The bigger they get, the slower they grow.
The law of diminishing returns seems to have kicked in with a vengeance for the largest wealth management firms, according to a piece from Financial Advisor IQ. Citing a survey conducted by Barron’s, the article reported that the top 40 firms that handle accounts worth US$5 million or more managed a meager 2.6% growth last year.
The pop followed double-digit annual booms experienced from 2011 to 2014, which included a surge of 15.7% in 2014, according to the report.
Barron’s also wrote that the top 10 largest firms in the segment currently manage 81.8% of all the firms in the top 40 list. Many factors could account for asset growth, but the publication said that by all indications, wealthy clients are transferring their assets to the biggest firms.
The tight relationships that such clients typically have with their wealth managers should allow the “leaderboard” to remain as is for at least a generation, according to Charles “Chip” Roame, managing partner at Tiburon Strategic Advisors.
The lower ranks have been experiencing some movement, however, with First Republic Bank climbing six spots to number 21, partly due to acquisitions such as its purchase of Constellation Wealth Partners worth US$6.7 billion. Stifel Financial, which acquired the US wealth management arm of Barclays in 2015, entered the top 40 at number 19.
Barron’s also wrote that the number of clients served by these firms have been surging at unprecedented rates. Citing data from Boston Consulting Group, the study reports over a million households had more than US$5 million in liquid assets in 2015 – a historical first representing a 5% jump from 2014.
Boston Consulting Group data also showed that the merely wealthy group, which consists of households with US$1 million to US$5 million in liquid assets, saw a significant 42% swell, growing from 4.8 million in 2010 to 6.8 million strong in 2015.
Identity theft a growing concern among high-net-worth investors
Tumbling Turkish ETF draws controversy