Forbes Media Feb 25, 2025, By Gary Drenik, Contributor.
As demographics shift to a new generation of investors, wealth managers are facing significant challenges that are turning their investment world upside down. The primary driver for change is the emergence of alternative and private investments and the desire for investors to exert more control over their capital. Gone are the days where cursory performance only mattered and where similar investment strategies could apply to a broad class of investors.
Today’s investors want choices, they want customization and alternative investment strategies. Investors and wealth management clients have different needs and risk tolerances where equity returns, and income generation need to be balanced.
The wealth management industry is growing at a fast pace and catering to individual requirements is adding pressure. Wealth advisors are expected to keep pace with market shifts, geopolitical influences, and economic factors; and wealth managers run the risk of losing clients or not meeting their clients’ wealth expectations. Ultimately, they can fall into oblivion.
To add fuel to the fire, technological advancements are opening new doors, while at the same time regulatory requirements are burdening wealth management teams. These dynamics are creating both challenges and opportunities for wealth managers striving to stay competitive and deliver more value to their clients. See below for key trends shaping the industry and opportunities for wealth managers as well as predictions for the future of investing.
Key Challenges increasing AI demand
Client expectations are evolving. For example, Millennials and Gen-Z investors want to take ESG factors into consideration and expect an engaging experience as they monitor their investments while Gen-X and older generations are seeking better income generation and perseveration of wealth. Traditional approaches to wealth are not satisfying the curated demands across clients.
According to a recent Prosper Insights & Analytics survey, more than 63% of respondents in the Gen-Z category expressed that ESG issues are important to very important, versus only 43% of their Gen-X counterpart. This shift in demographics is creating new requirements and new regulations that significantly increase the burden on wealth managers and investment advisors.
These changes are driving a technological disruption. Autonomous AI agents are opening new doors and creating an edge for those who harness it; but they are also a looming threat for those who do not embrace transformational change.
In a recent Prosper Insights & Analytics survey, a staggering 44% in the Boomers generation do not trust AI to have their best interest in mind, compared to only 21% of Gen-Z’s age group. This means that the tolerance for AI is much higher with the younger generation and will accelerate the adoption of more automated services for investors.
Furthermore, geopolitical tensions, inflation, and climate change contribute to market volatility, thereby increasing the need for real time investment insights. Purpose-built AI is a critical component in the ability to guide investors to make timely and informed decisions. The purpose-build AI can also allow wealth managers to keep pace with regulatory compliance requirements in an era where regulatory complexity is increasing rapidly in global markets. Mobility and client demand for new international investments can add to the multi-jurisdictional requirements as well as confusion on how to properly handle governance and reporting.
Opportunities for Wealth Managers and High Net Worth Investors
An increasing number of high-net-worth individuals are creating demand for alternative investments including private equity, early-stage start-ups, cryptocurrency, and even more visibility to small-cap and micro-cap companies. These types of investment vehicles were previously reserved to a small group of elite investors as it was very difficult, costly or time consuming to access and managing the requirements across a diverse portfolio where due diligence skills are essential.
One of the biggest challenges to private and alternative investments is access to first-hand insights to properly evaluate opportunities that guide and manage investment strategies or even trading decisions. This is not necessarily a data problem but an access to data issue as well as a skill gap in analyzing the wealth of data that could be available. “Data alone is useless. Insights are, valuable! And insights are only achieved when data is effectively blended and analyzed from many different sources.” said Kevin Collins, founder and CEO of Charli AI Inc., a financial services company that uses Multidimensional AI™ to analyze private and public company information to provide investment guidance and perform deep analysis for their clients.
Charli’s advanced technology was developed by a team of scientists in their AI Lab to be specifically trained and optimized on being a financial expert. The AI’s financial markets expertise enables the analysis of real-time capital market information and the immediate generation of insights that reduces the barrier to entry for the new generation of investor. This is a key feature in opening up the private markets to a broader set of investors.
As indicated in a recent LP (Limited Partners) survey by McKinsey & Company, 30 percent of respondents said they plan to increase their private equity allocations in the next 12 months. This isn’t surprising given the fact that still according to McKinsey & Company, the returns in private equity investment has outpaced the S&P 500 consistently since the turn of the millennium.
Wealth managers have an opportunity to seize the first movers’ advantage to offer custom services and access to private equity investment without increasing the back-office cost. But this requires partnering with the right vendors that have been proven in delivering financial results. The noise in the AI space is getting harder and harder to navigate and few companies can meet the stringent requirements of the capital markets space.
Outlook
Sell Side research will face fierce competition with incoming automated solutions that enable larger scale analysis and will see a decreasing demand for sell side analysts. VC analysts are also going to be heavily challenged by automated solutions for private company due diligence and valuation.
Moreover, we will see a disruption in traditional investment platforms and financial data providers that can be heavily augmented or even displaced by automated solutions that are far more scalable and less dependent on finite structured data.
Capital investment will be redistributed as individual investors gain more control over their investment strategies, which in turn may shake out the entire market. The private equity market will especially be affected and given that it represents more than 90% of small to mid-size companies worldwide according to S&P Capital IQ.
Conclusion
Wealth management, and Capital Markets, are about to undergo a significant disruption. The investment landscape is evolving, and wealth managers have a rare opportunity to take more control over the sector as they become an important conduit for new demographics of investors. This could be a unique and moment in time where wealth managers have an advantage over large financial institutions.