Forum Institutional

How to break the chains of financial inequality in wealth management

financial stock market graph on technology abstract background represent risk of investment in a story about wealth management

Wealth management companies must make investing more accessible to everyone. Image: Getty Images/iStockphoto

Gregory Van
Chief Executive Officer, Endowus Singapore
Our Impact
What's the World Economic Forum doing to accelerate action on Forum Institutional?
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Institutional and Private Investors

This article is part of: Annual Meeting of the New Champions

Listen to the article

  • Inflation is causing financial hardship worldwide and this is particularly badly felt in retirement planning among rapidly-ageing communities in Asia.
  • Wealth management providers in the region must tackle issues such as a lack of transparency and uneven access to financial advice and products.
  • The industry must prioritize the wellbeing of every investor and ensure the path towards a viable financial future is not limited to a privileged few.

Across the world, people are bemoaning skyrocketing costs of living – the impact of rising inflation does not discriminate. The value of money is eroding at a rate that is tangibly and keenly felt by many.

However, the struggle is perhaps most pronounced in retirement planning – particularly in Asia, where its population is ageing faster than any other region. This phenomenon compounds the challenge of stretching hard-earned money across longer retirement years.

An extended life expectancy is no longer commensurate with a sustained quality of living and retirement adequacy is shaping up to be the greatest generational challenge of our time.


What is AMNC, the World Economic Forum's meeting in China?

Coming into focus is the imperative to address the shortcomings of a traditionally opaque financial industry that has failed to provide fair, meaningful investment advice and opportunities for individuals.

The current state of wealth management in the region is marred by hidden commissions, a lack of transparency, and limited access to suitable investment solutions for the everyday investor – these are your friends, colleagues and family members.

Most people unknowingly suffer from poor investment options, advice and, correspondingly, reduced returns. In upholding our fiduciary duties, there is much more wealth managers can do to level the playing field and close the investment gap.

Trailer fees are an evil worth fighting

Trailer fees are insidious commissions paid by fund managers and insurance companies to distributors (i.e. brokerages, banks, financial advisors or wealth managers) that silently chip away at investor returns.

This commission is paid continuously as long as an investor holds the funds, and usually ranges between 0.5% to 1% per annum, or greater than 50% of the fund-level fees.

As an industry norm, distributors are often incentivized to sell funds that offer the highest commissions, rather than those that genuinely or appropriately meet investors' needs and risk appetites.

From the outset, trailer fees immediately place everyday investors, who depend on wealth professionals to render the best investment advice, in a disadvantageous position. While they have been made illegal in matured markets such as Europe, Australia and the UK, this misalignment continues to pervade Asia.

Have you read?

To truly empower individuals with the greatest chance of financial success, wealth managers must not fall prey to prioritizing the commissions they pocket over clients’ best interests.

It is high time for the complete removal of trailer fees to become the norm, not the exception, in the industry to foster long-term returns and complete alignment with clients' goals.

Limited access to good investment products

Another significant challenge facing retail investors is limited access to institutional share class funds, which come with substantially lower management fees.

This is largely due to the lack of trailer fees paid out for these 'clean' share classes. These funds have traditionally been reserved for clients who are large enough, and know well enough, to ask for access.

It is discriminately expensive to invest if you're a retail investor, especially in Asia. A 2022 Morningstar report found that Singapore and Hong Kong – two of the region's key financial hubs – ranked below average out of 26 markets in terms of fees and expenses.

A higher cost of investing eats away at any potential investment returns, exacerbating the wealth gap. Lower fees are thus critical for investment success. Even a seemingly small 1% difference can result in over 152% of lost returns over a 30-year period, given an average market return before fees.

How fees impact your investment returns.
How fees impact your investment returns. Image: Endowus

It can represent the difference between a comfortable retirement and a prolonged struggle to make ends meet in old age – living pension cheque to pension cheque, and relying on the children of the squeezed sandwich generation to relieve cost pressures.

Wealthtech for better financial opportunities

The global pandemic has certainly shown us the transformative power of digitalization and technology in levelling the playing field, particularly when it comes to accessing essential services. The true capability of wealthtech lies in rallying the wider industry to adopt new, best practices and business models.

Wealthtech can broaden access to the best cost-effective solutions, such as institutional share class funds for all investors, regardless of their net worth, and to deliver personalized service, all at scale.

This scalability allows for the appropriate cost to serve – with the fractionalization of investment amounts; when the need to earn hidden commissions can disappear – making good and low-cost investment products accessible to all.

The topic of artificial intelligence (Al) and its applications in the industry has also risen to the fore. Wealthtech players have a critical role to play in ensuring Al-enabled advancements in wealth management adhere to the highest standards of compliance and ethics, while providing superior and personalized client experiences to suit unique needs.

As custodians of this technology, we must handle it with care, ensuring that it aligns with our values and serves our clients' needs. At the same time, agile wealthtechs can accelerate product development and innovation by iterating quickly-free from the shackles of traditional legacy infrastructures and conflicted business models.

The very raison d'etre of wealthtech platforms is to empower individual investors with complete oversight of their assets, and visualization of their portfolios in real-time. But greater autonomy necessitates greater responsibility; financial savviness is not an automatic byproduct of digital savviness.


What's the World Economic Forum doing about diversity, equity and inclusion?

Wealthtech platforms will also be pivotal in promoting financial literacy by sharing educational resources across borders through digital channels, equipping communities with the financial knowledge to make informed investment decisions.

Technology is but an enabler. It is easy to get started on an investing app or digital platform, but true and lasting empowerment is rooted in education.

We must provide the right knowledge and institutional-grade advice to build generations of financially savvy and self-directed investors, who understand the importance of building discipline and adopting an evidence-based approach into their investing habits for the long haul, to achieve the right – and better – outcomes.

Better wealth management outcomes for all

It is time for the industry to collectively dismantle the barriers to inclusive opportunities in wealth management. We must confront the hidden flaws, break the chains of limited access and blatantly misaligned incentives, and embrace the transformative potential of wealthtech.

Together, we can forge a fairer and more prosperous financial future for all, where individuals are empowered with the right knowledge, tools and control to make informed financial decisions for their own future, especially when it comes to retirement.

Let us strive to create a wealth management industry that prioritizes the wellbeing of every investor and ensure that the path towards a viable financial future is not limited to a privileged few.

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

AMNC24: Five things to know about the 'Summer Davos' in China

Gayle Markovitz

June 28, 2024

About Us



Partners & Members

  • Sign in
  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum