the future of wealth management
DESCRIPTION
Five massive foundational shifts are impacting financial service providers of all types, and they are impacting those that serve affluent clients in especially unique ways. Many of the strategies, skills and behaviors that enabled success in the past are now at best ineffective, and completely irrelevant in some cases. Advisors and firms serving affluent clients must adapt to these new realities to be successful in the future.TRANSCRIPT
© Clientific, LLC 2012
The Future of Wealth Management
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The evolution of wealth management
New firms arose to serve the wealthy, focused on protecting and transferring wealth of established families.
The First Era of Wealth Management (1853-1980)
Deregulation, falling interest rates and the beginning of a raging bull market ushered in a new era, focused on creating and growing wealth.
The Second Era of Wealth Management (1981-2007)
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The New Era of Wealth Management (2008 -?)
New Rules for a New Era
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Persistent low growth / low yield environment is challenging revenue
growth…
“Slower growth means lower returns on capital. If real GDP grows at 1.5 percent, then a diversified portfolio of stocks and bonds would probably grow at 1.5 percent, as well.”
- PIMCO’s Bill Gross 7/11/12
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…ROEs are below pre-crisis levels, at risk of not covering cost of
capital.
ROE
0
5
10
15
20
20062007
20082009
20102011
2012
(#)
Source: Accenture Banking 2012: Revenue Growth and Innovation
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Regulatory Environment
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Welcome to re-regulation. And we are just getting started…
33%33%
33%
FinalizedProposed
Not Yet Proposed
Source: Davis Polk 10/1/12Dodd-Frank Rules
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Competitive Environment
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Customers are at risk…
(#)
17% Recently Changed
50% Ripe for Change
33% Stable
Source:: Sway Research- “Hearts and Wallets”
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…and firms all expect to take market share from one another.
3%
5%
6%
19%
40%
49%
79% Acquistion
Expansion
Focus on Affluent Clients
Lower costs
Unsure
Other
No growth expectedSource: WealthManagement.com survey of 648 wealth managers from all channels (Oct 2012)
10
“Where will your growth come from in next 12 months?
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Generational Shifts
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Transfer of Wealth: 2017-2052
$41 Trillion*
Wealth of Gen X + Gen Y expected to exceed Boomers
by 2018
*Up to 98% of heirs switch advisors
*90% of heirs intend to leave current firm
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Keys for Success Differ by Generation
Boomers Gen X Gen Y
New Rules for a New Era
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Technology Shifts
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This is what passes for client experience in most of our
industry…
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Today’s clients want high-tech and high-touch. Why should they have to choose?
Advisors
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Clients want an ecosystem, not silos.
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Skate to Where the Puck is Going
“With so few wealth managers concentrating on Gen X and Y, and the fact that nonfinancial services firms are only beginning to move into the wealth space, a disruptive opportunity may exist for an innovative wealth manager.”
-Delloitte Consulting
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Client-Centric/Advice-Driven
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Driving efficiency through a differentiation of tasks and roles:
What can banks learn from healthcare?
(#)
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Smarter Differentiation of Roles, Tasks and Tools, for one thing…
(#)
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Standardized Process Specialized
Low
Touch
In
tim
acy/E
Q H
igh
To
uch
Nursing
Pharmacy
Psychotherapy
Brain Surgery
Fees
Scalab
ility
Execution Diagnosis
Adapted from True Professionalism by David H. Maister © 1997 David H. Maister , used by permission
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Are your brain surgeons handing out aspirin?
(#)
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Fees
Scalab
ility
Standardized Process Specialized
Low
Touch
In
tim
acy/E
Q
Hig
h
Touch
• Account Opening• Transactions• Balance Reporting• Basic Service Issues• Funds Transfers
• Standard Credit• Product Advice• Estate Settlement• Discretionary Trust• Complex Issues
• Goal Setting • Financial Planning• Complex Estates• Succession Matters• Nonfinancial Issues• Moral Support
• Custom Credit• Asset Allocation• Basic Trust Admin• Complex Assets• Basic Estate Plans
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Or worse,Are your pharmacists performing brain surgery?
(#)
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HNW Client Insights
(#)
(#)
“How would you describe the state of mind of your clients in 2012?”
Source: WISE Gateway 2012 Executive Survey.
How HNW Clients are Feeling
Source: WISE Gateway 2012 Executive Survey.
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Source: Merrill Lynch Cap Gemini, 2011.
Top Six Priorities of HNW Clients, 2010
1. Capital Preservation
2. Effective Portfolio Management
3. Specialized Advice
4. Transparency of Statements and Fees
5. Global Asset Allocations of Portfolios
6. Independent Investment Advice
Clients Still Need Help!
Source: Merrill Lynch Cap Gemini, 2011.
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Drivers of Loyalty to Advisors
Differing Loyalty Drivers
1. Trust
2. Responsiveness/ Pro-activity
3. Quality of Advice
1. Quality of Advice
2. Service
3. Value for Money
Source: VIP Forum Research.
Drivers of Loyalty to Firms
Related and overlapping, but clients expect firms to drive advice and service
(#)
77% of Affluent Primarily Use Banks for Banking
12% of Affluent Primarily Use Brokerages for Banking
81% of Affluent Primarily Use Brokerages for Investments
1% of Affluent Primarily Use Banks for Investments
Source: McKinsey and Co.
The Challenge of Competition
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Revenue Mix Varies by Segment
Wealth Segment
Credit Products
Deposit Products
Investment Products
$5M +
$1M -- $5M
$250k -- $1M
16%
29%
39%
31%
29%
26%
53%
42%
35%
Expected Change in Profitability
+8% +8% -1%
Source: McKinsey and Co.
Share of Revenue Wallet in Wealth Management for Various Segments, 2010
(#)
Investment Capabilities,
26%
Specific Products Of-fered, 27%
Financial Planning &
Advice, 47%
“ What product or service is most effective at attracting NEW clients in 2012?”
“What product or service is most effective at engaging EXISTING clients in 2012?”
Source: WISE Gateway 2012 Executive Survey.
Brokerage & In-surance; 8%
Loan Products;
20%
Investment Products;
28%
Financial Planning &
Advice, 32%
Delivery Model; 12%
Advice is the differentiator
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Wealth Managers’ Survey
“Most important metrics for making decisions and evaluating operating performance?”
Source: WISE Gateway Metrics Survey 2011
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Questions?
@Cllientific
www.clientific.net
www.wisegateway.com