A leading global wealth management consultancy has warned that traditional advisers need to respond to the growing threat from emerging digital competitors.

Data and analytics firm GlobalData says traditional players must step up their digital services to avoid losing mass affluent clients.

The firm says the Covid-19 pandemic has accelerated the transition to digital advice and investment services.

The firm says JP Morgan’s recent purchase of robo-adviser Nutmeg and other deals by Barclays and HSBC pose a threat to mainstream advisers.

GlobalData believes mass affluent individuals are more likely in future to consider using digital players.

The trend for the “historically paper-based wealth management industry” to undergo a digital transformation itself means mass affluent customers are now open to a “wider range of providers managing their investments,” says GlobalData.

GlobalData said a number of recent deals indicated the pace of change. In June JP Morgan purchased the UK’s leading robo-adviser by AUM, Nutmeg, for its forthcoming mass affluent service. Barclays collaborated with Scalable Capital on a robo-adviser in 2020 and HSBC partnered with Amazon to "deepen personalisation" of its global wealth and personal banking business. 

This indicated that some players are “spreading their wings and looking at non-traditional financial services platforms to promote longevity”, the firm said. 

Sergel Woldemichael, wealth management analyst at GlobalData, said: “As highlighted by GlobalData’s 2021 Financial Services Consumer Survey, mass affluent individuals’ propensity to opt for alternative providers to manage their wealth is rising. 

“In Asia Pacific, for example, only 27% of respondents prefer to use traditional banks and building societies to manage new investments. The lion’s share would rather have digital players such as robo-advisers and big tech companies manage their wealth. 

“In both Europe and the Americas, traditional banks, brokers, and financial advisers are preferred by most mass affluent individuals. However, other options – from digital-only banks to new digital financial services providers – are certainly growing in popularity.”

He said many banks have the luxury of a large client pool and some have decades-old, dedicated mass affluent services but they too must change. 

He said: “Digital players are providing sought-after customer experiences at pace, with big tech companies priding themselves on personalisation, and digital investment platforms providing automation and continuous service expansion at a low cost.”

He added: “Competition for the mass affluent demographic will continue to grow in the wealth management industry as new digital entrants and non-financial services providers make their mark. 

“The Covid-19 pandemic is to blame for the acceleration of this, spurring digital uptake. All in all, only the strong will survive – and in this case, ‘strong’ refers to those that can best cater to the mass affluent audience and meet their increasingly demanding digital needs.”