10 Defining Themes For The Future Of Wealth Management

J. Pierpont Morgan would be proud that many of the historical tenets of the asset- and wealth-management industry still form the bedrock of how money is managed in modern times. The fund’s 150-year track record is a testament to our industry’s founding principle: While the world may change, clients’ desire for investment expertise and personalised service won’t.

With that in mind, here are 10 key themes that we look forward to helping our clients navigate in the future.

1) Price. Ever since I entered the asset-management industry, sceptics have warned that fee pressure will destroy profitability and detract top talent from the profession. Fees in every industry compress at some point. Successful firms of the future will thrive by either providing commodity-like products at scale for near-zero cost, or delivering hard-to-access insights and exposures that command a premium. Our industry must strive for continuous improvement on both ends of the spectrum.

2) Scale is a matter of survival. With compressed pricing, heavy regulatory controls, and immense spend on data, analytics, and risk-management tools, firms need a relentless focus on operational efficiency, a rigorous control framework, and a disciplined prioritization process around investments for the future. In this context, scale is key. Mergers and acquisitions and outsourcing of sub-scale and noncore capabilities to service providers will enable smaller firms to refocus their efforts back into their most important asset: talent.

3) Actively advising clients. If we learned anything from the Covid-19 crisis, it is the need for sound advice in volatile times. During that time, thousands of actively managed funds outperformed their passive alternatives across asset classes and portfolios. While markets may be efficient, manager selection is key and clients need guidance. The average industry return of a balanced portfolio over the past two decades was 6.4% annually, while the actual experience of the average retail investor was only 2.9%, a stark reminder of how critical hands-on advice is.

4) Impact and purpose. Portfolio managers and research analysts have become essential for investors seeking to make an impact in the world through their assets. Over 80% of surveyed CIOs expressed intent to invest in environmentally and socially conscious companies. Analyzing CEOs and their management teams is no longer just about inquiring about their financial and operational expertise and vision, but also about the impact they make on their communities and the planet. Rising demand for companies that drive positive change will create a virtuous cycle of asset allocation for good.

5) Personalization. Today’s investors want to be intentional, not passive, in investing. They care about taxes and want to overweight companies that can make a difference. They want to avoid whole sectors, or actively own and vote on a company’s strategic plans. Giving clients the freedom to pursue their very specific objectives in a highly customized manner will continue to drive innovation in our industry.

6) Stable and predictable incomes. Millions of investors around the world have come to rely on their investment portfolios as a stable source of income. With individuals enjoying longer life spans and more active lifestyles, especially during retirement years, asset managers need to adapt their strategies to provide for a stable and predictable flow of income every month. Along the same lines, saving needs to start at a young age. Today, less than 40% of Americans have enough savings to pay for an unexpected $1,000 expense in cash. It is our collective responsibility to educate and advise on what is required to cover all of life’s events and milestones.

7) Understanding China. The pandemic has highlighted the interconnectivity of the world and how important China is to supply chains and new innovations. Against this backdrop, it is irresponsible to be a fiduciary of client capital and not have a deep understanding of places like China. It is hard to imagine having a true grasp of competitive global forces without on-the-ground insights of the economies, cultures, and politics of re-emerging global marketplaces. After 100 years of being on the ground in China, J.P. Morgan is poised to become the first foreign asset manager to acquire full ownership of a Chinese fund manager, pending regulatory approval. That kind of commitment will contribute massively to our global research network.

8) Technology drives everything. To adapt to the velocity of progress and change, technology is providing our industry access, speed, and agility like never before. With more technologists than Google and Facebook combined, J.P. Morgan invests over $12 billion annually in technology to help empower our clients and employees to work faster and more seamlessly in ever-changing markets. We need to be forward thinking and have the ability to be a disruptor. Agile, collaborative partnerships between technologists and their businesses will drive innovation and speed to market at an exponential pace.

9) Access. With a global footprint and a full suite of investment vehicles, asset managers must continue to focus on enabling first-time investors to invest in previously inaccessible areas. We are finding ways to provide more opportunities, more choice, and more power to people. Investments once only available to the largest investors in the world are now being accessed by the everyday investor. Democratization of markets should create better outcomes for investors of all sizes.

