Wealth managers ‘leave money on the table’ with UHNW focus

The wealth management industry is “leaving money on the table” by focusing only on ultra high net worth individuals (UHNW), according to research.

In a joint report released last week by Oliver Wyman and Morgan Stanley, the pair said that for more than a decade many wealth managers have focused on growing UHNW and high net worth clients, and did not prioritize less wealthy customers.

In doing so, they increasingly realize they are leaving money on the table in the lower segments, according to the report, which it says contains a potential revenue pool of $230 billion ($190 billion). pounds sterling).

“The lower HNW and affluent segments have been undervalued [by asset managers] and underinvested, which has limited value creation at the industry level.

“We believe the next decade will be about transforming into a scalable and modular wealth management proposition,” the report adds.

This transformation will see wealth managers make “premium” financial advice and investments available to a more diverse clientele, at a lower cost.

“Clients can choose different consulting modules, products and services to create their own customized solution.”

The key for wealth managers to ensure they participate in this trend is “meaningful change” and investment in technology, according to the report.

Companies leading the charge in adapting to this transition have invested a high single-digit percentage of their revenue in it and plan to sustain it for the next three to five years.

“For asset managers,” the report adds, “the wealth management channel is becoming increasingly important.

“We expect the affluent and retail client segment’s share of total assets under management to grow from 58% to 64% over the next five years.”

This presents a fundamental choice for asset managers to either partner and distribute through wealth managers, create digitally-focused captive wealth management distribution solutions, or establish open platforms suitable for this segment, he said.

A combination might work best for some, as each has advantages and disadvantages, but they all require a “wealth channel re-architecting” and operating model, according to the report.

The current economic uncertainty, with rising inflation and interest rates, as well as the war in Ukraine will contribute to a faster transformation of services and operating models due to increasing cost pressures.

Technology will also create an “increasingly critical” role in this process, which contains “substantial” opportunities and challenges for wealth and asset managers.

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Dolores W. Simon