In 2019 Campden Research surveyed the principals and key executives of 360 family offices and wealth management companies across the globe, with an average of $917 million assets under management. Key findings showed that in comparison to last year, average investment returns have dropped, whilst sustainable investing interest has risen, with 1 in 3 firms now engaging in such practices. There has also been an upsurge in succession planning driven by generational wealth transfer.
An in-depth look at the report reveals several important findings for wealth management companies to consider in the year to come. In terms of potential threats that firms may face, responses to this year’s survey identified cybersecurity as the most significant one.
Based on the report’s data, 20% of family offices/wealth management firms have knowingly experienced a cybersecurity attack over the past year. The most common types of attack included phishing (76%), malware (33%) and other social engineering (33%).
Cybersecurity Ventures, the world’s leading researcher and publisher in matters of global cyber economy, estimates that the cost of global cyber-crime could reach an astounding $6 trillion by 2021 and that up to 90% of companies may fall victim to cyber-attacks by then – consequently, cybersecurity remains a top priority for 2020.
With this in mind, asset management firms need to ensure that they have continuity plans in place and that these have sufficient safeguards to protect private and confidential information. Furthermore, firms need to ask themselves whether their staff are adequately trained on how to apply these guidelines in their daily functions.
In addition to potential threats, the 2019 Campden report has also identified a number of trends which will continue to rise in 2020; impact & sustainable investment and digital transformation & new technologies are the main ones.
Impact & sustainable investment
Concern regarding climate change and rising levels of socioeconomic inequality are issues garnering global debate and interest.
At present, over 50% of the family offices/ wealth management companies surveyed allocate less than 10% of their portfolios to sustainable investment. However, key executives interviewed predict that a third of their average portfolios will be comprised of sustainable investments and one quarter of impact investments within the next five years.
What kind of impact and sustainable investing should wealth management firms be focussing on in 2020?
The research reports that the impact and sustainable causes which will probably garner the most interest for likely investments include those that address climate change, improve health and social care, as well as those that develop workplace safety and cybersecurity.
When considering these types of investments, family office executives and wealth managers need to ask themselves whether their firm has been positioning within the greater scope of impact and sustainable causes and setting clear objectives accordingly. If this has not been a priority, now is the time to make it one, especially given the effect that these activities can have on next-generation engagement.
Digital transformation and new technologies
The signs of the digital revolution are omnipresent: Internet of Things, smart devices, remote working, big data, AI and machine learning, but also blockchain and cryptocurrencies. In addition to technological advances, increasingly demanding clients and a new generation of digital native users complete the picture.
The report showcases that the demand for advanced digital tools and systems is growing so investment in next-gen technologies and a robust digital strategy are critical for wealth management firms to enhance the client experience and to excel in the current disruptive area.
What should family offices and wealth management companies do? What should they focus on in 2020?
Ignoring these clear signs of change in the near future will be risky and detrimental. Instead of ignoring the rapidly evolving digital world, companies should embrace digital transformation and incorporate new technologies and innovation; by responding to these changes promptly firms can build true competitive advantage.
Preparing for the future
There is a lot at stake, as well as a lot to gain, from a changing business landscape. Family office execs and wealth managers who can anticipate and prevent any potential threats whilst embracing the changes in the current landscape will have the chance to capitalize on great opportunities in 2020.
It is essential for firms to gauge their business, their service offering, their service delivery models – even their culture – and ask themselves: times are changing and the bar is rising, are we ready to jump higher?
The game is open.