After a chaotic tenure of tumbling asset prices along with downward-spiralling of proceeds during the financial crisis in world’s leading firms, the global wealth management is considerably gaining some of the grounds it went astray off.
After four years of the financial crisis, most of the economies like one of North America are now rising in Assets under Management (AUM) around world markets.
Booz & Company recently conducted out a global study based on quantitative market analysis through the insights from in-depth interviews with more than 150 wealth managers, regulators and senior financial advisors.
The study was concluded to three reasons behind rising AUM. The first reason is the expanding market economies while the second one is attributed to rebounding equity markets worldwide.
These equity markets are getting greater inflows of assets from the potential investors. The third reason is an obvious little one- the number of individuals with more than US $ 1 million are growing with relative high pace of 2-3 times than the gross domestic product in most of the world markets.
However, new global regulations like the ones for greater scrutiny of undeclared assets kept offshore, rapid advancement in digitization, changing customer behaviour and fluid competitive landscape have resulted into fell in the pretax profit margins for most of the wealth managers across the globe. This fall is likely from 37 percent to 16 percent in Europe, from 30 percent to 12 percent in Asia and from 29 percent to 21 percent in North America for the years from 2007 to 2012. All these factors have permanently altered the rules and have lead to a significant rise in the cost of doing business.
The On-going Transitions in Industry
The financial industry is facing an unprecedented degree of regulations in the capital, derivates, liquidity, corporate governance, transparency in income and assets kept off-shore and proprietary trading.
The only good news is that one can prepare in advance, as there is a somewhat certainty of the shape of global rules these days. Talking specifically, the climate in tax havens has radically changed because of these international compliance and transparency rules.
The other significant change that has erupted is from the new transparency laws by U.S. Foreign Account Tax Compliance Act that puts a compulsion on outside banks to disclose the bank accounts of U.S. nationals.
Besides transparency and taxation issues, other few regulations to improve customer’s “suitability” like compensation and altering traditional distribution are bringing changes to the wealth management industry. Moreover, the retro cession’s are about to be banned which would ensure reduced costs for clients with a reduction in profits of banks.
Furthermore, client protection initiatives such as elimination of conflicts in interests and documentation of clients meetings are being pushed by national and international regulators to match the investment risk with client risk tolerance.
Also, customers experience on websites such as Amazon and Google or Tablets and Smartphone’s like devices- influences the expectations of industries for their wealth management.
Additionally, digital providers are focusing on wealth management market from all new angles leading to investment advisors providing real-time personalized advice along with innovation tools for better setting of revenue goals, rebalancing of investments and to monitor the performance of one’s investments.
These new digital entrants have furthermore pushed forth bitter challenge towards established wealth managers.
The Basic Four Responding Priorities
Believing that wealth managers can maintain good terms to changing dynamics in industry, we put forth four priorities that wealth managers should focus on:
1. Applying a capability lens: Initially to begin with- the priority is to decide that wealth managers would like to play whether in on-shore, off-shore or both types of market. Profit in high-growth markets is made much elusive with the promise of underlying growth, and one needs the patience to deal in such markets.
Next the big thing is to apply a capability lens that will help them identify the markets where one can provide a distinguished set of products and services; one is good at.
2. Value Proposition- Rethink! : Wealth managers should improve the way they pack products and services to various customer segments, and should go in compliance with new regulations that deal in client suitability.
The price needs to be effectively modeled as customers are becoming much aware towards what they are likely to invest in.
3. Digitization: This aspect varies significantly as per the region. It is likely that digitization is much needed in countries like US whereas at some places this demand leverages only for big players.
Digitization gives greater prospects of what the customers requires and desires. Ultimately superior customer experience is the thing that guides growth.
4. Adoption of an Approach that Well-Fit to Growth: For long, wealth managers have been incapable of lowering their costs to escalate the cost of business. A fit-for-growth is ensured through proper articulation on cost agenda.
Thus, wealth management practices should progressively be made to adapt to these new environments.