BCG: 5 characteristics of successful wealth managers

13 July 2015 5 min. read
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While global private financial wealth grew significantly in 2014 to $164.3 trillion and is expected to grow even more in the coming years, reaching $222.1 trillion by 2019, wealth managers must ‘raise their games’, research by the Boston Consulting Group shows. The research identifies the so-called ‘top performing’ wealth managers that, according to the consulting firm, all possess five key characteristics.

The ‘Global Wealth 2015: Winning the Growth Game’ report, released by the Boston Consulting Group (BCG) examines the global private financial wealth*; its size and growth, the distribution, and its managers. The study covers 62 countries that, together account for 94% of global GDP in 2014.

In 2014, global financial wealth increased with almost 12% to $164.3 trillion, up from $146.8. In the report, the consulting firm forecasts a compound annual growth rate (CAGR) of 6.2% for the coming five years, which will result in a global wealth of $222.1 trillion by 2019.

Global wealth growth in 2014

Wealth managers
While global private wealth grew with a steady pace in 2014, the researchers stress that wealth managers must raise their games on numerous fronts. “Potentially disruptive forces are everywhere,” explains Brent Beardsley, a BCG Senior Partner and co-author of the report. “The tightening regulatory climate, a more complex investing environment, highly demanding clients, technological evolution, and other trends are straining traditional models. As the pace and magnitude of change intensifies, wealth managers need to think more strategically.”

In the report, BCG identifies what it calls successful** wealth managers, which according to the consulting firm, “all clearly stand out in generating high revenues per relationship manager (RM), acquiring new assets, achieving best-in-class revenue and cost margins, and doing all of this with a lean organisation.”

Top performing wealth managers

Top performers
The differences between the top performers and average players are significantly. So, what sets these successful wealth managers apart? According to BCG, all successful managers possess five key characteristics:

1. Segment-specific value propositions and coverage models
In today’s wealth-management arena, as described by the researchers, a ‘one-size-fits-all approach’ is no longer a viable option as customers will not tolerate paying too much for services that they do not need or understand, or for insufficient guidance and advice. Dedicated coverage models for each segment are also key, models that that clearly define who interacts with the client for which needs at which times.

2. Rigorous price realisation in target client segments
Top performers realise higher revenue margins than average performers across all client segments and type of players, with the biggest difference seen with lower high net worth clients in the old world onshore segment.  According to BCG, as the most successful wealth managers have clearly defined their target client segments, these clients are less inclined to ask for discounts when the value proposition of the bank’s services is evident. 

Revenue margins by client segment

3. A differentiated advisory offering
In the difficult investment climate, with clients losing confidence in their wealth manager’s ability to achieve superior returns on discretionary mandates, high-performing wealth managers have invested in building a truly value-adding advisory package. The research highlights that on average 30% of assets are under management from advisory services, for top performers this is almost half (48%).

4. A focus on front-office excellence
For wealth managers, optimising front-office operating excellence proves to be something they struggle with. Top performing managers have focussed on improving their front-office performance, by making leaders accountable for the team, by fostering cross-functional approaches to clients, by developing a client-centric sales culture and by complementing the sales-management system with activity-based measures.

Ability to measure and manage profitability

5. The ability to measure and manage profitability
Of the managers benchmarked, very few steer their businesses on the basis of profitability, as the proportion of them that can measure revenues per RM net of direct costs is very low. Only 7% of the top performers do so, while the global average stands even lower at 3%. According to BCG, the top performers aim for full transparency on cost to serve. This enables them to prioritise activities and investments on the basis of profitability. As a result of this, top performers achieve lower costs relative to assets and liabilities than average players.

Top players achieve lower costs

* BCG’s definition of wealth includes cash deposits, the net amount of listed securities held either directly or indirectly through managed funds, and life and pension assets.

** These managers are identified in a study comprising more than 200 managers and involving more than 1,000 data points concerning growth, financial performance, operating models, sales excellence, employee efficiency, client segments, products, and trends along a number of dimensions, including locations, markets, client domiciles, and different peer groups.