The survey has found that in order to face an increasingly hostile environment, the wealth management industry needs to rethink its business models.
Referring to the increasing regulators demands in spite of falling revenues, the report stated "As these forces coalesce, many wealth management business models are buckling under the pressure."
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Post 2008 financial crisis, many clients opt to park much of their money in safe assets such as cash, and this tends to reduce the margins for wealth managers who are already facing the challenges of rising staffs and compliance costs.
Simultaneously, investment performance has also been hampered due to weak economies in the developed world and volatile returns.
Moreover, while the total AUM has grown with the recovery since 2008, costs have also risen faster.
According to the report, the cost to income ratio for the global wealth management industry was nearly 80% in 2010, having risen from 64% in 2007.
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By GlobalDataThe report suggests that in this volatile environment, investment managers must try to expand their horizons by hiring younger financial advisors, keeping in mind the fact that global rich are getting younger.
Additionally, it is suggested to scrap the systems of classifying clients how rich they are, unlike the present system to categorizing clients by grouping them as mass affluent, UHNW etc.
Instead, firms have to give importance to issues like age, gender, location and people’s appetite for taking risks with their money, says the report.
Further, previous practice of aggressive pursuit of more clients which hampered quality of service, seeking growth in portfolios rather than minimizing the risk of loss have also been discouraged.
Wealthinsight is of the view that though it would be prudent to follow the old adage, "buy low, sell high"; one must not directly plunge into equities with huge amounts. Further, attention must be paid to long term wealth creation, rather than short term gains.
Moreoever, proper asset allocation should be made to make way for suitable diversification, lest the investor put all his eggs in one basket.
Once equities are owned by investors, steps such as diversifying and rebalancing must be properly and regularly followed and technology may also be used to increase productivity.
