Lower earnings volatility, capital efficiency, and strong core growth have led to ever-higher wealth management valuations post-financial crisis. However, this value creation has primarily been driven by recent growth in lending products.
The report expects asset growth to slow, costs to rise and fee pressures to accelerate. Competition is increasing and one-third of industry profitability could be at risk over the next five years.
A copy of the release announcement is available to see here.
The growth of assets under management is likely to fall behind what wealth managers collectively assume in their business casesChristian Edelmann Partner Oliver Wyman
1What is this wealth management report about?
Our report looks at the conditions that drive change in the global wealth management industry today and discusses tangible actions items for senior management. We developed the report jointly with Deutsche Bank´s research. The report draws on a variety of sourcesof information to reflect the changing industry landscape. This includes our proprietary Oliver Wyman Wealth Management valuation index, in-depth discussions with senior executives from the leading wealth managers globally, as well as an industry-wide survey of high net worth clients.
2What are the main challenges for the wealth management industry?
Our analysis finds that there is a significant gap between wealth managers’ growth ambition and our growth forecast for the industry. The growth of assets under management is likely to fall behind what wealth managers collectively assume in their business cases. Downward pressure on fees persists, in particular in North America through robo-advisory models and greater competition, and in Europe through regulations mandating greater pricing transparency. In addition, the industry has not strategically addressed a growing concern on costs, particularly in case of a severe market correction.
3How can wealth managers fulfill their growth and profitability ambitions in the years to come?
In the report, we define a number of initiatives that wealth managers can undertake in order to close the emerging profitability gap. Attrition management, particularly involving cross-generational wealth transfers, is an area most wealth managers struggle with. But industry leaders have managed to increase this wallet by up to 15 percent. Another promising area is Offshore 2.0, which will flourish, particularly as macro-economic and political uncertainties remain high. Operating model efficiencies will have to focus on redesigning the core high net worth model (those clients with assets ranging from US$1 million to US$5 million), and on aggressively digitizing middle- and back-office operations, which in our view holds significantly more value than robo-advisory digitization initiatives, The strategic challenge for the industry is that the relative wealth wallet is shrinking, away from managed assets – the leaders will be those that are able to tap into currently unbanked assets based on (closed) platform models and adjust their fee models accordingly. In growth markets, wealth managers need to invest in their local setup and incentivize relationship managers to acquire new clients. On the product side, we see alternatives as a major source of differentiation. They have been the only source of material alpha generation over the past decade, and we expect this to continue going forward.