Global Trends in the Asset and Wealth Management Industry 2020

Foreword 4

COVID slowdown will not stop the shift toward passive funds and alternate investments 5 Trend 1: Demand for increased transparency and lower fee-based products to disrupt fee models 5 Trend 2: Alternative investments will cautiously evolve 7

Disintermediation and democratization of wealth management to help lower costs and fees charged 10 Trend 3: Digital distribution models will evolve and take products directly to the end customer 10 Trend 4: Open APIs enable data sharing and interoperability in a connected ecosystem 11

Personalized offerings for the new-age client 13 Trend 5: Hyperpersonalization of services to meet customer expectation 13 Trend 6: Intergenerational transfer of wealth is driving the need for digital preparedness 15

Digitization supporting industry pain points 17 Trend 7: Machine learning to help eliminate cognitive biases in investment decisions 17 Trend 8: Blockchain will increase process efficiency and transparency and lower costs 18 Trend 9: Client lifecycle management (CLM) processes will be streamlined using emerging technology 19 Trend 10: Amidst digitization and increased work from home, cybersecurity gains criticality 21

References 23 Infosys contributors 24

External Document © 2020 Infosys Limited Global Trends in the Asset and Wealth Management Industry 2020 | 3 Rajneesh Malviya Ashok Hegde Swaran Kumar Patnaik Senior Vice President, Vice President, Head, Asset and Wealth Management, Financial Services, Infosys Financial Services, Infosys Financial Services, Infosys Foreword

COVID-19 is pushing many focusing more on performance- with an aim of eliminating economies into an unprecedented based fees and developing multiple intermediaries. recession. Economic activity low fee-based active investing Digitization and the new work- has shrunk, impacting income products. The recent market from-anywhere model will make levels and capital. The asset and volatility has made active cybersecurity a key concern. wealth management industry investing prevalent in the short COVID-19 will accelerate adoption experienced a decline in asset run. But in the long run, active of these business and technology accumulation, assets under investing is set to become less trends over the next few management (AUM), and attractive, and more investors will quarters. Prodding further into revenue in the first quarter of move toward passive investing their consequential impact, the 2020. Over the next few years, and alternatives due to the insights derived are likely to guide asset accumulation, net new market slump. technology service providers to AUM, and revenue are expected Personalized offerings and digital plan and take calculated steps. to grow at a slower pace. The channels will attract millennials This paper documents our view industry’s operating model and the mass affluent. Application on how things will evolve in this and technology infrastructure programming interfaces (APIs) sector in the near term. We write need to be reimagined to meet will increasingly be used for better these views in the full knowledge both economic and consumer connectivity and interoperability. that predicting the future is an demands. Increased use of blockchain uncertain art, and even more so Fee income, already under and artificial intelligence (AI) to given the lack of clarity around pressure due to regulations, is generate process efficiency will how recent events in the first half expected to decline. Changes help optimize costs. Distribution of 2020 will play out in the second. in fee models will be required, models are set to be disrupted

In the wake of COVID 19, there is an adverse impact on new investments and the need for a change in fee model has accelerated further. Alternative investments are slowly gaining pace with the evolution of technology and improvements in valuations, making them attractive for investors.

Trend 1: Demand for increased transparency and lower fee-based products to disrupt fee models

Fee income had been declining to fall further through 2025 — the market, fees generated will prior to COVID-19 due to stringent revenue per AUM for traditional continue to decline. transparency requirements from long-only managers is expected Asset prices across the world have regulators and clients’ demands to drop from 0.40% in 2017 to declined due to COVID-19, and for lower fee-based products. 0.31% by 2025. fee income for asset and wealth Historically, as AUM grew, fee As more investors shy away from managers has followed the trend. income declined, indicating that the active investment market and In response, firms may conduct the operating model was not move toward passive investments, a thorough revision of fees, optimum, with rising costs pulling and new low fee products such commissions, and charges on their margins lower. As per estimates, as Smart Beta — an actively products and services. Regulators the ratio of revenue to AUM managed fund that uses AI and could also continue to further gradually declined by almost 10% machine learning to self-correct review fees and commissions from 2012 to 2017. This is likely and generate alpha — enter charged by industry players.

