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Wealth Managers Must Make Changes to Attract High-Net-Worth, Industry Reports


Jun. 22, 2011 Charles Paikert

Wealth managers need to make key changes in the way they do business to stay competitive, two major studies of the industry have concluded.

For example, wealth managers need to leverage “cross-enterprise capabilities” that may reside in other units of the firm, such as its corporate, private or investment bank, according to the annual World Wealth Report, released today by Merrill Lynch Global Wealth Management and Capgemini, an international consulting firm.

“High-net-worth clients want more and are expecting more,” John Thiel, head of U.S. Wealth Management and the Private Banking & Investment Group, Merrill Lynch Global Wealth Management said in an interview with Registered Rep.’s Wealth Management Letter. “They want to know what you learned from the financial crisis and what new ideas you have. And they’re looking for more access to specialized advice and for unique investment ideas.”

Wealth managers will also need “far greater operational efficiency and effectiveness” in areas such as shared services, outsourcing and new technologies to survive, according to PricewaterhouseCooper’s bi-annual global private banking and wealth management survey, released earlier this week.

“We are entering an age when only those who can genuinely deliver transformative change on a cost-effective basis will lead the industry,” said the report, “Anticipating a New Age in Wealth Management.”

The two highly anticipated reports, which followed last month’s Boston Consulting Group Industry study, reached similar conclusions about the need for wealth managers to pay more attention to a younger generation of clients.

Wealthy Becoming Younger, More Female

Although high-net-worth individuals, defined by the Capgemini-Merrill Lynch report as those with $1 million or more in investable assets, are still overwhelmingly males over 45 years old, the study notes that the HNW population is increasingly becoming younger, populated by more women.

This is the finding which is most interesting. It is something which I have been speaking to clients about for a number of years.  With demographics shifting and women acquiring significant wealth, financial professionals can no longer serve women by simply adapting existing processes and techniques.  Women are interested in taking control of their money and are demanding a different relationship with their financial professionals.   They want financial education and knowledge and are demanding that advisors and bankers recognize and address their concerns. 

Consequently,firms need to meet the needs of this emerging demographic or lose assets under management, the report stated. Specifically, wealth managers need to recognize that younger clients prefer “real-time, digital media for communications and transactions” and FAs must provide them with more “transparency, efficiency, technology and convenience.

These findings are much too simplistic.  Younger clients are looking for more accountability from their advisors in addition to performance.   They are not interested in a one-sided, transactional based relationship but one in which the advisor can demonstrate that he/she truly has the client’s interests in mind.   When we are dealing with women, the criteria change again in that women are not interested in being rushed through decisions or being thought of as less than capable.  It is important to build a relationship of trust and respect with female clients (and with all clients).  However, the process to achieve this is different with women and financial professionals need to really understand that.   The new investment client is looking for a more holistic money management approach, one which takes into account all aspects of a person’s life.

Thiel said Merrill Lynch has already begun taking these findings to heart. “We’ve put a great deal of effort into sensitizing our advisors to the nuances and differences regarding younger clients and female clients,” he said. “And we want to make sure our advisor population reflects those changing demographics, so the clients and advisors can grow together.”

Indeed, the PwC survey found that only 17 percent of respondents to its survey of top executives from 275 firms worldwide (and a mere 11 percent in North America) currently have an established connection with their clients’ heirs. What’s more, the survey found that firms are losing an average of 50 percent of assets during intergenerational wealth transfer.


This study demonstrates that connecting with your younger and female clients is not a nice to have; it’s a must.  There are real financial risks for firms that do not understand how to shift their ways of doing business. I have seen many organizations which try to ‘sensitize’ their advisors to dealing with women. This isn’t sufficient.  What is required is a cultural and attitude shift to really come to understand the issues, goals and  concerns of these clients.  If this isn’t done well, then clients will take their money elsewhere.

“It’s a major concern going forward,” said Steven Crosby, Americas leader for PwC’s private banking and wealth management leadership team. “Firms have to begin engaging the next generation of potential clients in a more meaningful way.”

Pressure on Margins

Both reports also pointed out that the fallout from the financial crisis has continued to put pressure on wealth management profitability. Citing increased costs from compensation (both recruiting and retention), and regulations (additional training, processing and technology) while investors remain heavily invested in conservative investments that generate limited fees, the Capgemini-Merrill Lynch report noted that wealth management margins “have been steadily eroding each year since 2006 and dropped 320 basis points in 2010.”

This development, the report stated, has put “added pressure on firms to demonstrate a value proposition for which high-net-worth clients are willing to pay.”

Of course, the tendency is to cut back when margins are squeezed.  It’s time that financial services firms remembered that it’s their clients that keep them in business, not their smart, Harvard trained traders and investment bankers.  Somehow, the client has been forgotten in the equation but they are surely reminding these firms of their importance when their funds are on the move.  It appears that such a move is taking place now.  Another vulnerable time is women in transition- going through divorce or being widowed. This is a time when women will evaluate the advisory relationship and often sever ties with the advisor and the firm. 

The PwC survey found that only 9 percent of wealth management firms “achieved both superior revenue growth and profitability performance,” while nearly three-quarters of firms surveyed had cost-income ratios over 60 percent.

“Margins are clearly constrained,” Crosby said, “and that is a trend we think will continue.” He cited lingering pressures facing wealth managers following the financial crisis such as less trusting, less loyal and more demanding clients. Crosby also pointed out that only 37 percent of chief executives surveyed believed their firms’ clients were highly satisfied and would recommend the firm to others.

Thiel and William Sullivan, global head of financial services market intelligence for Capgemini Financial Services, were more upbeat about wealth managers’ prospects.

Assets, Trust Rising

They cited findings from the World Wealth Report showing that global high-net-worth financial health grew nearly 10 percent to $42.7 trillion, surpassing the 2007 pre-crisis peak and that “98 percent of high-net-worth clients are believed to have trust and confidence in their wealth management advisors… [a] stark contrast to 2008, when nearly 50 percent of clients were losing trust in their advisors and firms.”

This concept of trust is not well-defined or identified. The type of trust that this survey looks at is often related to market performance, as illustrated by the 2008 decline and the current improvement in trust.  This inability to sustain trust through a variety of market conditions speaks again to the transactional nature of the business and the lack of focus on building relationship and with looking at your client as a potential commission.  Clients are well aware of this fact and therefore their trust wavers.  I’m not sure how this can bode well for the future, contrary to what Thiel states.

“The findings bode well for wealth management globally,” Thiel said, “and add up to a significant opportunity.”

The World Wealth Report’s emphasis on integrated services and pulling together firm-wide capabilities struck a chord with industry executives.

“These days it’s about convergence,” said Doug Regan, president of Northern Trust’s Wealth Management Group. “Our clients are spending a great deal of time, energy and money on outlining and quantifying risk: portfolio risk, market risk and enterprise risk. There is a premium placed on institutions that can leverage internal resources to solve client issues.”

The need to provide a more integrated set of capabilities is putting pressure on smaller firms who “typically lack the resources, management talent and experience to design and implement” that business model, said Steve Prostano, chief executive of Silver Bridge Advisors. Being able to deliver an “integrated set of services in the most flexible customized and responsive way,” as Silver Bridge strives to do, has now become “absolutely necessary,” Prostano said.

Take care of your client, work from a place of integrity and honesty, and look beyond your short-term earnings to a goal of building long term client relationships- these are the ways to stay competitive.


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