The wealth management business is receiving good grades, with a major caveat: Try harder, because things won’t get easier.

In thorough scrutiny by a trio of recent major studies, the industry got high marks for solid growth and rebuilding trust, along with warnings to improve its client acquisition, retention and communication techniques, as well as its advisory proposition, compensation models, compliance capabilities and technology and data resources.

Perhaps the most controversial admonition to wealth managers came from the Boston Consulting Group’s 2013 Global Wealth report, which cautioned wealth managers not to expect a repeat of the robust growth fueled by 2012’s bull market run. As a result, “wealth managers will largely be playing a ‘share stealing’ game for existing wealth," according to the report.

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,” explains Bruce Holley, one of the report’s authors, and a senior partner and managing director at Boston Consulting Group.

“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.”


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.”

Wealth managers worried about losing clients can take solace in the fact that most of them, according to Capgemini and RBC Wealth Management’s World Wealth Report 2013, are keeping their richest clients happy.

More than 60% of high-net-worth clients expressed a high degree of trust in both their wealth managers and their firms, that report found. What’s more, 52.6% of high-net-worth clients prefer to work with a single firm to “manage all of their financial needs,” the report states.

“Clients want a seamless experience,” says John Taft, chief executive of RBC Wealth Management in the U.S. “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, all of 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 2013 Global Private Banking & Wealth Management Survey.

The traditional fee that advisors charge, based on the percentage of assets under management, 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 says.

Indeed, nearly three-quarters of CEOs surveyed by PwC 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 new skills such as proficiency with new technologies and an ability to serve cross-border clients on tax issues, the executives said.

Slightly more than one-third of the CEOs said they plan to change their firms’ compensation structure in the next two years to emphasize long-term performance. Adding larger long-term incentive awards to key employees was the most frequently cited change, followed by linking variable compensation to longer-term goals, greater use of deferral of bonus awards and an increase in annual incentive levels.

“There’s going to be more emphasis on serving the client,” says Steve Crosby, head of the Americas unit of PwC’s global private banking and wealth management division and one of the authors of the report. “Historically the focus was on net new money, but we’re seeing a shift to the client experience, the client’s goals and managing risk.”


Compliance costs driven by regulatory changes have also emerged as a major test for wealth management firms going forward.

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 World Wealth 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, Capgemini Global Financial Services.

Personnel, documentation, infrastructure and opportunity costs are all expected to rise as a result of regulation, the World Wealth Report found.

Non-compliance, on the other hand, could bring fines, a ban on business activities, additional legal costs and harm to a firm’s reputation resulting in lower brand value, client and employee attrition and a negative impact on the stock price.

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, with respondents to the survey forecasting that risk and regulatory compliance will account for 7% of annual revenue in two years, up from 5% currently.

Tax information exchange led PwC’s list of specific regulatory concerns, followed by client privacy, data protection and tax amnesties.

“Understanding exactly what the right products are for advisors will be a major issue,” PwC’s Crosby says. “There will be regulatory changes involving due diligence, documentation and archiving, but firms are already taking steps down that path, and have the process in place because they already have to comply with the IRS’ Foreign Bank and Financial Accounts Report.”


Wealth management firms will also continue to face lingering client caution, the studies found.

Despite a 12% increase in wealth, the World Wealth Report found the richest individuals in the U.S. and around the world 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 in equities 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.

Ultrahigh-net-worth individuals and families with more than $30 million in investable assets are being especially cautious, says Taft, because most of their wealth is generated from operating businesses — which they perceive to be running in a risky business environment.

Wealth in the United States reached $39 trillion last year, according to the Boston Consulting Group, making it the largest wealth market in the world. And the U.S. has nearly 6 million households with $1 million or more in investable assets, far more than any other country.

But by 2017, the report estimates, the U.S. and Canada will be surpassed by the Asia-Pacific region, led by China but excluding Japan, as the leaders in world wealth.