According to the firm average revenue and profit margins declined for wealth managers between 2012 and 2015. But, it speculated, much of this was the result of a failure to identify “areas for action,” opportunities where they can regain their footing in the ever evolving global wealth management industry.
One of the major trends impacting the face of wealth management is tightening regulation, which has been driven by the need to “increase transparency in the products, prices and processes of wealth managers,” BCG said.
While high net worth (HNW) clients are the clear beneficiaries of stricter regulation, wealth managers face a less palatable prospect of reduced revenues and increased costs. The BCG gauged that legal and compliance costs have risen to a total of 4% of total operating expenses on average (double the average in 2012).
“Costs will also have to be fully disclosed and broken down into categories, with any inducement fees and other potential conflicts of interest revealed,” the BCG added.
So, what is a wealth manager to do? The BCG said “creating compelling advisory offerings targeted at self-directed clients” is a good place to start. The survey found that 46% of self-directed client assets currently receive no contractually defined advice. The BCG argued this is a potentially lucrative opportunity for banks that could raise levels of client satisfaction and trust.
The BCG’s 2015 survey also revealed that 82% of respondents still provided relationship manager-centric services to their affluent clientele, individuals with between $250,000 and $1m in financial wealth. However, the BCG said “this model may not be economically viable once new regulations come fully into force – as evidenced in markets such as the UK, where smaller clients are increasingly less likely to receive personalised finance advice.”
Instead, wealth managers should offer “varying levels of advice to all clients regardless of net worth” and should streamline standard underlying services and products with the help of robo-advisers and fixed-fee models.
There is still very much a place for relationship managers in the new wealth management order, as long as they’re used efficiently and trained effectively. “Effective RM training can result in a front line that truly understands client goals and risk profiles and is able to deliver holistic advice that goes beyond short-term and medium-term investments,” the BCG stated.
The BCG also advised adopting diverse product packages was a key way to stay ahead of tighter regulatory controls. “By moving from execution-only to fee-based advisory services, wealth managers can potentially complement commissions with more predictable revenue streams.”