2012 marked a strong year for private wealth growth but wealth managers should not expect that growth to translate directly to increase profits as discussed in this Wall Street Journal article covering findings from The Boston Consulting Groups report “Maintaining Momentum in a Complex World: Global Wealth 2013.”
Private Wealth Rebounds as Managers Face Higher Costs
May 30, 2013, 12:16 p.m. ET
By Daisy Maxey
Globally, wealth advisors’ assets under management were up 13% in 2012. This increase is mainly due to market returns. The Wilshire 5000 Total Return was up 16.2% in 2012, and the S&P 500 was up 13.41%. Rebounding markets and assets under management should signal increasing wealth advisors profits, but times have changed since the market crisis of 2008 and those changes are affecting advisor profits.
Wealth management clients are continuing the trend of maintaining control over their assets rather than allowing full discretion by their advisor. The share of assets under management will discretionary mandates has decreased to 21%, down from 30% in 2007 before the market crisis. This signifies clients want more control and to be further involved in managing their investments.
Clients are less likely to invest in a high-margin product solution for their portfolio. High-margin investment products are a hard sell in today’s market. “The share of high-margin investment products in client portfolios declined 21% among participants in the group’s benchmarking analysis, which examined the performance of more than 130 global institutions, including private banks or wealth-management units of large, universal banking groups. That indicates that clients’ trust in managed-product solutions, which were hardest hit during the crisis, has not returned, it said.”
Advisors are facing a more complex business environment due to regulatory requirements and an increased need for transparency. “The business systems wealth managers now need to have are getting not just complex but increasingly more complicated,” said Monish Kumar, senior partner and North America leader of the group’s financial institutions practice. “You are seeing that reflected more in their costs and in the margins.”
The Boston Consulting Group’s report projects a private wealth growth rate of 4.8% over the next five years. Global private wealth grew 7.8% in 2012, 3.6% in 2011 and 7.3% in 2012. To maintain revenues considering a lower projected growth rate and reduced margins, advisors need to make strategic moves to attract new assets, likely away from another wealth management firm, by offering better products and outstanding services.
Creating financial plans is a great service wealth managers can provide. Going through the process of creating a financial plan is a great way to maintain existing client relationships, but is also a very valuable tool to attract new clients, allow you to demonstrate your commitment, communication, understanding, and insight.
