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Wealth managers 'leaving money on the table' with UHNW focus

Wealth managers 'leaving money on the table' with UHNW focus
(Alaur Rahman/Pexels)

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

In a joint report released last week by Oliver Wyman and Morgan Stanley, the pair said for over a decade many wealth managers have put their growth focus on UHNW and higher high net worth clients, and have not prioritised less wealthy clients.

By doing so, they are increasingly realising that they are leaving money on the table in the lower segments, the report said, which it estimates contains a potential revenue pool of $230bn (£190bn).

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

“We believe the next decade will be about the transformation to a scalable and modular wealth management proposition,” the report added.

This transformation will see wealth managers making “superior” financial advice and investments accessible to a more diverse client base, costing less.

“Clients can pick and choose different modules of advice, products and services to create their own personalised, solution.”

The key for wealth managers in ensuring they partake in this trend is the “significant change” and investment in tech, the report said.

The firms that are leading the charge in adapting to this transition have been investing in a high single-digit percentage of their revenues in this, and are planning to maintain this for the next three to five years.

“For asset managers,” the report added, “the wealth management channel becomes ever more important.

“We expect the share of the wealth and retail client segment of total assets under management to grow from 58 per cent to 64 per cent in the next five years.”

This presents a fundamental choice for asset managers, either to partner and distribute through wealth managers, build captive digital-led wealth management distribution solutions, or establish open platforms geared towards this segment, it said.

A combination might work best for some, as each comes with benefits and drawbacks, but they all require “re-architecturing the wealth channel” and operating model, the report said.

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

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

sally.hickey@ft.com