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The US wealth management industry is poised to grow about 5% annually over the next five years, while certain segments of investors are in a position to see the biggest boost, according to a new report from McKinsey & Company.
The report found that three subgroups of investors, in particular, are showing signs of “significant and enduring growth.”
This includes women, new investors who opened brokerage accounts for the first time during the Covid-19 pandemic, and hybrid wealthy investors working with traditional financial advisors and self-directed accounts.
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That was just as 2021 was a mixed year for the US wealth management industry overall, with record client assets at $38 trillion, but it was the slowest two-year revenue growth since 2010, at 1%.
“While we say the industry has been resilient, we are also saying it hasn’t been hurt,” said Jill Zucker, senior partner at McKinsey and one of the report’s authors.
“In fact, the message to wealth managers is that this is definitely not a moment for complacency,” she said.
Women take center stage
Women already control about 33% of the investable assets – or $12 trillion – in the US
This is expected to increase over the next decade, as baby boomer males are expected to die and leave money to their female wives, who are often younger and have a longer life expectancy.
By 2030, American women are expected to control a significant portion of the $30 trillion investable assets that baby boomers hold.
Younger women are also preparing for growth as they become increasingly concerned with their finances. McKinsey noted that about 30% of married women make financial and investment decisions compared to five years ago.
Zucker noted that while women tend to be mistrustful with investment decisions, they do not lack competence.
It will be important for financial advisors to anticipate their various needs, such as stressing family well-being over investment performance.
“Women are looking for something a little different in their relationship to a wealth management firm,” Zucker said.
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More than 25 million new live brokerage accounts have opened since the beginning of 2020. Many of these new accounts are owned by first-time investors, as Americans have been able to save more money during the pandemic.
Adoption has been supported by developments in the financial industry, including the abolition of online brokerage commissions and increased access to fractional stocks.
The high growth rate amid the pandemic may not be here to stay. But there is still an accelerating expansion in the next 10 years, according to McKinsey, in part due to the declining median age of 35 for these participating investors.
Wealthy investors take a ‘hybrid’ approach
More wealthy investors are working with both traditional financial advisors and self-directed accounts.
In 2021, a third of well-to-do households — those with more than $250,000 and less than $2 million in investable assets — were considered mixed. That indicates an increase of 9 percentage points in three years, according to McKinsey.
There’s just a desire to experiment… which we haven’t seen in wealth management historically.
Senior Partner at McKinsey & Company
The growth is due to a combination of desire for human advice, affordability, and ease of direct investment, according to McKinsey.
“There is just a desire for experience that we’ve seen across other aspects of people’s lives throughout the pandemic that we haven’t seen in wealth management historically,” Zucker said.
The research found that wealth managers with direct brokerage and advisor offerings would be more willing to take advantage of this trend.
Other trends are poised to continue
The pandemic could have lasting effects on the way wealthy investors choose to seek wealth management advice, with only 15% looking to return to in-person visits or branches. About 40% of high net worth investors with more than $2 million in investable assets said they prefer phone or video conferences to wealth management meetings.
There was also a slight increase in the percentage of wealthy and youthful households interested in unifying their bank and investment accounts. About 53% of those under the age of 45 and 30% with investable assets of $5 million to $10 million indicated they would prefer strengthening these relationships, according to McKinsey.
The research found that these preferences may be driven by low management fees, the opportunity to earn a high return on deposits, and ease of transactions across different account types.
Alternative assets — such as private equity, private debt, real estate, infrastructure, and natural resources — often appear in individual portfolios. About 35% of investors between the ages of 25 and 44 show an increased demand for these assets, according to McKinsey.
Moreover, investors are turning more to digital assets, including cryptocurrencies, token stocks, bond debt, stablecoins, arts and collectibles. Investors add to these assets for a variety of reasons, including the ability to be exposed to new technology, protection against inflation, experimentation, or speculation.
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