Rise of independents
The use of independent financial advisors is expected to rise rapidly, with an 18% increase in clients globally who expect to use independent advisors in the next three years, and a 14% increase for independent advisory firms – fueled by above average growth in Asia-Pacific.
Historically, the wealthiest clients have made greater use of the independent advisory channel; however, the expected growth over the next three years will be highest in the mass affluent (34% today to 42% expecting to use) and HNW segments (34% today to 40% expecting to use).
Unconstrained by the terms set by large brokerages, independent advisors may have more flexibility to adapt solutions based on what their clients value, as well as how they charge their clients . Many major wealth management firms have introduced new independent channels or are considering creating a new independent distribution channel to stem the tide of their financial advisors going independent.
Growth in FinTechs
FinTechs (including robo advice and personal financial management tools) will also see an inflow of clients, even though the asset flow may not be as large as for independents. Although these new entrants still have relatively low amounts of assets under management, the percentage of clients using FinTechs is on a par with usage of long-established wealth institutions, such as universal banks, independent wealth advisors and mutual fund companies.
The percentage of clients expecting to use FinTech solutions will increase from 38% today to 45% in the next three years. Expected FinTech use over the next three years is expected to increase with each client wealth segment, with 35% growth expected among mass affluent clients (28% today to 38% expecting to use) and 41% growth among HNW clients (29% today to 41% expecting to use).
No single FinTech has been able to acquire a large enough client base to threaten the incumbent dominance yet – though total clients are growing, they still do not typically commit significant assets. The FinTech playbook has typically been to acquire clients with a niche offering, then expand to broader bundles and solutions once they own a critical mass of clients. However, this strategy will bring FinTechs closer and closer to incumbents as their offerings mature and they partner with traditional wealth management firms and/or established technology players.
While younger clients will remain the stronger users of digital solutions, expected growth is highest among boomers. Gen X clients are the most likely to use FinTechs, and even more expect to use the offerings in the future.