Financial Services Industry Report

Financial Planning & Advisory Sector

In 2022, the market size of the financial planning & advisory industry is $59.2 billion. It is expected to increase 4% this year. Between 2017 and 2022, the market has grown 4.5% per year on average. The size of the market has increased faster in the U.S. than the overall economy. 

Industry profit declined in 2020 due to declining assets under management and lower return on assets but increased in 2021 as the economy began to recover. As macroeconomic conditions continue to improve through 2026 gradually, industry operators are expected to benefit from rising equity values and rising interest rates. 

High competition is a challenge in the industry, while the population's median age represents an opportunity. This is because the rising median age of the U.S. population is approaching retirement age, which increases the demand for retirement planning, capital preservation, and estate planning.

The COVID-19 pandemic changed the way many people think about investing and retirement, and advisors need to be adjusting their strategies accordingly. The top trends in financial advising in 2022 include:

• Rethinking retirement as far as location and time spent
• Preparing for inflation to minimize risk
• Bucket-list mentality that allows for enjoying the present while still focusing on the future 
• More momentum and fewer buy-and-hold strategies
• Advanced tax planning
• Hybrid client communications and virtual meetings

Investment Management Sector

The investment management industry performed well in 2021 despite pandemic-induced market volatility. The overall outlook heading into 2022 looks positive, while there is still some underlying uncertainty. This year, investment management firms need to focus on:

• Executing a strong vision
• Maintaining talent and employee resilience
• Improving operations
• Aligning with stakeholder expectations
• Strengthening culture
• Implementing artificial intelligence (AI)

Studies show that 85% of investment managers using AI-based solutions in the pre-investment phase agree that AI helps them generate alpha, and many plan to increase their budget for these technologies in the next year and a half. 

While firms accelerate their digital transformation efforts, the implementation of governance mechanisms varies on a regional basis. Europe leads the efforts, followed by the Asia Pacific region, and then followed by North America. Firms utilizing technology to improve client engagement and meet expectations tend to see more success and better revenue. Investment managers are engaging with clients in new ways through digital channels, intelligent chatbots, virtual meetings, and customized reporting. It is important that leadership is able to connect corporate vision with strategy execution, customer service, and employee resilience in order to exceed customer expectations moving ahead in 2022. 

Wealth Management Sector 

The global wealth management market size was valued at $1.25 trillion in 2020. It is forecast to reach $3.43 trillion by 2030, growing at a compound annual growth rate (CAGR) of 10.7%. 

Among the key driving forces in the wealth management market is the quickly increasing demand for alternative investments such as:

• Private equity
• Commodities
• Hedge funds 
• Real estate investment trusts (REITs)
• Intellectual property

Additionally, the emergence of FinTech has significantly disrupted the wealth management industry. While digitalized offerings contribute to market growth, a lack of pricing transparency, higher fees, and tight regulations are limiting some of that market growth. Firms are accelerating the switch to digitalized operations, adopting technologies such as chatbots, big data analytics, the Internet of Things (IoT), and AI. This is expected to open new windows for the market in the coming years. As a result, the FinTech advisory segment will dominate the market with a CAGR of 16.8% between 2020 and 2030. 

The sector also faces other challenges. For example, pricing transparency and competitive fees are two of the most important factors for clients in choosing a wealth manager. But a lack of pricing transparency and higher fees are expected to limit the wealth management market growth because many clients do not trust their advisors in charging fees and are dissatisfied with fee structures. 

The COVID-19 pandemic had a negative effect on the wealth management sector. The economy slowed, financial sectors became unpredictable, and markets grew volatile. Both firms and investors experienced direct impacts on their portfolios. 

The good news is that there is a significant opportunity for wealth managers to expand their offerings in developing economies. Many high-net-worth individuals are seeking wealth management in regions such as China, India, Malaysia, Indonesia, Thailand, and the Philippines.

Some of the other key wealth management trends to watch in 2022 include accelerating growth among independent registered investment advisors (RIAs), more RIA industry consolidation at the top, increasing use of cloud-native computing, and "uncommoditizing" investment management. 

Financial Services M&A Outlook

In 2021, global markets saw significant growth. Much of this growth came as the industry underwent significant consolidation and diversification. Between capital at record highs and interest rates staying low, plus a need to diversify, deal activity is keeping up plenty of momentum in an ideal environment. The usual players remain active while new entrants to the M&A market are looking to add to their existing offerings while market conditions are positive.