The global financial crisis has changed the game for wealth managers, as clients battered by bad news shifted their assets to less volatile, low-margin investments, weakening performance, and cutting into asset-based fees, according to a report by Boston Consulting Group (BCG). Among the 124 institutions surveyed in the study, the median pretax profit margin fell to 30.0 percent in 2008, down from 36.4 percent in 2007.
“It is unclear when and to what extent assets will migrate back to high-margin investments, but wealth managers cannot count on a strong resurgence of these products in the short term,” says Bruce Holley, a senior partner and a coauthor of the recent report, “Delivering on the Client Promise: Global Wealth 2009.”
According to Holley, the wealth management industry will need to do more with less. “Revenues and profitability are sliding, but clients want more intensive service. Wealth managers have an opportunity to gain ground while assets and relationships remain in play, but only if they define a clear value proposition,” says Holley. For example, Holley says many wealth managers can enhance their service by narrowing the range of products they offer, in addition to implementing more aggressive client-acquisition strategies.
Overall, global wealth under management fell more than 12 percent to $92.4 trillion in assets in 2008 from $104.7 trillion in 2007, says the report. North America saw the steepest decline, with industry assets down 22 percent to $29.3 trillion in 2008.
According to the study, wealth owned by households with less than $100,000 in investable assets grew 2 percent in 2008, while among households with more than $5 million assets, wealth fell by 22 percent. Meanwhile, the number of global millionaire households fell 18 percent to about 9 million.
Peter Damisch, a BCG partner and another coauthor of the report, says wealth will slowly recover at an average annual rate of about 4 percent through 2013.