December 11, 2023

Losses in stocks and bonds last year ate into wealth managers’ profits globally, providing ample reason to rethink the business, Boston Consulting Group said.

While these securities have recovered some of their lost value in the first half of the year, Global Advisory Firm’s Annual Wealth Report It found last month that North American financial assets will fall by 8% in 2022, while global financial assets will fall by 4%. The latter drop was the first decline in global financial assets since the Great Recession.

In response, the Boston report offered financial advisors and other wealth management executives eight potential ideas for increasing revenue or cutting costs. The firm’s recommendations are summarized below.

“Despite declining profit margins over the years, participants can often count on seemingly growing financial markets and subsequently growing client business volumes – an indicator that includes not only (assets under management) but lending as well,” the report said. “But the rare combination of a bond market downturn (due to rising interest rates) and a stock market downturn in 2022 has a sizeable impact on wealth managers’ performance.”

(Scroll down for eight recommendations for Boston)

Key figures from the report showing global wealth trends include:

  • Global financial wealth is expected to rebound by 5% in 2023, reaching $267 trillion.
  • Despite the economic downturn, “cross-border wealth” will climb 5% to $12 trillion in 2022.
  • In 2022, North American customer business volumes will decline by 13%.
  • In 2022, North American pre-tax profit margin decreased by 3.1 basis points.

Registered Investment Advisory Firm working with the firm of Operations Specialist Cameo Roberson, Atlas Park Counseling & FinanceThese firms typically have much smaller AUM than the global players discussed in the report, with assets under management of about $25 million to $100 million, she noted in an email. However, this means that “the impact of losing or gaining customers is exacerbated,” Robertson said.

The results of an overhaul of corporate procedures — one of Boston’s strategies for responding to last year’s downturn — could also yield faster returns for smaller firms. One of Robertson’s clients saw a triple return on investment in a new customer relationship after reviewing the steps involved in account signup and moving the entire process into the company’s customer relationship management software, Robertson said.

“The most important thing for the companies I work with is how to expand their customer base (increase revenue) and make sure they have the capacity to do that,” she said. “Small companies often have less human capital, so leaders have to think strategically about what growth looks like and what resources they need to support it. The cost part can be locked in a little bit, as it’s usually tied to large cost centers” eg employees/ Salary, technology and other fixed overhead costs. Companies can begin to alleviate this problem with a multi-pronged marketing plan that generates consistent and qualified leads, leading to increased revenue. ”

According to Shauna Mace, about 70% to 75% of the expenses of consulting firms come from salaries and other human capital costs, which means that the compensation of employees is the biggest drag on profits. Practice Management Supervisor Custodian at asset management and technology company SEI. Mays said owners might consider taking a “thoughtful” look at their pay to decide whether a pay cut would help boost the company’s bottom line.

Organic growth, rather than capital-intensive acquisitions and consultant-hiring expansion, is “really tough for a lot of companies,” she said in an interview. They can also identify areas to cut spending through a new review of potential changes to hosting and key vendor relationships, and capitalize on more future growth by setting specific targets and linking them to compensation, Mays said.

“If you can keep growing regardless of the market, then generally you should be fine,” she said. “Most consultants typically need to grow 4% to 6% a year to make up for allocations and lost clients…you need to grow at least 5% or so. A lot of firms don’t even do that. You really want to ask, ‘How do we grow at 10%? above the rate of growth?'”

Scroll down the slideshow to see Boston Consulting Group’s ideas for wealth management firms seeking to increase revenue while reducing costs. Check out the latest data tracking the number and size of U.S.-registered investment advisory firms, Click here.To learn three factors portfolio managers need to keep an eye on this summer, follow this link. Plus, deal experts offer 10 tips for RIA M&A deals, read this story.

Note: The following potential growth and cost savings levers apply to global wealth managers, not just U.S. wealth managers. Thoughts and quotes from Boston Consulting Group’s report last month, “BCG 2023 Global Wealth Report: Recalibrating“.