5 Things the Rich Need Now
The wealth management business is receiving good grades, with a major caveat: Try harder, because things won't get easier.
A trio of recent major studies found that the industry got high marks for solid growth and rebuilding trust. But slowing growth and a declining share of the global wealth market mean U.S. financial advisors can't depend on an expanding wealth base and must instead focus on "share capture," explains Bruce Holley, the author of one report on the topic and a senior partner at Boston Consulting. "Wealth managers have to get their model right," Holley says. "That means not just having good products, but that their products and services have to be good enough to get clients to switch."
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Being able to offer quality advice, Holley says, remains the best enticement for luring new clients. "It's an oldie but goodie, but a lot of wealth managers don't do it," he notes. "It has to be embedded into a firm's process and be delivered as a solution."
"Clients want a seamless experience," says RBC Wealth Management's John Taft, its U.S. CEO. "I think firms are beginning to be aware of what kind of prize exists if we can crack that code."
Optimal relationships with clients are critical, the studies emphasized. Indeed, increasing emphasis on client satisfaction may be changing the way wealth managers get paid and how they are evaluated, suggests PwC's Global Private Banking & Wealth Management Survey.
The traditional fee that advisors charge, based on the percentage of AUM, may be giving way to new client-centric "reward and incentive structures," according to the PwC study.
The high priority being placed on "attracting and developing quality client relationship manager talent" is driving firms to reconsider compensation models, the report adds. Indeed, nearly three-quarters of CEOs surveyed said the industry must "spend far more on talent management and development than has historically been the case."
Advisors to the wealthiest clients will be expected to have such new skills as proficiency with new technologies and an ability to serve cross-border clients on tax issues, the executives said.
Compliance costs driven by regulatory changes also have emerged as an impending major test for wealth management firms. In fact, the high volume and cost of regulatory change will be the "single largest challenge" facing firms in the years ahead, according to the RBC and Capgemini report. "It's going to be increasingly challenging for firms to offer all services to all clients in all markets," says Jean Lassignardie, chief sales and marketing officer for Capgemini Global Financial Services.
Indeed, compliance replaced reputation as the top risk management concern, the PwC survey found, "as wealth management firms struggle to keep pace with the scale, speed and costs of current and planned regulatory change."
And the cost of regulation will continue to rise: Survey respondents said risk and regulatory compliance will account for 7% of annual revenue in two years, up from 5%.
Wealth management firms will also continue to face lingering client caution, the studies found.
Despite a 12% increase in wealth, the RBC/Capgemini report found the richest individuals worldwide continued to focus on capital preservation over growth - an attitude that puts more pressure on wealth managers to grow assets by adding new clients rather than building on an existing asset base. The reluctance to invest aggressively applied to high-net-worth investors of "all ages and wealth levels," the report found, suggesting "an overall lower level of trust in the financial markets."
In the U.S., 32.6% of individuals with more than $1 million in investable assets said they were focused on wealth preservation. Among U.S. portfolios, more than 20% of assets were allocated to cash or deposits (compared with 30% worldwide), and 19% were allocated to fixed-income investments.