"Arbitrary" Pricing Habits In The Industry Seen As Unsustainable

Friday, June 03, 2011 06:42

A new study indicates that while wealth managers are back in the game and capturing plenty of assets, profit margins remain submerged from pre-recession levels. Blame fee discounts.

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The Boston Consulting Group just released the 2011 edition of its annual Global Wealth Report.


Some of the news is good. North American wealth managers captured an additional $3.6 trillion in AUM last year, growing their asset base at a stunning 10.2% rate.


But worldwide, all those new accounts failed to make much impact on the industry's bottom line. Pretax margins edged up a scant 4 basis points.


The report's authors blame pricing strategies that they say are "more arbitrary than deliberate."


"Wealth managers simply cannot afford to overlook the importance of pricing," they say.


As it stands, the global wealth industry squeezes barely 23 basis points of profit -- before taxes -- from all its mammoth operations.


And in some parts of the world like Europe, fees are under pressure as clients who were formerly unconcerned by pricing start to get sensitive to the issue.


While it's unclear whether that's happening here, it's probably a moot point, given the number of U.S. advisors who've been unilaterally discounting their fees to win clients.


Comments (1)

I've started breaking out my fees so clients see what's costing what. As a result, I am charging MORE. Our costs keep going up. We can only discount so long before it's not worth being in business. This fee pressure also squeezes out smaller clients. We need to get better at discussing VALUE and not just selling on price. "Some people know the cost of everything, but the value of nothing." Do we really want to keep playing this game?
vguettlein , June 03, 2011

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