Crickets chirp on the New York Stock Exchange’s once busy floor. The Dow Jones is down over 5000 points, the S&P 500 is down over 13 percent over the last three months--despite recent gains--and yet many financial advisors still voice optimism about the future. Many wealth management firms, however, will “struggle to survive,” writes Boston Consulting Group in a new report.
The coronavirus crisis has torn financial markets asunder and many in the wealth management field will feel the reverberations, some losing their jobs along the way.
“Outsiders might think that the wealth management industry, after a 10-year bull market, should be in good shape to weather the storm. But this is not what we find,” wrote the management consulting firm in the report.
Despite the decade-long bull run, wealth management companies have still not reached the levels they were at before the 2008 market collapse. Investable global wealth of individuals with at least $1 million has grown from $35 trillion in 2007 to $61 trillion in 2018, but firms have not been able to capture much of that wealth. In fact, the report explains that since 2007 industry revenue over average assets under management fell from 93 basis points to 77 bps in 2018.
And while AUM has been shrinking, the cost-to-income ratio has risen from 60 percent to 77 percent over the same period of time. All of this data can be seen in profit margins that have sunk $22 billion since reaching $130 billion 2007, explains the report.
“Already weak firms will struggle to survive,” reads the report.
Nonetheless, the report matters to lay out some positives for firms who do manage to survive, those companies will have “a once-in-a-decade opportunity to offer genuine differentiation and strengthen client trust by providing targeted and personal advice as well as emotional reassurance.”
In other good news, a number of larger firms have announced that they won’t be making layoffs, including Wells Fargo, Bank of America, Goldman Sachs, Deutsche Bank, Royal Bank of Canada, and HSBC.