External Document © 2020 Infosys Limited Global Trends in the Asset and Wealth Management Industry 2020 | 5 Figure 1. The revenue of the top 25 public asset managers has been declining, hastened by COVID-19

27.5 40

25.8 34 et revenue S in billions

24.0 28

AM S in tillions 22.3 22

20.5 16 1Q 2017 1Q 2018 1Q 2019 4Q 2019 1Q 2020

AUM (LHS) Net revenue (RHS)

Source: Pionline.com

Figure 2. Key fee income trends

Lower fee-based New outcome-based Need for products like Smart active investing will transparency will put Beta will continue to emerge more pressure on attract attention fees

Overall ratio of fee income to AUM will decline through 2025

Source: Infosys

Building an effective business performance, building more Increased transparency in fees will operating structure is key to outcome-based investment also enhance confidence in asset tackling the decline in fee income themes, and aligning innovation managers — both from clients and maintaining profitability. and offerings around what and regulators. This means connecting fees to customers want as their goals.

Alternative investments have seen a heightened interest from clients in the 18 months prior to the COVID-19 crisis. These assets held by investors are expected to grow nearly six fold to US$13.9 trillion in 2020 from US$2.5 trillion in 2004, according to PwC research.

Figure 3. Alternative investments have steadily grown over the last two decades

n S trillion 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2025* 2020* 2021* 2022* 2023* 2024* stimates

Source: PwC

Historically, there have been transparency and liquidity concerns around alternative asset classes including corporate debt, real estate debt, micro finance debt, real estate development projects, and real estate rent- oriented projects. But this has changed in the past five years.

Figure 4. Alternative investment growth indicators

umber o sovereign More pension unds arge institutions are investors is growing are investing in looking or ustomied in this area alternatives alternatives

Asset managers are nvestment in developing ullservie tehnology multiasset lass distribution and solutions data has grown immensely

Source: Infosys

125.0

112.5

100.0

87.5

75.0 3 Feb 20 3 Mar 20 3 Apr 20 3 May 20 3 Jun 20 3 Jul 20

EURO STOXX 50 Nikkei 225 MSCI Emerging Markets S&P 500 Brent Dow Jones Airlines Dow Jones Oil & Gas MSCI US REIT

Indices rebased to 100 Source: Investing.com, Infosys

Alternative asset prices and be impacted, as lockdowns market uncertainty and lower valuations have plummeted due have resulted in a dearth of liquidity. to COVID-19. Investors holding consumption. Late-stage startups, With the vast volumes of data cash may reconsider investing irrespective of sector, will find available, AI and machine learning within these asset classes. it challenging to deal with the are increasingly being used to downturn. Enterprise technology Smaller companies will find it value real estate assets and deliver startups are likely to fare better difficult to seek investments from outcomes. than others. Growth-stage firms private equity firms in the current will attract better valuations and Alternative managers have environment, despite private investments, and noncyclical firms invested heavily in areas that equity firms having access to US$2 and businesses that promise high were not so mature earlier such trillion of reserves. Private equity cash generation are likely to be as data, analytics, operations, firms will invest in areas that offer businesses of choice in a wealth customization, procurement, recurring revenue models rather manager’s portfolio. New fintech pricing, and risk exposures. than transactional businesses startups will find it difficult to While the short-term outlook for and will manage their existing obtain investments. the sector is cautious, ongoing portfolios. investments in the following areas Across markets, restructuring and Venture capitalists with portfolios will bring benefits to the industry sell-offs have occurred. Even for having exposure to consumer- in the mid to long term: high-performing portfolios, there sector startups are likely to will be challenges to exit due to

Redesign client journey Quantitative Redesign current teams to digital and analytics understand teams risk exposures better Key areas of change in alternatives Leverage Build in-house algorithm-based integrated data tools (such as neural platforms networks) to redeﬁne deal sourcing Invest in strategy procurement and pricing (leverage predictive analytics)

