Wealth Management post Covid – the need for speed
COVID-19 has accelerated many of the trends we were already seeing, e.g. digitalisation, and perhaps it’s encouraged many leaders to make the changes they were reluctant to make in calmer times. We’d seen increased debate around issues like working from home (WFH), and seen changes in office design, but wealth management jobs were overwhelmingly office based pre COVID. Then, literally overnight, firms realised they could run their business remotely, that their offices were more of a millstone than an asset, that fixed costs were out and flexibility in. I think this will encourage firms to accelerate the implementation of their transformation programmes.
The Wealth Management industry has coped well. Clients have enjoyed zoom meetings, they’ve had access to senior management via conferences, markets have rebounded quickly, individuals have stayed invested, and budgets can now be repurposed away from property to marketing and people. The wealth management industry will inevitably change and COVID maybe seen as a major catalyst for this change.
Asset and wealth management has been in a period of upheaval globally since the 2008- 2009 Global Financial Crisis (GFC) that’s intensifying. The modern-day industry has remained fundamentally the same since the last decade of the 20th Century
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The industry has struggled on the whole since the GFC. Many people commented on how stagnant the industry had become. Consolidation, increased regulation, fee pressures, and reduced client loyalty have created challenges, and yet, during this time of margin compression, there’s been greater need for firms to prove value. The industry has been grappling all of these issues, many of which take time and money to address.
When it comes to time, it’s not something many CEOs have in abundance. FTSE 100 CEO’s often have an average tenure of 4.8 years, which is down from 8.3 years in 2010 (PWC), but if you take out the longest serving CEOs, this drops to 4 years. It isn’t too different for CEO’s of wealth management firms, and so pushing through a change programme is hard – it takes bravery.
Looking at the aforementioned FTSE 100 stats, UK shareholders don’t always look the most patient. This has meant a decrease in marquee signings and successful team lift outs, which has arguably resulted in some firms losing out on longer term growth. Team lift outs, or experienced Relationship Manager hires, can be expensive and often don’t bear fruit for 18 months, and so the industry has been reluctant to take risk, and at times it’s felt like identifying candidates/juniorisation has been deemed enough, without enough emphasis on hiring the best individuals.
However, whilst it may be hard to believe, I think things post-pandemic are looking more rosy and the backdrop for running a wealth management business is still favourable. PWC estimated that between 2016 and 2025 AuM will have almost doubled from c. $84 trillion to c. $145 trillion, and whilst growth won’t be equal in every market, the European Wealth Management industry will be at the forefront of this. It’s unlikely, looking at the impact of previous pandemics, that COVID will slow this growth much. However, firms will need to adapt for the future.
Times and conditions change so rapidly that we must keep our aim constantly on the future
Times have never changed faster than now and the nature of wealth is changing too. What will some of the important themes be?
The client of the future
According to Accenture, women and millennials will be a much larger portion of firms’ client mix. Wealth will also be more internationally distributed, and whilst wealth managers have worked hard on their diversity programmes, they need to accelerate these to ensure that they equipped to meet their clients’ needs. Individuals who can bring different insights and knowledge will really accelerate performance in this competitive market. EY also pointed out that private clients will increasingly look to their wealth management providers to provide more coaching around life goals and budgeting.
Whilst many wealth managers have changed the balance in their firms and now lead with financial planning over investment management, they may need to go further and offer more holistic coaching to clients, in order to meet the requirement of demonstrating value. Life events seems to be when most clients require financial advice, but it’s also a time when wealth managers may lose clients and those who offer a wider range of support services may fare better.
- Digitalisation Whilst the threat from robo advisers ebbs and flos, eventually there will be a standout winner in this market and firms need to act now to ensure thay are heeding Disney’s advice to “constantly point to the future”. We all remember Blockbuster’s demise with the rise of Netflix.
- People strategy
Firms will need to continue to attract high performing individuals with strong relationships, and to focus more resources on identifying and retaining these outperformers. This will enable the business to continue to grow AuM and to reach their goals quicker. Indeed, after acquisition, a team lift out or team build of experienced hires is the quickest way to grow AuM (read our article on team moves here).
Other areas we recommend clients focus on are strengthening their digital marketing capability. Firms with strong digital marketing capability will be able to generate and convert more high quality prospects than those who leave client acquisition to relationship managers, where it has historically been more hit and miss.
- Increased client acquisition via marketing
Wealth management firms have traditionally been low key in their approach to advertising. They have preferred to rely on the efforts of Investment Managers to generate referrals. Whilst top performers are still an outstanding source of clients, many investment managers don’t enjoy the client acquisition process. Indeed, many firms have an informal approach to client acquisition.
We suspect firms will continue to strengthen their digital marketing capability in a post-COVID world, where conferencing and one-to-one meetings may be subdued. Firms with strong digital marketing capability will be able to generate and convert more high quality prospects than those who leave client acquisition purely to relationship managers. It creates a uniformity of brand & message and assets tend to stick with the firm.
- Potential for further growth in the intermediary channel The intermediary channel still represents good value for money between the cost of hires in this field and the AuM they generate. Ten years ago it wasn’t a well understood channel, but today there are a number of professionals who understand the client acquisition process.
The last ten years have been hard work for many. However, businesses are now in a good place to capitalise on the new, and complex, world we find ourselves in, and we continue to believe wealth management will be an attractive industry to work in.
About Fram's Wealth Management practice
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