Businessman crossroads concept choosing the right path as a man on a track and field sport track facing a difficult choice and dilemma with two different business directions as a metaphor for decision crisis
© lightwise / 123RF Stock Photo

Despite fierce industry competition, the wealth management business has been boosted by strong client demand and a rising stock market over the last decade. But operating costs are rising significantly, and margins are being squeezed; you can also expect an eventual slowdown in equity markets to dent your firm’s bottom line.

What to do to ensure continued success?

That question is addressed by Ian Russell, IIAC’s president and CEO, in his monthly industry letter.

First, the good news: investment assets have increased since the Great Recession, resulting in increased client demand for financial planning, estate and tax planning, and various accounts and investing techniques, says Russell. Client assets held by dealers vaulted 85% since 2009, reaching $1.6 billion last year, with a subsequent 50% increase in dealer retail revenue.

While wealth management’s outlook is generally regarded as positive, Russell says two negatives must be addressed by advisors and firms: rising operating costs and a potential drop in equity markets.

For example, operating costs are up 5% on average in the past five years and are accelerating. Costs will reach even higher levels as firms implement compliance requirements for CSA’s client reforms and embedded fees, says Russell. Tech will also add to firms’ bottom lines as they aim to capitalize on efficient ways to offer client services.

Russell also notes that a drop in equity markets would hurt firms’ income from fees, having a major impact on the wealth business.

To respond to these challenges, advisors and firms must increase their productivity. “Performance gains are key to generate sufficient revenue to keep ahead of rising costs and the eventual slowing in market momentum,” says Russell.

While gains have already been achieved in some areas (e.g., online client onboarding, office systems to manage trade orders), further gains can be gleaned in the effective, interactive provision of complex client services, such as comprehensive estate planning.

Delivering value-add benefits to clients will increase fee revenue and also increase business through referrals, says Russell.

For full details, read IIAC’s letter from the president.

Also read:

How to make the most of your support staff

Clients like you, they really like you—and that’s a problem

What it really means to put clients first

What happens when advisors use robos

The hidden value of financial planning