Source: Infosys

External Document © 2020 Infosys Limited Global Trends in the Asset and Wealth Management Industry 2020 | 9 DISINTERMEDIATION AND DEMOCRATIZATION OF WEALTH MANAGEMENT TO HELP LOWER COSTS AND FEES CHARGED

Regulatory pressure, the need to lower costs and advancements in digital technology are pushing asset and wealth managers to employ APIs to create an interconnected ecosystem enabling disintermediation and interoperability. Firms are directly reaching out to new client segments through digital marketplaces and enticing them with low fee based products

Trend 3: Digital distribution models will evolve and take products directly to end customers

Distribution of products and models. Digitization has helped open private ecosystem that services has historically involved disrupt processes and business enables real-time connectivity multiple intermediaries such models, making them more with all intermediaries, which can as banks, custodians, transfer efficient and cost effective. evolve into a digital marketplace. agents, distributors, and sub- Currently, with advancements This can unlock various direct- distributors. This has led to a lot in digital technologies, firms are to-customer opportunities and of inefficiencies, slow processing slowly moving away from the reduce the cost of products and times, and high administration intermediaries and are able to services available to the customer. costs. Regulations such as MiFID directly reach out to their end Distributed ledger technology II and the Retail Distribution clients with the help of fintech- (DLT) could also help in the Review, with their emphasis powered digital marketplaces and evolution of distribution channels around transparency of fees and robo-advisors. with its ability to connect inducements, have made firms all stakeholders through a APIs are enabling asset and wealth look for alternate distribution permissioned distributed network. managers to transition to a more

und providers ranser agents ustodians Banks Distributors

Roboadvisory servies DAPs

Retail investors Digital marketplae High net worth individuals Hs eutiononly lients Produt eution Portolio Market nstitutional lients inormation servies analytis intelligene

Source: Infosys

Robo-advisory services are also managed by robo-advisors are disintermediation brings from evolving as a key distribution projected to increase to US$16 reaching out to customers channel with their ability to trillion by 2025 from US$0.3 directly. The time taken to list provide automated advice and trillion in 2016. and distribute new products will wealth planning services 24/7. Asset and wealth managers diminish and can be done at a Independent robo-advisors have are expected to embrace lower cost. This provides more a direct-to-customer approach, the disintermediation of opportunities to attract new and many industry players are the distribution value chain segments of retail investors and implementing in-house robo- due to regulatory pressure, millennials, which will enable new advisory services by collaborating advancements in digital revenue streams. with fintech startups. Assets technology, and the benefits Trend 4: Open APIs enable data sharing and interoperability in a connected ecosystem

Open banking will start to move using shared APIs. This will deploy APIs in the medium term. from experimentation into a truly connect all stakeholders to an Fintechs are at the forefront of transformational architecture. interdependent business network. introducing API-based solutions. Currently, stakeholders work According to a 2019 Gartner Digital retirement platform with each other over a secured survey, over 13% of asset Vestwell has created solutions and permissioned network. management firms have rolled out around retirement planning However, with open banking, the APIs in production, 36% of firms and the generation of legal current ecosystem will transform plan to deploy APIs in the short documents. Fintechs DriveWealth into a private ecosystem term, and 25% of firms plan to and Hedgeable provide API-

