Forget robo-advisers, it’s superhumans that are needed
In 2003, the average number of high net-worth clients per relationship manager or financial adviser in the US was 170 – today, that figure is expected to be about 280, with advisers regularly claiming to know someone who knows someone who has at least 500.
Even 280 seems over the top. The adviser would have to meet with more than one client every working day in order to make sure he or she caught up with everyone each year.
For advisers, who may be enjoying the highest salaries they have seen in some time, things are not going to ease up. They are now referred to by their seniors as ‘producers’ – and it is production that their employers are focused on for obvious reasons.
According to Boston Consulting Group’s latest world wealth report, pre-tax margins have dropped across the wealth management industry globally from 33 basis points in 2007 to 22.4bp last year.
Clients have been demanding lower fees – assets-under-management fees typically come in at about 59bp rather than 1% – and now that regulation is pushing fee transparency, clients are opting out of some services to save money. As budget-hunting, tech-savvy millennials come into wealth, that pressure is only going to increase.
It has forced wealth managers to be lean. They have done a good job of cutting costs to compensate for revenues heading south. Technology improvements seemed to come at just the right time. Centralized asset allocation frees up advisers, as do improved customer relationship management tools, data analytics, reporting, automated questionnaires and mobile/online banking.
But revenues are not going to pick up. Investor protection and regulation, competition in the form of cheaper robo-advisory platforms and the move towards passive investments mean that the days of 80bp to 100bp returns on assets are long gone – 60bp is the new norm.
So, the only thing left for wealth management companies to do is to make their advisers more productive.
How do they do that? By giving them more clients to take care of.
It goes against the very idea of private banking – that clients receive a white-glove service. How well can your adviser be taking care of you when he or she has 499 other ‘yous’ to tend to?
The annual salaries for the top producers in wealth management could top $500,000 over the next decade, says BCG, but that requires them to raise their current productivity from $1.8 million to $3 million each.
Only superhuman advisers need apply.