10) A new flexibility. Our industry adapted quite seamlessly to a previously unimaginable work-from-home scenario. As such, increased flexibility will broaden talent pools and should promote greater diversity. While never losing the apprenticeship nature of our business, we should continue to find new ways of working with one another to generate even greater success.

In coming years, the industry’s winners will remain obsessed about their fiduciary responsibilities. As stewards of capital, the ability to leverage technology and scale to deliver the same extraordinary experience for every investor, with $100 or $100 million, is now within reach.

Superannuation is the first thought when it comes to self-funding retirement. Yet it is hardly the only option for doing so.

Just as we have a choice in how and where we work to earn a living, many people also have a choice in how to fund their retirement.

It is possible and sometimes preferable to leave your superannuation untouched, allowing it to continue growing. Some or all of your income can come from alternative sources instead.

Here are some alternatives you can consider.

1. Downsize your home

For many who own their own homes, the equity accrued over decades can eclipse the funds in superannuation. However, it’s theoretical money only until it is unlocked.

Selling up the family home and downsizing – or rightsizing – for retirement allows you to pocket those gains tax-free and simultaneously relocate to a more suitable home with lower upkeep costs.

Up to $300,000 from the proceeds can be contributed by a downsizer to boost your super, and the remainder can be used to fund living expenses or actively invested.

Remember that while the sale proceeds of your home are tax-free, any future profits or interest earned from that money will be taxable.

2. Part-time work

Semi-retirement allows you to gradually step into retirement. You continue earning income and super while working part-time, keeping a foot in the workforce while testing the waters of your new found free time.

Doing so also offers scope to move into different roles, such as passing on your skills to future generations by teaching/training others in your field of expertise, or taking employment in a new area that interests you and is closer to home.

3. Self-employment

Retirement from a full-time position presents a good opportunity to pursue self-employment. With more time and fewer commitments on your hands, you have greater scope to turn your hobby into a business or leverage your professional skills and reputation as an external consultant.

Also, for the self-employed and those with a family business, director’s loan repayments from the company are typically tax-free, offering a potentially lucrative source of

income and a means of extracting previous investments into the business without selling your ownership stake.

4. Investments

Rental property income (from residential or commercial properties) can supplement or even provide a generous source of income. The same applies to dividends from shares.

These are likely to be more profitable if you own them well before retirement.

Income that is surplus to your everyday needs can be reinvested using tax-effective strategies to grow your future returns.

5. Family trust

A family trust could be used to house investments for yourself and other relatives, building intergenerational wealth.

Trusts allow funds to be allocated to beneficiaries to manage marginal tax rates and stretch the money further, you have control over how income is split between different family members and have flexibility for changing circumstances.

6. Selling collectables

You may not realise the value of items you have collected over the years, such as wine, artwork, jewellery, vintage cars, and antiques.

Rather than have them collect dust or pay to store them, they could be sold to fund your living costs or new investments.

Where possible, avoid selling growth assets in a depressed market – wait until you can extract maximum value.

7. Obtaining a part-pension

Part-pensions are not only possible but valuable in making your superannuation stretch further. They still entitle you to a concession card with benefits in healthcare, transport, and more.

Take these savings even further by requesting pensioner discounts with other companies, on everything from utilities to travel and insurance to eating out.

Also, don’t overestimate the value of your assets as part of the means test. It’s a common mistake that can wrongly deny you a full or part-pension.

Plan ahead

However, you ultimately fund your retirement, planning is crucial. Advice would hopefully pay for itself.

Understand your spending and how those habits will change before and during retirement, then look to investments that offer the best fit.

Consider a mixture of strategies to diversify your risk, manage your tax liabilities and ensure ongoing income.

Above all, timing is key. The further ahead you plan, the more time you have to embrace additional opportunities and do things at the right time to maximise their value. You’ve worked hard and now is your chance to enjoy the fruits of your labour!

Helen Baker is a licensed Australian financial adviser and author of the new book, Money For Life: How to build financial security from firm foundations (Major Street Publishing $32.99). Find out more at www.onyourowntwofeet.com.au