After retreating into cash during the market upheaval of 2022, a report from Capgemini says high-net-worth investors shifted from wealth preservation to growth in 2023. That trend is expected to continue this year.Georgijevic/iStockPhoto / Getty Images
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While some advisors worry about losing out to the cold efficiency of artificial intelligence (AI), a report from Capgemini SE says the new technology offers advisors a path to more personalized relationships with clients, particularly the very wealthy.
Almost half (49 per cent) of the wealth management firms surveyed for the Capgemini Research Institute’s 2024 World Wealth Report were using AI in some form, while almost three-quarters (73 per cent) said they plan to increase adoption in the next two years.
The report, released Wednesday, points to ways AI can help with client profiles by digging into psychological traits to understand their decision-making and create more intimate relationships.
The Paris-based technology consulting firm’s research institute surveyed more than 3,000 high-net-worth individuals (HNWIs, or individuals with more than US$1-million in investible assets); 75 wealth management executives; and more than 750 relationship managers globally.
Shifting attitudes toward AI
Elias Ghanem, global head of the Capgemini Research Institute for Financial Services, said wealth managers’ attitudes toward AI are changing.
“They passed the phase of saying, ‘It will replace me,’” he says, to the point at which they now recognize the role AI can play.
“Whatever the machine can do to help my efficiency, it will enable me to be more client-intimate in my conversation,” he says.
Mr. Ghanem identified time saved for reporting and onboarding clients, portfolio insights, and increased personalization in client communications as three key performance indicators advisors can use to measure the success of their AI adoption.
“Don’t try to boil the ocean with AI,” he says. “Pick and choose your battles.”
For example, advisors spend a lot of time reviewing and processing notes from client meetings. AI tools can not only provide meeting summaries, Mr. Ghanem says, but language analysis can pick up on sentiment an advisor may have missed.
“It gives us the ability to concentrate on the conversation and engage, build the intimacy that could be built,” he says.
AI tools can also help advisors with follow-up communication, he adds.
The report notes that AI can complement behavioural finance approaches to understand clients’ risk preferences and biases, and to communicate at opportune moments.
Almost two-thirds (65 per cent) of the HNWIs surveyed said biases influence investment decisions, particularly during significant events such as marriage, divorce and retirement. The report says AI systems can be used to understand how clients react to market fluctuations and identify when advisors should be providing advice proactively.
“We believe AI can empower behavioural finance to identify the bias better and anticipate your reaction,” Mr. Ghanem says, leading to fewer regrettable decisions on the client’s part.
How wealthy clients are investing
The report also provided insight on how HNWIs are investing and the growing competition between wealth management firms and family offices.
In the 2020 report, HNWIs had relationships with three firms on average. By 2023, that had increased to seven.
Mr. Ghanem says this marks a “true shift” in terms of who is acting as the advisor, especially among ultra-high-net-worth (UHNWI) clients with investible assets of more than US$30-million, and whose assets are often held in multiple jurisdictions.
Many are spreading their wealth and decision-making across various firms and advisors, he says, and some are using a family office as an “orchestrator” across the various providers.
“This [dynamic] creates the challenge [for] wealth management firms, which used to be the main [point of] reference, in that they now have to share the pie and share the [clients’ information and] decisions with the trusted advisor to the client, which is the family office,” he says.
In this scenario, the family office is able to provide the client with the full view across providers and geographies, while each traditional wealth provider has a more limited scope.
For wealth management firms to compete, they will need to provide multi-jurisdiction and multi-asset services (including access to venture capital and private equity deals), Mr. Ghanem says, as well as generational wealth transfer planning and comprehensive digital services.
The report also highlights the importance of value-added offerings such as concierge services, networking opportunities, and legal and lifestyle advice, as well as “passion investments” such as wine and collectibles.
“If banks are able to create this one-stop shop of financial and non-financial services, through digital and physical channels, they will be in the game,” Mr. Ghanem says.
HNWIs shift back to growth mode
After retreating into cash during the market upheaval of 2022, the report says HNWIs shifted from wealth preservation to growth in 2023, a trend that’s expected to continue this year.
Globally, HNWIs had 34 per cent of their assets in cash in 2022 – the highest proportion since the Capgemini report was first released in 1997 – but that was reduced to 25 per cent last year. Canadians were even more conservative, with cash holdings accounting for 38 per cent of assets before coming down to 27 per cent last year, Mr. Ghanem says.
As that money moved off the sidelines in Canada, fixed income and real estate investments were the main beneficiaries. As a share of total assets, fixed income rose to 20 per cent from 14 per cent last year, Mr. Ghanem says, and real estate – which includes funds as well as personal investments such as secondary residences – rose to 21 per cent of assets from 12 per cent.
Equity and alternative holdings were both down slightly from year to year: to 22 per cent from 25 per cent for equities’ share of assets, and to 10 per cent from 12 per cent for alternatives.
The market rebound last year led to global HNWI wealth expanding by 4.7 per cent to US$86.8-trillion. The global HNWI population increased by 5.1 per cent to 22.8 million people after declining in 2022.
UHNWIs account for more than one-third (34 per cent) of HNWI wealth but make up only about 1 per cent of the HNWI population, the report says.
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