Wealth Management Industry – Way Forward
Up until 2007 the global personal wealth was rising to record levels. This
rising wealth provided the wealth management industry an unprecedented
opportunity to serve the ever growing client base and thus the industry was
witnessing very good growth rates.
But this steady rise of the Wealth Management Industry is facing massive
challenges as the effects of the Global Economic Crisis which began in 2008 and
is continuing till today.
The reason why the HNI and Ultra HNI were severely hit by this crisis are:
High exposure to Equities:
The High and
Ultra High-Net-worth Individuals have the highest percentage exposure to the
Stock Market of their total wealth.
Drop in Property Prices: Traditionally property provided a hedge against
stock market crashes but in this crisis the Property Markets also declined
sharply along with the Stock Markets.
Occupation of the Wealthy: The wealthier
individuals usually work more in the Banking and Real Estate Sectors and these
sectors are really severely hit by the Global Financial Crisis.
So the HNI and
Ultra HNI segments are facing a double whammy one their investments in stock and
real estate have depreciated to record low levels and second their current
income sources also came from the same sectors.
This has led to client level challenges for the wealth management industry one
their existing AUM have declined and second their flow of young up-and-coming
clients has slowed down due to remuneration declines and unemployment.
But it is not only Dark Clouds for the Wealth Management Industry there are rays
of hope and optimism also. These are:
Only a small
proportion to global wealth is being serviced by the Wealth Management Industry
with proven skills and expertise are well positioned to capture clients from
less skilled service providers.
Crisis has made many individuals less confident about their own decision making
regarding investment decisions.
in Wealth Management sphere are exiting the market and there is consolidation
The challenges and opportunities enumerated above makes it very important that
the Wealth Management Organizations understand their target markets and the
psychology of their clients.
They must understand the expectation and desires of their clients and benchmark
their offerings accordingly.
Investment Priorities and Concerns
The main focus
of wealth management among all client segments is to maximise capital growth;
with a high interest in income generation too.
Tax and stock
market downturns are considered the biggest threats to wealth among older
investors; the young view redundancy as their biggest wealth threat.
Tax-Saving Strategies – such as pensions and IRA’s – are preferred.
Management Services Used
financial advisers are more widely being used than firms that position
themselves as wealth managers.
potential clients use a wealth management service as a one-stop shop.
and poor communication are the key reasons for dissatisfaction with a wealth
professional referral is the most important factor for both age groups when
shortlisting a potential wealth manager.
and international presence also scored highly among under-35s.
When making the
final selection, quality of assigned advisers, performance track record and
experience with similar clients were the most important factors.
clients in both age groups favour an advisory portfolio management approach
where every investment transaction is first approved by the client. So
discretionary mandates are declining and Clients are increasingly becoming more
active in the investment decision making process.
increasingly going for a customized portfolio creation than just investing in
clients want to focus on core asset classes such as equities and bonds, with
less interest in non-core instruments. Younger clients show marginally more
interest in specialist areas such as emerging markets.
Performance-based fees are by far the most preferred method of paying for wealth
management, with commission deducted from product charges coming a distant