A Top 10 Trends for Wealth Management

Change will continue to dominate business practices in the sixth year since the financial crisis,  according to a report from Aite Group.

In “Top 10 Trends in Wealth Management, 2013,” the research group examines the impact of economic forces on servicing and operating models, which are still adjusting to a post-crisis environment. The main goal for many firms, according to the report, is to finally kick their wealth management business into gear and once again accelerate growth.

“Five years after the start of the financial crisis, the wealth management industry is still dealing with the aftermath of the crisis and trying to switch its businesses into growth mode,” says Alois Pirker, research director with Aite Group and co-author of the report. “Uncertainty will persist in 2013 as the wealth management industry waits to see whether investors will finally return to investing and taking on risk.”

Pirker predicts that firms will re-evaluate strategies for operating and growth, weighing the pros and cons of acquiring versus partnering. Even in a strained economic environment, advisory practices will find opportunities for growth.

“Large firms will look to acquire, and the small will look for partnerships depending on their financial ability,” Sophie Schmitt, a senior analyst at Aite Group, told PLANADVISER.

Firms will look to their own technology platforms to see how they can be used to turn around and service smaller providers. Firms with that ability can offer brokerage services to other firms, Schmitt said. Those firms will want to build their existing IT staff and technology.

Small to midsize firms might make targeted acquisitions after examining what they want to keep doing in-house. Perhaps wealth management isn’t their bread and butter, but they would still like to be able to offer the service. Regions Bank’s decision to partner with PrimeVest to build its brokerage operations is a recent example. (See “Regions Back in Investment Business.”)

“When it’s not a core competence, they have to be smarter about how they go into the business,” Schmitt said. It is not only a matter of where capital is allocated, but firms thinking about how to deploy capital against lines of business.


More Regulation, More Documentation

It is likely the regulatory burden for financial advisers will increase, Pirker noted in the report. In the U.K., advisers are no longer able to accept commissions for bonds and other financial products they sell.

That would be a radical change from the economics here, and while it’s unlikely we will see that, according to Schmitt, advisers should expect to see documentation increase, from higher adoption of financial planning tools to more sensitivity around costs.

Advisers will have to figure out how to take their clients through the planning process to make sure they are delivering the advice. “There could be a requirement to show that you’re actually investigating your client’s finances in more detail, and not just taking them at face value,” Schmitt said.

This process would require more data gathering and creating a trail prior to making investment recommendations. Many firms are already on that path, according to Schmitt, and these firms have been touting the benefits of a fee-based rather than a commission model.

Another factor garnering more attention is cost. The organization fi360, a provider of analytics and education, has been advocating for “least cost” in investment products, which may mean the need for new tools to ensure that advisers actually minimize product cost. “I could see some investment in disclosure and workflow tools to make sure advisers go from Step A to Step B,” Schmitt said. “The industry has been moving toward that, and it would be welcome.”

Most advisers, both registered representatives and RIAS, favor the fiduciary standard, Schmitt said, because it better aligns the interests of clients and advisers better.


Reaching for Greater Efficiency

Registered investment advisers (RIAs) will reach for greater efficiency, striving to do more with less and streamline their operations. Better time management and more efficient processes will become key.

Much of this will be related to use of technology. Integrated platforms that custodians have built to work more efficiently will be one strategy, Schmitt said. “Moving to a fee-based model is also going to require advisers to optimize their time, because they’re trying to get clients to come up with more money on an ongoing basis, rather than just one time after selling a product,” she said.

Technology will be more than just deploying tablets “simply because they’re cool but really trying to leverage technology and the intuitive interfaces firms are building to provide more value to clients,” Schmitt said.

Technology Strengthens the Relationship

Collaboration between adviser and client will be ramped up, according to Schmitt, and technology and interfaces will play a role. For example, Schmitt pointed out, Raymond James redeployed a tool and redesigned their site to allow clients to access their plans through an adviser’s website, if the adviser allows. (See “Raymond James Unveils Financial Planning Software.”)

This lets advisers and clients collaborate on a financial plan remotely and includes the client in the dialogue. Anything that strengthens the relationship is positive, because advisers do not want to become disintermediated, Schmitt noted. Leveraging technology is a better choice for advisers than pointing clients toward a website to use independently.

Aite Group’s top 10 trends are:

  • Re-evaluation of operating and growth strategies (acquire versus partner);
  • Investment advice regulations drive business model changes;
  • RIAs reach for greater efficiency;
  • Intergenerational wealth management and adviser succession planning in the spotlight;
  • International firms reassess international operations;
  • External asset managers grow;
  • Engaging the active trader;
  • Cloud-based trading emerges;
  • Politics still matter (U.S. edition); and
  • Technology enhances the client/advisor relationship.

To purchase a copy of the report, visit Aite Group’s site.