External Document © 2020 Infosys Limited Global Trends in the Asset and Wealth Management Industry 2020 | 11 based solutions in onboarding, such as spending patterns, a model portfolio via APIs. With execution, and front-office savings, and income, in real time. the model as a reference, multiple trading. Trizic develops enterprise Plans can be altered automatically portfolios can be rebalanced platforms for wealth management in real time based on changes to quickly, assets reallocated, and firms, allowing firms to build their one of the parameters. orders placed. own portfolio rebalancing and Personalization of products Many startups provide generic management suites using APIs. and services can be improved APIs for third-party integration APIs help asset and wealth by making available various that can be modified based management firms avoid manual client data points to financial on a firm’s functional needs. data entry by automating client advisors through APIs. Advisors With a host of innovative API onboarding and accessing clients’ can pitch existing products or providers to choose from, wealth bank account data. Know Your create tailor-made services as management firms are looking Customer (KYC) checks can also be per a client’s financial situation to procure scalable platforms to performed digitally. This enhances and preferences. Independent address current challenges while the client’s experience and client advisory firms and registered mitigating the need for expensive advisors can focus their work on investment advisors can use middleware. Apart from being higher value-added activities. portfolio rebalancing services used to build customer-facing Packaged APIs help make financial offered by fintech firms by feeding platforms, APIs foster simplified planning more dynamic by in the client’s portfolio and risk information sharing and analytics obtaining a client’s information, tolerance information along with for clients.

Figure 8. Benefits of an API ecosystem

Beneﬁts for API providers End-to-end API solutions Access to ﬁnancial data Collaborations and partnership

Benefits for asset and wealth management firms Scaling up technology Reduction in costs New offerings Customer centricity

Beneﬁts for investors/customers Ease of use Better experience Customized products

Source: Infosys

Investors increasingly expect services personalized to suit their individual goals. While this was not historically possible, emerging technology has enabled wealth managers to gather huge volumes of client data, analyze it, and offer services that are tailor-made for each client. With enormous wealth expected to fall into the hands of the technology-savvy millennial, wealth managers must focus on offering advisory services that can span multiple generations with digital capabilities.

Trend 5: Hyperpersonalization of services to meet customer expectations

Standardized services are no personalized, and subscription- channels. The data is analyzed longer suitable for the asset and oriented offerings. Data-driven alongside the client’s income wealth management industry. digitization is helping achieve this and payment history or Investors are looking for advice in the following ways: results obtained from risk relevant to their goals and • Personalized risk profiles profiling, suitability analysis, needs, not generalized offerings. can be created by analyzing and classification during The industry is in the midst of data of the financial behavior onboarding. a Netflix-like revolution where of a client, including their investors expect goal-based, social media activity across

Focus on Behavioral nance

Focus on client’s Create bespoke behavior, choices, risk proﬁles and views Create Targeted content custom portfolios delivery Available only to UHNIS now Personalization

ESG and 360-degree view social preferences Consider all facets of a Client may speci cally client’s personal life Customized ask an asset manager’s approach client reporting

Reports need to be intuitive, interactive, real time, and user friendly Source: Infosys

• Personalized portfolios can online and utilizing self- context and needs . This can be created for individual clients service options. According be driven by a client’s habits, or a group of clients whose to an Oliver Wyman survey, choices, social media analytics, objectives match. Currently, the wealth management client and travel history, among cost of portfolio maintenance interactions across digital other things. Client-relevant is high, but with technology channels have increased nearly communication that is not just advancements such as robo- 10x during the first quarter of driven by investment pattern advisory services, creating 2020. or market movements must be personalized portfolios will • Environmental, social and delivered to have the maximum become possible for more governance (ESG) and ethical impact and outcome. investors. At the moment, investing is at a nascent state Hyperpersonalization requires a the industry is able to offer yet is garnering attention. multipronged technical approach. customized portfolios only to Although service offerings in These revolve around building ultra high net worth individuals this area have not yet matured, an open architecture, developing (UHNIs). It is yet to become customers are showing interest data aggregation techniques, democratized for the mass in including these in their improving predictive analysis affluent. portfolios. Firms have to take capabilities, and using the power After the COVID-19 outbreak, this into account and develop of the cloud to process data faster private investments in offerings around them for and in real time. Some approaches firms that offer robo- interested investors. including the scope are described advisory services increased • Targeted content delivery below. significantly. With social communications with clients distancing becoming a norm, must focus on the client’s more investors are moving

