The wealth management industry is facing significant margin pressure caused by stringent and costly regulatory requirements, uneven growth across geographic markets, loss of certain types of fees and subdued client activity, according to a new report from PwC.
These dynamics are further compounded by shifting demographics and existing challenges around operations, technology, and talent management.
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Surviving and succeeding in this environment requires changing to a more consultative business model that places a premium on "doing the right thing", the report suggests.
PwC’s 2013 20th Anniversary Global Wealth Management Survey found that wealth managers are failing to capitalize on intergenerational and gender opportunities. In particular, the industry needs to become more sophisticated at understanding the values of their millennial and female clients, and develop propositions aligned to those values.
Petrina Dolby, senior advisor of PwC’s Canadian Wealth Management Consulting practice, said: "Our research shows that millennials are more involved in their wealth creation and management, regardless if they are first, second or third generation wealth holders. They will change jobs more frequently, put a greater emphasis on flexibility in how and where they work, have increased life expectancies and care deeply about their broader communities using social media as a matter of fact tool."
"Most strikingly, millennials feel very strongly that they are not being listened to by the wealth advisors of their parents. This puts them as a flight risk," she added.
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By GlobalDataAccording to Dolby, women continue to be an increasingly important, empowered and wealthy client demographic but again, this growing segment does not feel empowered in the wealth management space. Only 8% of PwC’s survey respondents consider gender when segmenting their client base.
"Wealth managers need to better understand the different networks of influence which younger generations and female clients rely on for decision making, including that access to the matriarchal side of the family can provide great connections to the next generation," Dolby says.
According to the report, regulation will continue to play a greater role in driving choices for wealth managers deciding where to concentrate their activities across clients, propositions, products and servicing models.
Compliance replaced reputation as the top risk management concern in the survey, as wealth management firms struggle to keep pace with the scale, speed and costs of current and planned regulatory change.
The report warns that the cost of compliance will continue to rise. Survey participants forecast that risk and regulatory compliance expenses will account for 7% of annual revenue in two years, up from 5% today.
The survey noted an unprecedented level of frustration among senior executives who are finding themselves increasingly challenged to keep up with not only the business as usual pressures, but increased compliance and scrutiny.
