The global private banking and wealth management industry is in "a huge state of flux" which is set to continue for the next couple of years, PwC has warned in its biennial survey.
Jeremy Jensen, EMEA leader, global private banking and wealth management at PwC, said that the wealth management industry is at an inflection point, precipitated by continuing regulatory pressure, a challenging macro-economic environment, margin compression, changing demographics and trust challenges.
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A big shift in the industry will see wealth managers moving away from simply providing products towards delivering solutions and advice to clients.
"The industry has reshaped considerably in the past two years since our last survey and there is a way to go. You got people exiting, you got organisations refocusing on their core and putting together divisions of their business ," Jensen told PBI. He also added that the most critical business issue for private banks and wealth managers is how to address the value equation.
"Investment performance is only one of the areas of importance. There are going to be different value propositions for different clients," he said.
The report, Navigating to tomorrow: serving clients and creating value, surveyed 200 institutions from more than 50 countries.
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By GlobalDataThe six main areas in which the industry encounters challenges are summarised below:
"Doing the right thing"
– Growth will vary across established and emerging markets. The transfer of wealth across generations is a dominant theme in Europe’s mature markets. In contrast, wealth management throughout Asia’s emerging markets have a great emphasis on wealth creation.
– Consolidation and industry reshaping are likely to accelerate. There was a near five-fold increase in those EMEA respondents who expected ‘significant consolidation’ in the next two years (to 34%). There was less sense of a wave of consolidation in APAC, although levels were still high. There 30% of respondents expected ‘significant consolidation’ in the next two years (up from 10% in the past two years).
Compliance is the top concern, but at a cost.
-Compliance replaced reputation as the top risk management concern, as wealth management firms struggle to keep pace with the scale, speed and costs of current and planned regulatory change.
-The cost of complying with regulation will continue to rise, with respondents forecasting that risk and regulatory compliance expenses will account for 7% of annual revenue in two years, up from 5% today.
New skills for CRMs
– The key attributes for successful CRMs are evolving in tandem with new client demands and business priorities. Most notably, specialised product knowledge jumped in significance from ninth to second place and cross-selling took on substantially more prominence as well.
"Organisations are underestimating what should be spent in the middle of back offices, but it is understandable", Jensen adds.
-CRMs will need to adapt to the digital age. More than 60% of respondents said that mobile technologies will be the primary interaction utilities to be used as portfolio simulation and financial planning tools, followed by video conference programs and social network.
Nascent markets grow rapidly
-Newly emerging wealth markets are set to outpace established emerging markets, with net new money growth forecast as 16% in 2013.Traditional sources of wealth, such as North America and Western Europe, will experience lower growth instead.
-New wealth, especially that coming from entrepreneurs, continues to rise steadily, with respondents anticipating it will make up 60% of their assets in two years time.
Improving investment performance
-Wealth managers are improving product transparency and information, performance, and external third party product and services.
"Everyone says that performance is given, but CRMs have to add more to it than that. Responsiveness, proactiveness and trustworthiness is what clients need.This value chain is more transparent that has ever been", Jensen commented.
-With commission revenues dwindling, 71% of senior wealth management executives expect that, two years from now, their business model will encompass broader financial and wealth planning solutions, up from 56%.
Pushing managers towards technology
-Findings indicate that wealth management firms expect to see significant gains from investment in end-to-end processes and technology within the next two years.
-Notably, despite the growing emphasis on digital interaction, less than a quarter of respondents (24%) feel that their IT capability is sufficiently equipped to deliver an effective digital service strategy to clients
