Industry report recommends several imperatives as outlook sees HNW wealth shedding US$3.1 trillion in 2020
The past decade has been smooth sailing for wealth firms around the world, particularly those catering to high-net-worth (HNW) clients who benefited from a record bull run in financial markets. But as that tailwind dissipates in the face of the coronavirus, a new report from Oliver Wyman is recommending that the industry face the new post-COVID reality.
“Our base case sees global high net worth (HNW) wealth lose more than a year of growth versus pre-Covid-19 forecasts before rebounding to growth in 2021,” the management consulting firm said in its report prepared in partnership with Morgan Stanley.
Against a backdrop of global economic uncertainty, the report projected a 4% decline in global HNW wealth, which would amount to a US$3.1-trillion loss in 2020. Given that weak outlook, the paper identified several courses of action for wealth managers.
“Wealth managers must move quickly to design an omni-channel advice delivery model and accelerate their digitization efforts,” the report said. Estimating a seven- to tenfold increase in digital engagement across leading wealth managers since the pandemic’s onset, it said the ideal advice delivery framework of the future must keep relationship managers central to client relationships, with added support from strong digital capabilities.
The paper also urged wealth managers to improve their cost-management approaches, particularly as their bottom lines get challenged by diminished growth and pressure on revenue margins. It estimated that average cost-income ratios across the industry can be trimmed by up to 12 percentage points through a focus on short-term tactical cost cuts, streamlining of group service delivery over the short to medium term, and transformation of operating models and associated IT infrastructure during the medium term.
“Although these [operating model] transformations have the potential to deliver significant CIR improvement, they are a complex undertaking for any player and can introduce significant risk,” the report noted.
Finally, it said that wealth firms that can act from a position of strength should take steps to consolidate share and increase growth. That includes developing differentiated propositions focused on four key priorities:
- Sustainable investment offerings to attract a younger client segment;
- Private-market assets, particularly for those looking to recapture ultra-HNW wallet share lost to disintermediation over previous years;
- Adding protection offerings like life insurance, health insurance, and P&C insurance; and
- Developing digital-assets offerings to attract a potentially high-value client segment.
“Management teams should have a renewed look at inorganic growth opportunities,” the report added, noting how the coronavirus crisis has strained the outlook for organic growth and repriced some potentially interesting targets for mergers, acquisitions, and strategic partnerships.