After the recent financial and economic crisis, the wealth management sector has now recovered: Bankable assets rose to EUR29 trillion worldwide in 2012, a year-on-year increase of almost 8% – and this upward trend will continue, according to the study by New Roland Berger.
In its new study entitled ‘Wealth management in new realities’, Roland Berger Strategy Consultants predicts that global bankable assets will rise to almost EUR 40 trillion by 2017.
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There are, however, major differences between the markets. For instance, Asia-Pacific will experience the strongest growth: the asset management business here will increase by more than 10% annually, reaching a total volume of almost EUR 14 trillion by 2017.
In contrast, growth in mature markets will slow down. For example, the North American market is forecast to grow by 6% a year, the European market by around 3% annually up through 2017.
Olaf Toepfer, partner at Roland Berger Strategy Consultant, said: "The wealth management industry must adapt to new realities and will therefore undergo a structural transformation. Further development is imperative because, especially in the European onshore business, there are very few providers who can operate profitably outside their home markets over the long term."
The foundation for success in the international onshore business is especially the ability to meet the needs of the individual markets:
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By GlobalDataRené Fischer, consultant, Berger, said: "Knowing the local language and culture, having a clear understanding of the target customer profiles and their needs as well as offering customized solutions are crucial for success in the growth markets. This is important for the fast-growing Asian market in particular, where international players can expect competition from an increasing number of local providers."
Growth in the face of new challenges
However, adapting to local markets is only one key factor. To grow further, wealth management providers must overcome new hurdles in the next few years. Structural changes such as the increasing convergence of on- and offshore management as well as stricter regulatory requirements – triggered by FATCA, OECD/EU/FATF and MiFID II – are squeezing margins and creating new customer needs.
Toepfer added: "The business model of international wealth managers is therefore becoming more and more complex. The winners will be those who can best manage this complexity."
Driven by various trends, customer needs are evolving – their lives are subject to increasingly rapid shifts. With family and living situations changing more quickly, the investment products and services offered must also become more flexible. In this context, absolute returns are losing relevance and are being replaced by r3 – ‘real real returns’ (returns from real assets after inflation and taxes).
The relationship between the customer and provider is also becoming more important.
Fischer added: "Here wealth managers need to address the needs of the next generation of ultra-high-net-worth individuals. This is because the new customer generation likes to diversify their investments much more and spread them among different banks and booking locations."
This drives up demand for personalized, comprehensive and understandable advice.
Products and business model: focus on the customer
Bank products need to focus more on the needs of customers.
But Roland Berger Partner Mark de Jonge criticizes the fact that the reality is often very different. "Most providers continue to focus heavily on products. This means that business models and products are not aligned with actual client interests. And this is then reflected in the incentives offered to wealth managers, which continue to be based predominately on the products sold."
Providers’ business models must also be aligned to the investment needs of customers in order to remain successful on the global market. In addition, wealth managers should become more active and offer customers attractive value-adding solutions as well as simple and efficient services.
No major market consolidation
Strong consolidation is currently not evident, although small providers are being squeezed out of the market in certain regions. Their business models are no longer in line with the new realities and market needs.
Due to increasing cost pressure and economies of scale in the middle- and back-office functions, providers will attempt to leverage synergies by combining certain activities, such as payment transactions and securities settlement.
Overall, Roland Berger views the challenges in the market as an opportunity for the entire industry: Toepfer concludes: "Those who quickly and rigorously adapt to the new realities amid the current structural transformation can win attractive market share.
