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Top 10 Trends in Wealth Management in 2013

Top 10 Trends in Wealth Management in 2013 Top 10 Trends in Wealth Management in 2013

Change is the name of the game in 2013. A new report from Aite Group looks at the major trends that could dominate the wealth management industry this year.

Two weeks in, it is already clear that 2013 will be a year characterized by uncertainty and change, the report says.

From changing business models to technology's impact on client relationships, there is plenty to consider in the year ahead.

Re-evaluation of operating and growth strategies -- acquire vs partner Re-evaluation of operating and growth strategies -- acquire vs partner

Several of the largest U.S. wealth management firms completed acquisitions in 2012 setting the stage for the continued pursuit of growth strategies through acquisitions or internal building, according to the Aite Group report. By contrast, small and midsize wealth management firms will choose to expand or update their wealth management capabilities through partnerships with their service providers.

Large technology and business services providers with the scale and resources to stay current with technology and practice management innovations will be highly desirable partners, the report says. In particular, clearing firms will continue to see strong business growth as well as fuel growth by taking over some functions of small broker-dealers.

Clients of clearing firms will continue to own their own broker-dealer business, but will start to leverage mobile and online capabilities and professional service and business applications provided by clearing firms, the report predicts. Clearing firms may also see some banking clients leave, opting instead for a full brokerage or outsourced wealth management approach.

Overall, 2013 will be the year that wealth management firms become smarter about running and growing their businesses as they become more open to working with third-party providers that have the expertise to help them deliver on their value proposition more cost effectively.

Investment advice regulations drive business model changes Investment advice regulations drive business model changes

The United Kingdom and Australia have already moved to a fee-only model. President Obama's re-election means a greater likelihood that the proposed uniform fiduciary standard will become law in the U.S., the report says.

Aite Group expects the SEC to draft a proposed fiduciary rule by 2013 accompanied by a Department of Labor (DOL) proposal to extend the ERISA fiduciary standard to all advisors when they give advice on 401(k) plans. Implementation of those standards is expected to occur in 2014 or 2015.

For registered representatives, the report predicts a move to a fiduciary standard would lead to a more uniform commission structure, implementation of a fiduciary financial planning process, more advisors adopting a fee-for-service model and more firms looking to leverage online platforms to lessen the client data-gathering burden on advisors.

RIAs reach for greater efficiency RIAs reach for greater efficiency

The size of RIAs makes operational efficiency one of their biggest challenges, the report says.

While advisors at larger firms have access to substantial technology budgets and staff, many RIAs lack the resources for large-scale technology. The fallout? Advisors and support staff with larger firms are able to work more efficiently as a result of their integrated technology applications than are small RIAs that lack integrated applications.

Yet that may soon change. The growth in the RIA market has resulted in the expansion of technology options for RIAs from technology and outsourcing providers, says the report. Clearly, RIAS have better choices than ever these days when it comes to top-notch technology and operations platforms that can substantially increase the operational efficiency, the report says.

While RIAs are traditionally slow to embrace change, Aite Group expects that this industry sector will make a major shift in efficiency in the near future.

Intergenerational wealth management and advisor succession planning in the spotlight Intergenerational wealth management and advisor succession planning in the spotlight

We expect 2013 will be the year that advisors get more serious about finding their ideal successor and connecting them to their clients' children, the key to their practice's longevity, says the report.

Previous research from Aite Group shows that of advisors who are two years away from transitioning their practice to a successor, 40% don't have a succession plan. Of those 3-10 years away from the transition, 50% lack a plan.

Additionally, many advisors who have acquired practices have not had success with client retention. According to the Aite Group survey, 28% of advisors have acquired businesses. Of those, one in three acquisitions resulted in a client retention rate of less than 50%.

The report predicts that 2013 will prove a pivotal year in succession planning thanks to tax changes that caused many advisors' clients to transition wealth to heirs in 2012 to take advantage of generous estate tax exemptions expiring this year. This transition may trigger the wake-up call that advisors need to focus on their own succession planning.

