The only thing certain, especially in today’s business world, is uncertainty.

The level of uncertainty the financial sector faces is unlikely to dwindle anytime soon

Ambiguity is a given in the environment many financial institutions find themselves in, as neither stability nor significant growth can be guaranteed. With rising inflation, uninspiring GDP growth, tightening central bank interest rates, turbulent geopolitics, and numerous COVID-19 variants, bankers and wealth managers are being kept on their toes. In fact, the head of the International Money Fund predicted that one-third of the world economy might be in recession in 2023.

To navigate this challenging environment, I expect many financial services (FS) firms to focus on transparency and customer-first shifts. Both retail banking and wealth management have become significantly more flexible, driven by rapid post-pandemic digitalisation, generational wealth transfer, operational optimisation, and a growing commitment to sustainability and environmental, social, and governance (ESG) investments.

While the cost-of-living crisis and rising inflation are hitting the pockets of all kinds of clients, they present new opportunities for banks and wealth management firms to put customer-first strategies into action. To do so, financial institutions need to ensure the prioritisation of data and digital competencies to offer well-timed financial wellness support and personalisation.

The pandemic triggered the rapid transition from physical to digital channels, which prompted various new initiatives in the sector. For example, automated know your customer (KYC) projects were created to mitigate increasing online and mobile fraud. With cybersecurity attacks and identity theft on the rise, banks implemented stopgap multi-factor processes to verify customer identity. However, it quickly became apparent that efficacy and user convenience depend on a robust digital ID infrastructure.

So, I’m not surprised that digital IDs are becoming a new way for FS firms to provide a more seamless interface while maintaining greater security. In fact, digital identification may turn out to be a source of competitive relevance and potential profit in the not-so-distant future.

I expect more banks will try to boost their relevance in the coming months by offering customers financial wellness advice and training. For example, banks can leverage widely available customer data to generate hyper-personalised insights. In addition, individualised customer journeys that prioritise budgeting and monetary balance will foster meaningful connections, loyalty, and cross-sell and up-sell possibilities. In doing so, banks can make financial wellness advice a significant 2023 differentiator.

Additionally, the demographics of clients handled by wealth management (WM) firms is shifting to align more closely with today’s socioeconomics – and those that proactively target these next-generation investors will stand above the rest in the market. These WM trendsetters will actively prioritise bespoke investment solutions, advanced front- and back-office technology, and sustainable investing.

As we head further into 2023, I anticipate more sustainable investment frameworks and clarity as regulators demand protective safeguards for investors – particularly around social and environmental disclosure gaps. Moreover, more robust standards will provide the needed guidelines for firms scrambling to offer verifiable ESG-aligned products that meet the criteria of socially conscious high-net-worth individuals (HNWIs) alert to more deceptive marketing tactics and greenwashing.

Following the ongoing discussion coming out of the United Nations 2022 climate change conference, COP27, regulators will accelerate requirements for evidence-based ESG investment information. For example, disclosure requirements may eventually include details about the carbon footprint of a company’s production processes, the materials inside each product part, and how the product may harm or help the environment when it is out of use.

As major global markets introduce and enforce tighter ESG regulations in 2023, Europe’s Sustainable Finance Disclosure (SFDR) and Taxonomy Regulation (SFTR) is already in effect. It offers EU investment managers parameters about disclosing ESG risks in their products and how to incorporate risk assessment within investment processes. As a result, sustainable investment disclosure will become more consistent, comparable, and informative.

After peaking in late 2021, crypto investments will continue to stir market demand throughout the coming months for more comprehensive, diverse portfolios (including EFTs, NFTs, and metaverse products). However, a lack of familiarity with these emerging fields may hold back some HNWIs from dabbling further in such investments. For example, the recent scandal surrounding the cryptocurrency trading platform FTX may act as a disincentive for many to invest in such digital assets. It’s here that relationship managers can step up and act as guides to established, large-cap cryptocurrencies and allocations to newly launched projects with a smaller market capitalisation that may offer higher gains.

For the foreseeable future, the most strategic WM firms will continue to educate their relationship managers and clients about digital assets and ecosystems as alternative investments and new portfolio strategies become increasingly popular.

As the start of 2023 has proven, the level of uncertainty the market faces is unlikely to dwindle anytime soon. However, this will encourage financial institutions to work harder in understanding customer needs and motivations more authentically. In doing so, digital-first engagement and seamless customer experiences will become the ultimate business priority to not only better navigate these turbulent times, but to secure competitive advantage. As they do, firms and relationship managers will solidify their positions as trusted partners and advisors.

This ongoing volatility within the market allows financial organisations to tap into their expertise to better chart a course through these unpredictable times – leveraging their scale, assets, broad customer base, and regulatory knowledge. So, while we may be facing much ambiguity throughout 2023, there has never been a greater opportunity to innovate.

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