Wealth managers must stop offering clients unnecessary fee breaks and invest in advanced analytics to boost revenue because the industry faces a "complete transformation" in coming years, a study found.
Private bankers generally charge one in three customers fees that are below what they could be because they're worried about losing business, according to a
report Thursday by the Boston Consulting Group. Yet most clients aren't even fully aware of the fees they pay and focus on the level of personalized service they get when deciding whether to switch firms, the report found.
Private banks, which for decades relied mainly on the personal interaction of clients and their relationship managers, must leverage client data and advanced analytics to set themselves apart,
the study argues. While the industry has benefited from a surge in global wealth since the financial crisis, increasing competition and the rise of low-cost, passive investing are putting pressure on margins.
"The stakes for wealth managers can be enormous," Anna Zakrzewski, one of the study's authors, said in an interview. "We expect leading firms to further separate themselves from the pack over the next few years, a gap that will be increasingly difficult for slow-moving players to close."
Data, Analytics
More than 70% of wealth-management clients see highly personalized service as key in deciding whether to switch firms, according to the study. By using data and analytics to better provide individualized products and pricing, companies could see top-line growth of as much as 30% and efficiency gains of as much as 15%, BCG said.
Fees, by contrast, aren't as sensitive a topic for clients as many wealth managers think. About nine out of 10 customers aren't fully aware of what they pay, and while they appreciate fee reductions as a gesture, often don't remember the details, the study found.
The findings are supported by data gathered from more than 150 wealth managers, showing the most profitable firms are growing their top line at a significantly faster pace than peers on average, and are seeing higher returns relative to their assets. That suggests revenue growth, rather than cost cutting, is the key driver of profitability, according to the report.
(More: Should asset-based pricing models stay or go?)
