Between competition for increasingly fickle clients and rising compliance costs, global accounting firm PricewaterhouseCoopers warns that wealth management firms need to evolve . . . and that might entail shrinking.
PwC's latest white paper on the industry, "Anticipating a New Age in Wealth Management," takes an unusually apocalyptic tone. As they say, today's leading money managers need to become more efficient "not just to compete, but to survive."
"Standing still is no longer an option, and institutions must now quickly adapt or face being left behind."
What's driving the urgency?
First, clients scarred by the credit crunch are demanding more than a lot of firms seem to be able to provide.
PwC found that only 37% of the wealth management CEOs out there think their offering is worth a referral from existing clients, while a full 40% rate their client service talent as "average" or worse.
In fact, a full 1/3 of the top executives the white paper's authors talked to say that the main reason they lose client service people is by showing underperformers to the exit.
To retain clients, firms are having to spend more money on everything from technology to talent -- at a moment when compliance costs are seen as the biggest drag on profitability and growth.
Naturally, the biggest players out there are gambling on cross-selling their way to success, or as PwC euphemistically puts it, they "highlight untapped revenue potential through increased collaboration and referrals from other business units within their organizations."
But as it turns out, more client-focused firms are still eating their lunch by retaining talent and accounts alike.
In the ultra-high-net-worth segment ($5 million to $10 million), PwC discovered that the most profitable players average only 26 clients per relationship manager -- less than half the industry average of 54.
They're not squeezing more revenue out of every dollar of AUM so much as keeping that AUM loyal over the long term.