There were some who had their doubts early on, but in the end 2023 was another busy year for wealth management mergers and acquisitions (M&A). For the third year in a row, more than 300 deals were made (compare that to 181, 203 and 205 deals in 2018, 2019 and 2020 respectively).

In 2024, as the breakneck pace of aggregation continues, large firms will get larger and more formerly small firms will become household names. F2 Strategy predicts that the landscape of large national wealth firms ($100B+) will experience a dramatic shake up. These traditionally smaller firms will start to compete against the large firms that have always enjoyed brand presence and take a larger share of the market.

The industry could also see its first aggregation of aggregators through a merger or acquisition of the aggregators themselves. It’s likely that one or more firms grows too big too fast and is unable to handle operations and as a result, will run into compliance and legal challenges.

Technology is central to all of this growth and change. It is now perceived as integral to the business strategy and becoming embedded in strategic plans. More than 50% of wealth management firms ended 2023 with a higher technology operations headcount than they started with in January. The advances occurring in wealth technology help wealth management firms serve their clients better as well as serve more and different types of clients. It helps smaller firms compete on the same playing field as larger firms and drives their ability to scale more quickly.

F2 Research keeps a pulse on the WealthTech industry, by benchmarking trends among leading firms. During the past year, it engaged with 85 RIAs, Wealth Managers and Asset Managers representing more than $61 trillion in assets under management (AUM) in order to assess the industry and identify areas of strength and weakness in technology adoption. The research explored the key areas of performance reporting, financial planning, custody, artificial intelligence (AI) in 2023. It also collected data on planned activities of firms in 2024. By examining the trends that emerged, we can establish an outlook of the year ahead.

Here are ten trends that impacted the wealth management industry in 2023 and will be the foundation for growth and change in 2024:

Future Outlook: Wealth management firms are trapped in the cycle of continuous and rapid evolution of technology. Managing the change is an ongoing process of swapping vendors, improving integrations, rolling out and adopting new platforms and tools that won’t end anytime soon.

Future Outlook: In 2022, 50% of firms wanted to make data architecture a priority in 2023, but in fact, 70% of firms did it. This is a good sign as data sets the stage for success in all other areas of technology implementation from AI to reporting to marketing automation.

Future Outlook: In 2023, we saw wealth management firms were ready to explore how they can apply AI to enhance various aspects of their business, including client experience, efficiency and growth. A full quarter of respondents are using Optical Character Recognition (OCR) or predictive analytics or both. To date, the impact of AI projects has been small and exploratory. Firms have dipped a toe into the AI pool with predictive analytics, but haven’t adopted ChatGPT or natural language processing tools yet. This year they will expand beyond these first experiments. As the industry implements more advanced AI projects, we expect that some will fail and some will pay off.

Future Outlook: Wealth management firms are not where they want to be with AI, believing they can achieve more benefits than where they are today. Several factors have prohibited rapid investment in AI technology including concerns about data security and complying with the regulatory requirements that are on the horizon; budget constraints, issues with data quality; and competing priorities. This year, regulations should become clearer and firms should focus on data to allow opportunities for AI strategies to reimagine their businesses and streamline activities.

Future Outlook: We’re deep in the middle of AI’s hype cycle. Firms are eager to learn more about AI’s real-world applications. As we see more case studies of AI implementations and understand the possibilities and risks of AI technology, expect some disillusionment to occur. This is a natural result of any new technology and AI will follow the same cycle as previous trends. 

Future Outlook: Given RIA’s collective frustration with the lack of integration and disappointment in the pace of innovation in 2023,  we’ll see more go to other vendors for more efficient technology in 2024. Newer players such as LPL Financial, Envestnet and Altruist have an opportunity to accelerate new custody business if they can deliver efficient processes for getting data into their custodians’ platforms and pulling data from the platform for processing and reporting.

Future Outlook: A big issue in custody in 2023 was associated with data downloads. Less than half of firms are satisfied with their custodian’s native data download tool. Instead of relying on the custodians for innovation they are turning to third-party tools. In 2024, it’s time wealth management firms challenged custodians to deliver data  in modern and efficient forms rather than relying on legacy file delivery methods.

Future Outlook: When a wealth management firm offers “financial planning services” it could mean retirement planning, cash flow analysis, estate planning, tax planning or many other options. In addition, the service is limited with only 32% of firms offering financial planning services to all of their clients. To add financial planning services in 2024, evaluate the needs of your different client segments and how different financial planning services would benefit them. Solidifying what the service is and who it is for will form the framework for considering the optimal technology solutions.

Future Outlook: Currently, more than half of firms leave the decision to offer financial plans to specific clients up to their advisors while the rest use metrics and data related to AUM or client complexity. Some firms noted when the decision is left to advisor discretion they choose not to because it changes their business model or they don’t want to spend the time creating a financial plan. But, firms anticipate clients will want financial planning to be a more integral part of the advisory process. Therefore, in 2024, firms will need to undertake initiatives to educate advisors on the value of incorporating financial planning into their work and provide them with tools to help them communicate that value in order to keep clients happy.

Future Outlook: In 2023, a one-size-fits all financial planning technology solution doesn't exist; therefore, firms utilize multiple tools depending on the variety of services they offer. How do you integrate planning when you use multiple tools? The industry doesn't use two or more CRMS, trading tools, or performance reporting tools…so why planning tools? Financial planning is not part of the overall experience if we’re using more than one tool. Until we see this change in technology, financial planning will remain an add-on to what advisors do.