How secure are wealth managers today? This simple, yet interesting question, can yield different answers depending upon when it is asked.
By the end of 2018, for instance, it would have been a pessimistic query as the global economy took a beating, leading to reduced profits and rising costs. It will be interesting to pose the question again in the coming months as markets around the globe reckon with life after Covid-19, inevitably leading to a new environment, and new challenges, for wealth managers everywhere.
In January 2020, Anna Zakrzewski and Dean Frankle of the Boston Consulting Group published a whitepaper titled Outperform – Beat the Average: Key Levers for Top Performers in Wealth Management. It documents the shifting fortunes of wealth managers, from strong asset appreciation based upon economic growth in rapidly developing economies to an acknowledgement of the industry’s fragility when times got tough. Here, in a nutshell, are some of the issues they believe wealth managers must focus on in the future if they are to come up with effective strategies to counter them and thrive.
A Need To Redefine Growth
How wealth managers define growth can yield insights on how they react to market volatility. The emphasis for most firms is on asset appreciation, which always stands to be affected by everything from low interest rates and political uncertainties to increased market volatility and even trade tensions. 2020 saw its fair share of these, and there are signs that some amount of continuing unrest is certain. Markets traditionally rebound, of course, but wealth managers need to account for significant falls as well.
Paying Attention To Revenue Margins
Studies show that revenue margins have been declining over the past few years. There have been extended periods of relative stability, but these have been few and far between. Analysts lay the blame on these among other causes:
- Regulators mandating an increase in fee transparency
- More investors preferring lower-margin products
- Lower interest rates
- A global rise in political uncertainty
- Higher demand for cash-alternative solutions
- More calls for lower-margin fixed income
- The entry of more non-traditional companies in the FinTech space
- More financial firms focusing on wealth management
- Higher bargaining power by UHNWI leading to lower prices
Costs Will Continue To Rise
There is a limit to how costs can be kept down by wealth management firms. Lower investments in new technologies, for example, can lead to advantages for competitors. Firms need to strike a balance between escalating costs and the real need for investments in critical systems. Higher operating costs can be offset by investments in areas that drive growth and efficiency. An emphasis on digital capabilities, coupled with the intelligent use of data and analytics, can also help.
In our second blog on this topic, we will look at what the Boston Consulting Group learned from conversations with some of the best performers in the financial services industry, and how it identified key strategic profiles for wealth managers related to size, client and geographical focus, market presence, and organizational set-up.
To find out more about how NexJ is creating the next generation of Vertical CRM and digital assistants for wealth management to address some of these emerging challenges, get in touch with us today.