Open architecture Empower ingestion and analysis of data Aggregation Empower and develop single view of client Rebalancing Enable constant, real-time rebalancing of portfolios Cost transparency Display transaction cost at security level Predictive analysis Real-time simulation and multiple scenario analysis Cloud migration Accommodate more data volume and improve processing power Speech to text and NLP Capture more insights from discrete types of interactions

Source: Infosys Trend 6: Intergenerational transfer of wealth is driving the need for digital preparedness

Baby boomers, with an estimated 2007 and 2061, nearly US$58 Historically, wealth changing US$30 trillion to US$40 trillion trillion worth of wealth will be hands has led to change of the in assets, are expected to have a handed over to their millennial wealth advisors in 90% of the profound impact on the asset and heirs, whose expectations from a cases. wealth management industry. As wealth manager are completely per research estimates, between different from their predecessors.

Figure 11. Similar to the share of wealth switch from silent to baby boomers, the switch from baby boomers to Gen X will happen within the next 10 years

60 50

30 20 Perentage 10 0 Mar 2000 Mar 2001 Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 Mar 2020 Mar

Silent Baby boomers Gen X Millennial

Note: Silent - People born before 1946 Baby Boomer - People born between 1946-1964 (aged between 56 - 73) Gen X - People born between 1965-1980 (aged between 40 - 55) Millennial - People born between 1981-1996 (aged between 24 - 39) Source: U.S Federal Reserve

External Document © 2020 Infosys Limited Global Trends in the Asset and Wealth Management Industry 2020 | 15 At the same time, around 43% and channels stand to gain by Wealth managers should create of U.S. financial advisors are attracting new millennial clients wealth plans that span multiple of the median age of 55 and or retaining heirs of existing generations and deploy digital approaching retirement. Wealth clients. Firms will have to try to capabilities and tailor-made managers are presented with understand the millennial mindset personalized services to attract significant challenges and and provide customized services. millennials. This helps retain opportunities due to this, and Millennials have a higher appetite clients when the wealth is the client advisor relationship is for taking risks and they prefer transferred. Advisory services will also going to change significantly. to stay in control of decisions. require major changes such as Traditional wealth managers may They prefer digital channels, reskilling advisors in new ways be complacent or slow to react to personalized features, and of working and deploying digital the long-term consequences of carrying out their own research advisory services that can enable the wealth transfer. while seeking advice from their advisors to handle additional own peer group. client relationships. Firms that are more focused on improving their digital capabilities

Figure 12: Changes required to tap the millennial market

ke ontr espo aditi d b ona an es su l a ed rvi h a dv i se s r is al th ob o n al o ry so e a m r w d o e v d P is o e r ls

d a e

l a i r n g a i r e e t i r t e i o n a d g e i l s h e u d l w e w s e e a e l n y t it r p n n u h ti a a r l e u h e s M im yt an Ae p ss to elusive s rodu H ts reserved or

Source: Infosys

Asset and wealth management transitioning wealth in the next expectations and transform the firms with a digital edge and few years. This has the potential industry as firms adapt to the investments in technology will to slowly change the investor changes. grab a major portion of the

From client onboarding to portfolio rebalancing, technology is helping shape multiple processes and supervisory activities in the asset and wealth management industry. With an increasing focus on digitization, asset and wealth managers are increasingly utilizing machine learning, APIs, and blockchain technology, among other things, to provide customers with a seamless experience and protection from cyber threats.

Trend 7: Machine learning to help eliminate cognitive biases in investment decisions

Advancements in behavioral can help generate more alpha. According to studies, some of science and psychology have Funds have started using machine the leading funds’ performances explained how biases can impact learning algorithms that are have improved by 100 to 300 a person’s thought process. designed based on inputs from basis points due to de-biasing, Asset and wealth managers have behavioral experts on the historic and more asset managers are recognized the risk of biases data sets to analyze investment expected to embrace these creeping into the decision-making decisions. Parameters such as techniques as the machine process. The asset and wealth security selection, allocations, learning algorithms and management industry is looking and weightages given to each technology evolve. Early adopters to de-bias the decision-making security and timing of stock can gain a competitive edge over process using various techniques sale are analyzed and the their peers and improve alpha of and technology. As the industry underlying biases are identified. active funds by implementing de- is facing issues with profitability A decomposition analysis gives biasing processes and methods, and investors preferring passive insights into how decisions on especially in times of market investing, there is an increasing the parameters have impacted slumps. need to improve the performance the performance. Machine of actively managed funds. learning algorithms can help the Asset managers have realized that investment managers pick up applying de-biasing techniques patterns of decision-making and recurring biases.

Portolio inputs • Security decisions • Decomposition of performance related

selection, weightage, security sale)

Proess inputs Mahine learning algorithms utput • Diagnosis of underlying biases • Decision-making processes • Identify decision-making patterns and and drivers underlying biases • Processes related to security selection, • Plans and de-biasing technique allocation, selling • Identify drivers leading to biases for future decisions

ndividual behavioral inputs • Behavioral traits of fund manager • Decision-making processes followed Source: Infosys Trend 8: Blockchain will increase process efficiency and transparency and lower costs

Blockchain is moving beyond are being done for asset classes to initiate fund subscriptions cryptocurrencies and gaining such as equity, debt, derivatives, or redemptions without going momentum in the digitization of real estate, and other forms of through a distributor and asset and wealth management alternate asset classes, such as payments can be made using functions. It allows the sharing art and carbon credits. This is digital currency. and updating of records in a changing the way assets are KYC and anti-money laundering distributed and decentralized bought and sold. Tokenization (AML) are other areas manner. Participants of the of digital assets helps investors where blockchain can solve distributed network can propose, diversify their portfolios, as inefficiencies. Digital identities validate, and record information in digital assets can be transacted of investors can be validated and a synchronized ledger. upon easily. This also helps lower stored in an identity management administration costs linked to the Regulatory bodies and watchdogs block of a permissioned DLT life cycle of an asset. have shown support for the network. Stakeholders who are adoption of blockchain, as it has Blockchain is disrupting fund part of the network can access enhanced market transparency distribution models. It connects the digital profiles of investors and compliance and increased all stakeholders of the fund to validate and authenticate auditability. distribution value chain through the requested transactions. a permissioned DLT network. This helps avoid duplication of DLT can track the history of Intermediaries such as transfer the KYC or AML process while digital assets, serve as a common agents can be eliminated as fund effectively fulfilling compliance platform for realizing the subscription requests from the requirements. transactions, and enhance the investors are directly fed into clearing and settlement process Smart contracts can solve smart contracts and transactions and records management. inefficiencies in portfolio are processed and settled in near Tokenization and digitization management and portfolio real time. This enables investors

18 | Global Trends in the Asset and Wealth Management Industry 2020 External Document © 2020 Infosys Limited rebalancing. Portfolio changes and transactions are management value chain. As the characteristics are fed into the transmitted to the investors in technology evolves, its increased smart contract and, if there are real time. adoption will help reduce costs any changes to the portfolio and make asset and wealth Blockchain provides multiple composition, rebalancing is management operations more digitization opportunities triggered automatically. These secure and reliable. across the asset and wealth

Figure 14. Use cases for blockchain in asset and wealth management industry

KYC/AML FUND PORTFOLIO CLEARING AND REGULATORY COMPLIANCE DISTRIBUTION MANAGEMENT SETTLEMENT COMPLIANCE

• Digital • Eliminate transfer • Lower fees for • Faster, transparent, • Transations are agents by use clients on more traceable being stored of DLT blockchain settlement of • Eliminates need for on blockchain • Smart contracts technology using transactions audit trail make distribution smart contracts • Use of smart monitoring speedy and • Use of blockchain contracts technology eliminates the need for brokers

Source: Infosys

Trend 9: Client lifecycle management (CLM) processes will be streamlined using emerging technology

Asset and wealth management need to engage with clients experience via multiple channels firms must sell seamless at every level. This becomes and touch points through the use experiences to clients, in addition effective with the use of the latest of data analytics. to services. There exists a business technologies to deliver a unified

