Investor behavior changes in face of increasing market volatility as demand shifts to active investments and FinTech, new EY report finds

The world is changing faster than ever before. With unprecedented levels of volatility and global uncertainty, investors are changing the way they invest in uncertain times. According to the 2023 EY Global Wealth Research Report, wealth managers will have to adapt faster than ever to keep up with these changes.

Introduction

The report, the fourth edition of this survey, recorded the views of more than 2,600 wealth management clients across 27 geographies. It found that 40% of the survey respondents think that managing their wealth has become more complex over the last two years. More than half (57%) cited market volatility as a reason for their lack of financial preparedness. This figure rises to 69% among baby boomer clients – those born between 1946 and 1964, who are more likely to have retired or be close to retirement.

What the report found

According to the survey, over the past two years, there has been a 30% decrease in the number of clients who indicate a key purposeful financial legacy goal of transitioning wealth to family and charity as a top priority. Investors’ three leading goals are now protecting wealth against losses and inflation (43%), strengthening investment returns (40%), and ensuring adequate income and financial security (32%).

The rise of digital assets and ESG funds, and how they are influencing market trends and economic uncertainty, are presenting operational challenges to wealth managers. The survey shows that investors are diversifying more thanever, and it comes as no surprise that given recent global events, short-term liquidity access poses both an opportunity and a risk. Investment has become more complex, and Wealth Managers will have to learn how to manage it.

Despite the unrest in the market, the appetite to switch wealth management providers is high, especially for younger investors. Almost half of respondents (45%) plan to add a new provider, move money to another provider, or switch altogether in the next three years. Millennials – born between 1981 and 1996 – are nearly three times (73%) as likely to move assets than boomers (29%).

The appetite for passive versus active is reflected in the generational divide, with younger investors more likely to switch to active investment in the face of volatility: half of (50%) millennials increasing allocations to active investments compared to just 22% of boomers. Similarly, millennials are three times more likely to use a digital assets provider or crypto wallet than their older generational counterparts (24% of millennials have an existing relationship).

The proportion of respondents working with FinTechs to manage their wealth is expected to double from 9% to 18% over the next three years – attracted by the sector’s low charges, specialized digital experiences, and low-friction switching. That growth is expected to be even more dramatic in Europe (increasing from 11% of respondents to 23%), Asia-Pacific (14% to 26%), and the Middle East (8% to 41%).

Investors are hungry for advice and expertise from their advisor to interpret economic, market, and political shocks. Millennials (66%) and those feeling least financially prepared (67%) are signaling the clearest appetite for more advice on investment services, and specific regions are exceeding the 48% global average: Middle East (63%), Latin America (59%), and Asia-Pacific (56%).

The survey also found that investors have acted in similar proportions in response to market volatility, moving to active investments and seeking safety with increased allocation toward savings/deposits. Almost three-quarters (73%) of respondents changed investment behavior due to portfolio value decline, and more than a third (34%) moved assets into active.

Key Takeaway

The report reveals that wealth managers need to act now and rethink their strategies to manage the changes facing investors today. This means mastering the latest technologies and techniques, along with a sharp focus on retirement income and new customer acquisition strategies.

Related Facts

• Over the next three years, the proportion of respondents working with FinTechs to manage their wealth is expected to double from 9% to 18%.
• Younger investors are nearly three times (73%) as likely to move assets than boomers (29%).
• Millennials are three times more likely to use a digital assets provider or crypto wallet than their older generational counterparts (24% of millennials have an existing relationship).

Conclusion

The report highlights that investors’ behavior has changed due to an increase in market volatility, with demand shifting to active investments and FinTech. Wealth managers will need to adapt faster than ever to keep up with these changes. By mastering the latest technologies, focusing on retirement income, and coming up with new customer acquisition strategies, wealth managers can stay ahead of the game and better serve their clients.