By Daniel Trinder, FMA Executive Director – Strategy and Design
Global wealth managers are going through a period of significant change. A shift is taking place with wealth managers expanding globally, with increasing exposure to alternative, or private assets. The industry will also likely undergo a significant shift in the coming decades with trillions of dollars of wealth transfers built by baby boomers being transferred to Generation X and Millennial children over the next twenty to thirty years.
It was a pleasure to speak at last week’s Select Wealth Management conference in Queenstown. A particular focus for me is what this will mean for us here in New Zealand.
Right now there are three different types of business models for Wealth Management in Aotearoa. There is self-directed investment, best illustrated by the likes of Sharesies, driven by younger consumers, trading on mobile platforms. There is a hybrid model, where a customer receives some advice, but also makes their own decisions as well. This has been driven by the rise of low-cost, passive investment vehicles and direct access to foreign funds. Then there is the full-service model, which is the Direct Investment Management Services (DIMS) model, increasingly impacted by automation and digital advisers. Factors driving consumer choices between different models include attitudes to risk, fees, complexity, and liquidity of asset holdings. As wealth is transferred down through the generations, younger investors will increasingly want digital experiences so the industry will need to embrace automation and enhancements of client experience through digital channels.
Globally, the market is changing as private equity firms and traditional fund managers are extending their reach. They are expanding geographically through joint ventures and acquisitions and enhancing product offerings into new products via new distribution partnerships. New product ranges are seeing further flows into private wealth products that offer exposure to private equity. This is driven by the desire to enhance the range of retail investors with exposure to private assets.
Wealth management is ripe for innovation, and it is likely that much of the focus will centre on private markets and potentially the possibility of creating private market indices, that can be passively tracked. This would open up the asset class to many more investors. Over time, tokenisation offers the opportunity to streamline or simplify investing in alternative assets.
For the FMA, engagement with the sector is key. We are supportive of firms harnessing the opportunities technology offers to achieve good outcomes for their customers, while ensuring the right risk management and governance is in place. This of course is not wealth management specific. As alternative or private assets grow in New Zealand, the FMA will need to ensure firms are adequately managing these risks.
