Wealth management’s four areas of transformation

Wealth managers are in a period of transformation. Slow growth, new regulation and short-term margin pressure are causing them to make fundamental changes to their businesses, ranging from how they approach clients to the efficiency of operating models. But as they adapt to the new environment, there will be both winners and losers.

PwC’s 2013 20th anniversary Global Private Banking and Wealth Management Survey, Navigating tomorrow: Serving Clients and Creating Value, reveals an industry in flux. In spite of a rebound in global wealth to nearly pre-2008 levels, a new world is emerging that will require wealth managers to base their offerings on high-quality advice and solutions rather than products.

In our view, future wealth management winners will be those that can navigate the industry’s changes, while managing the shorter-term challenges of regaining client trust and profitability. Wealth management’s challenges are compounded by the changing requirements of younger generations, as well as difficulties around operations, technology and talent management.

The survey, which canvassed 200 organisations in 51 countries, concludes that for wealth managers to succeed and survive they must change to a more consultative business model, that puts a premium on ‘doing the right thing’ from an ethical perspective.

Four areas for action

The survey identifies the following four areas of change:

  1. Regulatory pressures driving cultural change
    Trust is essential for success in financial services, yet remains at a low ebb. With regulators becoming involved in the issue of firms’ ‘cultures’, changing behaviours has become a critical issue¹.
  2. The quest for operational efficiency and differentiation through technology
    Survey participants have been investing in technology for significant future improvement and some are well advanced. But cost-income ratios remain high, and there’s an emphasis on sharing and outsourcing solutions to further improve efficiency and operational risk management. Digital delivery and cyber security are emerging areas of focus.
  3. Traditional approaches to product and service provision are changing
    The emphasis is on advice and solutions, as the emphasis shifts away from perceived commoditised products. There is a move towards greater open architecture, while the abolition of retrocessions in some countries is putting pressure on margins. In future, greater specialisation will aid success.
  4. Understanding the client’s perspective of value is getting tougher
    The industry needs to get smarter at understanding what clients value. Key demographic trends – including the emergence of a younger generation and growing importance of female clients – must be embedded in client segmentation techniques. Next-generation transition management needs to improve, as should profitability measurement.

Managing the inflection point

In our view, wealth management’s turning point means there are now two strategic priorities. These are: ‘Achieving excellence in client experience’, and ‘Managing the speed and effectiveness of change’. But transforming the client experience requires a change in leaders’ mindsets and front-office capabilities, while managing change requires organisations to acknowledge the magnitude of transformation needed.

It’s clear from our survey that wealth managers have to rise to the considerable challenge of adapting to significantly different regulation coupled with pressure on profitability. Many of our participants are optimistic about the future once these immediate hurdles have been overcome, but they also expect a high level of restructuring, mergers and acquisitions, as some wealth managers decide not to go it alone.

To emerge from the turning point as a winner will take a clear strategy, backed by flawless execution.

1 We outline Five Golden Rules for a High Performing Culture in our recent Insurance 2020: Unleashing the Value from Values paper. Whilst this paper is specific to the insurance industry, a number of the recommendations apply more broadly