NEW YORK - Wealth managers who want to grow their business should start coveting their competition’s clients.
Despite robust growth last year fueled by rising equities, wealth in the United States and Canada will slow to a moderate 2% gain annually, the Boston Consulting Group estimates in its 2013 Global Wealth report, which was released Thursday.
That means “wealth managers will largely be playing a ‘share stealing’ game for existing wealth," the report says.
Slowing growth and a declining share of the global wealth market means U.S. financial advisors can’t depend on an expanding wealth base and must instead focus on “share capture,” Bruce Holley, a senior partner and managing director at Boston Consulting Group, said at a press conference Thursday.
“Wealth managers have to get their model right,” he said. “That means not just having good products, but that their products and services have to be good enough to get clients to switch.”
Asked to give an example, Holley cited “quality advice. It’s an oldie but goodie, but a lot of wealth managers don’t do it. It has to be embedded into a firm’s process and be delivered as a solution.”
The United States is still the world’s leading wealth market with $39 trillion, according to the report, more than double Japan’s $17 trillion of wealth. And the U.S. has nearly 6 million households with $1 million or more in investable assets, far more than any other country.
Wealth management “is still a highly profitable business,” but the last five years have seen a “significant” drop in margins, dropping ten basis points as a result of rising costs, complexity and regulation, said Anna Zakrzewski, a principal at Boston Consulting Group.
In fact, return on assets, or revenues divided by yearly average client assets and liabilities, declined by 4% last year as a result of the low interest rate environment. “The ROA is the weighted average of the product mix,” said Monish Kumar, a senior partner and managing director at Boston Consulting Group. “As the product mix becomes more conservative, the ROA comes down.”
In a lower growth and more complex environment, “overall pressure on margins will continue,” the report states.
Wealth managers will in turn need to build a presence in “high growth markets and market segments;” according to the report, sub-titled “Maintaining Momentum in a Complex World.” Other “key actions” required include offering “segment specific” value propositions and developing technology and “big data-enabled distribution” as well as “multi-booking center capabilities.”
By 2017, the report estimates, the Asia-Pacific region, led by China but excluding Japan, will surpass North America as the largest wealth market in the world.