Figure 15. Key aspects of CLM

Maintain Prospecting and Client Client ongoing due diligence onboarding oﬀboarding relationship

Source: Infosys

External Document © 2020 Infosys Limited Global Trends in the Asset and Wealth Management Industry 2020 | 19 Notable use cases in this area are presence, connectivity, and • Natural language processing- below. shorter response times. powered customer 1. Omnichannel experience for AI can enable firms to address relationship management clients: Clients own multiple client demands using: (CRM) systems for analyzing client behavior and patterns accounts across geographies • Biometrics for client and financial advisors, and opt authentication • Chatbots integrated with CRM for a plethora of products. As a systems • Automated speech result, they demand seamless recognition for sales, quicker According to a survey, 84% of HNIs services, ease of use across data entry, and faster response demand more digital interaction multiple digital channels, times when they are obtaining advice or secure payments, a social service from wealth managers.

Figure 16. Drivers for better CLM

Rising costs

Regulatory New technologies surveillance

Drivers

Rise of new Transfer of ﬁrms and wealth and business models aging investors Analytics and client engagement

Source: Infosys

Use of APIs Use of the cloud and open Data analytics architecture

Source: Infosys

2. Fundamental changes to multiple touch points to deliver a larger market. The robo- operating model to achieve value in areas of client or asset advisory market is expected to low cost: With changes in acquisition, decision-making, grow to US$16 trillion in 2025 digital ecosystems, firms will and investment management from US$3.7 trillion in 2020. make strategic changes to their to middle and back offices. Due to the impact of COVID-19, operating models to lower 3. Robo-advisors: Asset and CLM will become more dependent costs by using the cloud, APIs, wealth managers have invested on technology as clients demand and data analytics. in robo-advisory channels, increasing services with higher Firms are offering wealth as they provide easier access flexibility. This will drive a need for management as a service to a large portfolio of clients data analytics of client behaviors, hosted on the cloud, primarily with cost savings. The use of change in investment goals, and in the areas of CRM, business robo-advisors will democratize financial planning. The whole intelligence, and training. Using the wealth management financial ecosystem will undergo APIs and open architecture, industry because products changes that will have a major firms can access market data will be offered to clients with a impact on the wealth and asset and communicate with other low entry threshold at a lower management business. financial institutions, and their fee. Robo-advisors are being clients’ analytics help across integrated with traditional models that help firms access

Over the past few years, the asset payments fraud, and distributed including proprietary algorithms. and wealth management industry denial-of-service (DDoS) attacks. DDoS attacks are increasing, has become more digitized The use of APIs has increased this which can compromise a network and interconnected. Increase in threat as sensitive data is shared via online and mobile apps. digitization has also brought risks with third parties. Increased Emerging technologies such associated with it — the largest dependency on third-party as the cloud, AI, and machine being cyber risk. As per a study, infrastructure providers, such as learning are being used to the financial services industry was cloud service providers, to host build defensive solutions for among the top three industries data and applications has made cybersecurity by collaborating to be impacted by cyberattacks. firms more prone to attacks, as with third-party vendors. As According to the survey, 92% of they do not have full control per research, nearly 75% of midsized firms and 78% of small of the client and investment banks depend on AI to identify firms say that cybersecurity is data. Clones of asset and wealth cybersecurity threats. The asset the most important factor for management online portals are and wealth management industry them. However, when it comes being created, leading to a need is also investing in adaptive to wealth management firms, it for web-based cybersecurity frameworks and engaging is just 60%. Firms managing 28% strategies. dedicated teams to manage of the HNIs have fallen prey to Client-facing areas of asset compliance requirements and the cyberattacks to date. Having said management such as CRM, growing threat of cyberattacks. that, only 60% of these firms have portfolio management, third- Regulations such as the General a dedicated cybersecurity policy party administrators and Data Protection Regulation in or cybersecurity manager. distribution platforms, and robo- the European Union are being Cyber threats faced by the asset advisory services are prone to introduced across various regions and wealth managers are around client data theft, which can lead to enforce data protection. Firms theft of client data, theft of to reputational loss for a firm. are prioritizing cybersecurity as a intellectual property (IP) including Trading applications and robo- part of their budget allocation. investment strategies, data loss, advisors are susceptible to IP theft,

