Key challenges for wealth managers
The wealth management industry is entering a new environment. For some years, it operated in a world of low interest rates and high yields. This made it relatively easy for firms to generate organic growth and for mergers and acquisitions to happen. All of this is changing.
The industry has seen a wave of consolidations — low interest rates have made it easy for businesses and investors to source debt and justify high valuations. During this process, organic growth was largely overlooked.
The increase in interest rates will change fundamental dynamics; firstly, wealth managers can no longer rely on asset appreciation alone to deliver growth. Secondly, high valuation (e.g., 16- and 17-times multiples) will need to be justified based on substance (i.e., strong organic growth and ability to create value). This is not to say that high valuations would not exist anymore — it just means that the industry will divide into those who can rightfully command it vs those who cannot.
Regulations present new challenges and opportunities too, with both consumer duty and environmental, social and governance (ESG) report requirements set to create higher standards that will ultimately favour scale and a new wave of consolidation. The opportunity for investors remains compelling, but this means that we are now entering a period of ‘survival of the fittest’ in the wealth management sector.
How we are helping clients
How can our clients become one of the “ultimate winners”? In our view, they can achieve this by being a high-quality wealth management business that creates value through three pillars: Commercial effectiveness, using the right technology to generate efficiency and creating more value from M&A.
“Wealth managers need to create good quality, and we know what quality looks like.”
— Bronswe Cheung, London, Partner
Wealth management has a reputation for being opaque, and this makes it hard to understand what a high-quality business looks like. That’s why we are embarking on an industry-wide benchmarking exercise to uncover best practices. This new insight explores how wealth managers handle their lead generation and marketing, manage productivity, optimise yield, and use technology — all activities with the power to create value.
This is a first step to give management teams the information and data they need. Wealth managers are good at analysing investments — they need to apply this same rigour to the management of their own businesses. We are the key to achieving this goal.
The year ahead
We will continue to focus on the ‘quality’ and ‘value creation’ agenda and work with our clients to deliver that.
More broadly, our ambition within the wealth management sector is to help our clients shape the industry agenda. With this in mind, we will build new capabilities and insights on topics such as ESG and wealthtech.
Few understand the sector as we do. We’ve been involved in multiple M&A transactions and we understand what investors are searching for. The industry needs a step change in sophistication, and we know how to provide it.