wealth managers face mounting pressures: rising costs, volatile markets, shrinking margins, and the demand for specialized services.
To thrive, firms must focus on their core strengths: investment performance and client relationships.
Non-core tasks - operational, data management, accounting, compliance, or technical - while essential, can drain resources and distract from these priorities. Strategic outsourcing offers a solution.
By partnering with third-party providers (like Empaxis), firms get access to specialized expertise and operational efficiency, not just for wealth management middle- and back-office functions, but also for advanced technology solutions.
Learn more about Empaxis solutions.
To that point, a Fidelity survey on outsourcing for wealth managers shows just the value that can be had from leveraging third parties. In short, those who outsourced were more likely to report a growth in clients and larger AUM.
The recent wealth management trends show opportunities and challenges facing the industry, and firms should look at the trends to develop a strategy around an investing, operations, technology, client servicing, etc.
They need to proactively address lingering inflation concerns, manage market risks, and integrate new technologies into their strategies to ensure long-term success.
Despite the challenges, there is opportunity out there for wealth managers; they just have to prepare and position themselves accordingly.
Empaxis empowers wealth managers with the operational efficiency and technological edge needed to thrive in today's dynamic market. We provide tailored solutions that streamline processes, reduce costs, and enhance client service. Schedule a complimentary consultation and learn more about unleashing full potential for wealth management organizations.
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