Figure 18. Cyber risks faced by asset and wealth managers

CLIENT DATA THEFT IP THEFT DDOS ATTACKS DATA LOSS • Robo-advisors • Investment strategy • Digital apps • CRM • CRM • Investment research • Online portals • Custodian services Type of • Portfolio • Risk models • Trading applications • Human resources cyber risk management

• Retail fund platforms

areas

functional Impacted Source: Infosys

With work from home becoming the new normal, cybersecurity has become critical for wealth management firms. Firms will look to deploy processes and use technology to protect their data as employees work remotely and the push for digitization increases.

Trend 1: Demand for increased transparency and lower fee-based products to disrupt fee models • ww.pwc.com/jg/en/publications/asset-wealth-management-revolution-pressure-on-profitability.html

Trend 2: Alternative investments will cautiously evolve • https://www.pwc.com/jg/en/publications/asset-wealth-management-revolution-pressure-on-profitability.html

Trend 3: Digital distribution models will evolve and take products directly to the end customer • https://www2.deloitte.com/content/dam/Deloitte/de/Documents/financial-services/Deloitte-Robo-safe.pdf

Trend 4: Open APIs enable data sharing and interoperability in a connected ecosystem • https://www.microsoft.com/cms/api/am/binary/RE489V8

Trend 5: Hyperpersonalization of services to meet customer expectation • https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2020/jun/2020-MSOW-Wealth-Management-Report-After- the-Storm.pdf • https://www.capgemini.com/wp-content/uploads/2019/12/Wealth-Mangaement-Trends-Book-2020-1.pdf

Trend 6: Intergenerational transfer of wealth is driving the need for digital preparedness • https://www.thinkadvisor.com/2010/08/01/retirement-planning-serving-gen-y-now/ • https://www2.deloitte.com/content/dam/Deloitte/us/Documents/strategy/us-cons-disruptors-in-wealth-mgmt-final.pdf • https://www.federalreserve.gov/

Trend 7: Machine learning to help eliminate cognitive biases in investment decisions • https://www.gartner.com/smarterwithgartner/gartner-top-10-strategic-technology-trends-for-2020/

Trend 8: Blockchain will increase process efficiency and transparency and lower costs • https://www.globalbankingandfinance.com/can-blockchain-accelerate-asset-management-industrys-long-awaited-disruptions/ • https://inc42.com/resources/asset-tokenization-on-blockchain-asset-management/

Trend 9: Client lifecycle management (CLM) processes will be streamlined using emerging technology • https://www.capgemini.com/es-es/wp-content/uploads/sites/16/2019/07/World-Wealth-Report-WWR-2019.pdf • https://www2.deloitte.com/content/dam/Deloitte/de/Documents/financial-services/Deloitte-Robo-safe.pdf

Trend 10: Amidst digitization and increased work from home, cybersecurity gains criticality • https://www.bmmagazine.co.uk/business/solving-the-cyber-security-riddle-for-wealth-management-firms/ • https://www.capgemini.com/wp-content/uploads/2019/07/AI-in-Cybersecurity_Report_20190711_V06.pdf • https://www.techrepublic.com/article/data-breaches-increased-54-in-2019-so-far

Rajneesh Malviya Ashok Hegde Swaran Kumar Patnaik Senior Vice President, Vice President, Head, Asset and Wealth Management, Financial Services Financial Services Financial Services

Each contributor below is a consultant in the asset and wealth management competency area.

Debdutta Banerjee Deepshikha Mittal Prasanna Sekar

Producers Samad Masood Sharan Bathija Infosys Knowledge Institute Infosys Knowledge Institute London Bangalore

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