Wealth management provides investment advisory services utilizing financial tools to cater to the requirements of high-net-worth individuals. This article discusses some of the key trends in wealth management.
Fremont, CA: As the industry faces challenges, wealth managers need to concentrate on critical areas. The Ukraine crisis, inflation, geopolitical tensions, and the potential for a worldwide recession will pressure wealth management companies by slowing the increase of assets under management (AUM), which will affect profitability. Clients are also demanding new goods and services like private markets, tailored guidance, and smooth omnichannel experiences, and competition is picking up. Wealth managers must choose between accelerating structural reforms and changing their business models or risking falling behind. These are the main topics that wealth managers will focus on.
Below are critical themes anticipated to dominate the agendas of wealth managers:
Deposits are Returning, But Deposit Beta is Rising:
With the rise in competition within the wealth management sector and the growing emphasis on serving upper high net worth (HNW) and quasi-institutional ultra-high net worth (UHNW) clients who are seeking more transparency in rate adjustments, we predict that deposit betas will surpass previous peak levels seen during rate-hike cycles. This will constrain the potential benefits for wealth managers resulting from future rate increases. Enhancing deposit-management skills, such as refining pricing strategies and models, will be crucial for wealth managers aiming to succeed.
The Moment For Managing Prices And Discounts Has Come:
Wealth managers worldwide have grappled with the detrimental effects of heavily discounted rack rate pricing for many years. In some cases, as much as 40% to 50% of a wealth manager's client base needs to generate profit due to pricing misalignment with the cost of providing services. This often results in more profitable clients subsidizing others, creating the illusion of overall profitability. In the face of rising inflation and a gloomy economic forecast, effective pricing management is crucial for wealth managers to maintain their competitiveness and profitability. While adjusting fees to match market standards is a good start, examining discounting practices closely to achieve sustainable revenue growth is equally important.
The Agenda Prioritizes Cost Transformation:
Large wealth managers have kept their cost-income levels at around 70 percent over the last ten years, thanks to rapid asset growth under management and strategic efforts to boost productivity. However, a slowdown in AUM growth will pose challenges to profitability. Wealth managers must act swiftly and strategically to manage costs effectively, balancing short-term gains with long-term structural changes. The most significant opportunities for efficiency are expected to be in the front office, technology, and operations departments, with potential improvements ranging from adviser productivity assessments to comprehensive business footprint reviews.
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