Pricing and regulatory pressures mount on wealth managers

Dubai: The global wealth management industry is expected to face rising pressure on profitability, stock and market valuations as asset growth is expected to slow, costs to rise and fee pressures to accelerate, according to a recent report by management consultants Oliver Wyman and Deutsche Bank Research.

As competition increases about one-third of industry profitability could be at risk over the next five years impacting their stock valuations.

Analysts say wealth managers should consider a range of strategic and tactical levers to address this challenge. “The forces that drove performance in wealth management in recent years are changing, and firms will need to take action on costs and develop new ways of engaging with clients to maintain revenues,” said Christian Edelmann, global head of Oliver Wyman’s Wealth and Asset Management practice.

Continued downward pressure on fees, in particular in Europe and North America brokerage fees are already being eroded. In North America robo-advisory models and greater competition among providers are pushing fees down further, particularly in the “core” high net worth (HNW) segment. In Europe regulations mandating greater pricing transparency are starting to have a similar effect.

“In a world with greater fee transparency, we expect to see more clients starting to question pricing levels. Particularly as the standard moves from advisory to fiduciary, wealth managers will need to prove “value for money” or face further fee pressures,” said Edelmann.

Amid fears of slowdown in assets under management (AuM) a large number of wealth managers still assume 8 to 10 per cent yearly growth in AuM in their business plans. On an industry-wide basis this translates into a global AuM gap of $15 trillion (Dh55 trillion) emerging by 2020. “We are concerned that this growth gap will translate into more aggressive client acquisition strategies with the potential risk of onboarding a new wave of compliance risks,” said Edelmann.