Wealth management is in the ‘early stages’ of a ‘complete transformation’ which many firms are wholly unprepared for, as long term trends in pricing squeeze sector revenues and profitability.
Management advisory giant the Boston Consulting group said that the source of pressures of the industry, as passive products and regulation put a squeeze on costs, were being falsely identified as also being the cure. Instead, the company predicted those who focused on revenue would flourish.
‘Top performers – which we define as consisting of the quartile of institutions that have the highest pre-tax profit margins – achieved a significant advantage over average performers in overall revenue growth and return on assets over the past three years,’ wrote the report’s authors.
It identified price maximisation – ensuring clients were correctly tiered and that the company understood the level of service each client desired – and overall pricing structures as being the most frequent low hanging fruit for many businesses.
It added however, that most wealth management clients are not that sensitive to fees. Overall they are more interested in overall satisfaction.
Wealth managers should therefore implement smart pricing structures.
Culturally, many sector models assumed a straightforward correlation between client wealth and the levels of complexity and service demanded which do not actually exist, the house noted.
‘[There is] a frequent assumption that higher net-worth clients naturally gravitate toward more costly, premium service (leading wealth managers to charge them for services they don’t want),’ it said.
‘[The challenge is] ensuring that ancillary services are priced separately, and developing a comprehensive view of full client relationships.’
A recent Deloitte ranking of wealth domiciles by competitiveness suggested that the UK may have some key advantages over its global peer group, with the domestic private client industry already taking steps to moderate the most acute price pressures of any international market.
The house emphasised the role of traditional cost cutting in this process, rather than sweating revenue streams, however.
‘This development is driven by market consolidation – which is further advanced than in other centres – reduction of middle and back office costs through outsourcing (IT rationalisation and staff redundancy programmes), timely investments in technology (enabling process optimisation, automation), improved reporting capabilities to more effectively target reductions of costs-to-serve (cost per FTE decreased by 3.3 % since 2015), standardisation of offerings and streamlining front related administrative tasks),’ said the accountant.