It will also be a catalyst for advisors to improve relationships with clients' children. By engaging younger practice owners (or the individual who has been designated to take over the practice) many years before the transition is expected to take place, a successor can start for tor his or her own relationship with clients' children.

International firms reassess international operations International firms reassess international operations

It used to be much easier for wealth management firms to open offices abroad and develop international operations. Not so anymore, according to the Aite Group report.

On the retreat internationally are wealth management firms with home markets in countries that had a difficult time during the financial crisis, like the United States and United Kingdom.

Firms with international operations, will need to ask some difficult questions in 2013, the report says. Here are just a few:


- Is publicly oscillating every few years between being fully committed to the local wealth management business and considering selling to a local player that can betters serve local clients' needs helping to attract client assets?


- Do we have the business model, platform, and technology to handle the local requirements like language, base currency, regulatory reporting, local tax reporting and regulator-compliance and tax-efficient products for clients?


- Do we really have the marketing budget to actually compete?

External asset managers grow External asset managers grow

Traditionally, external asset managers (EAMs), also known as financial intermediaries or independent wealth mangers, have been for ultra-high-net-worth clients (those with at least $30 million in investible assets).

However, this family office investment management model has beenmoving down-market toward the high-net-worth client segment (US$1 million or more in investible assets) since the onset of the financial crisis, the report states. It is expected to grow globally in 2013.

In the Americas, the traditional services provided by custodians for family offices are increasingly being complemented with services for RIAs. Web-based, hosted technologies are enabling custodians to provide portfolio management systems contributing to the growth of this model.

Engaging the active trader Engaging the active trader

Engaging the active trader is the holy grail for online brokerage firms, the report says. Recent investor studies from Aite Group show active traders are a diverse bunch of mostly younger-than-4-urbanites with the common denominator that they are not afraid to push the 'eject' button when an investment firm is unable to meet their needs.

Previously, online brokerages have tended to focus on “casual” stock traders, but not for long, the report says. “For 2013, we predict that online brokerage firms searching for these holy grail traders will expand their asset class offering to include foreign exchange and options trading, and, just as importantly, they will get fancier in how they keep the pulse on active traders.”

Cloud-based trading emerges Cloud-based trading emerges

Superstorm Sandy's impact on Knight Capital's trading operations brings to light questions about housing trading operations internally, the report says. Unbeknownst to many non-IT brokerage industry professionals, the move of trading operations to the cloud is well underway and set to gain speed in 2013.

The move to the cloud has a number of important consequences, the report finds. It is changing market structure by reducing distances to counterparties, lowering connectivity costs, adding transparency and competition, concentrating trading volume, and favoring the growth of firms that leverage the cloud and its participants.

Politics still matter Politics still matter

Though the U.S. Congress averted the fiscal cliff, there are still plenty of unanswered questions as we head into 2013 the report finds. A second term for President Obama translates to a continuation of Dodd-Frank policies and to less regulatory uncertainty, even after the substantial cabinet reshuffle underway.

Ben Bernanke will likely be nominated for a third term, though it's unclear if Elisse Walters will remain the head of the SEC as Mary Shapiro's replacement, the report predicts. Whether Walter moves on or not, we anticipate that 2013 will be a year of less conflict between the SEC and the capital markets industry.

Technology enhances the client-advisor relationship Technology enhances the client-advisor relationship

In 2013, we'll see more technology based solutions that enhance the client-advisor relationship and keep clients engaged throughout the financial planning process, the report predicts.


While advisors have long shunned using technology to enhance their conversations with clients, preferring to take notes with a yellow pad and pen, this adoption has changed as financial planning tools have become easier to use and more accessible across a number of devices and networks.

At some of the largest wealth management firms, advisors are already adopting financial planning tools that can be used in collaboration with their clients and accessed online for 'always-on' connectivity to their financial plan.

Change is the name of the game in 2013. A new report from Aite Group looks at the major trends that could dominate the wealth management industry this year.

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