The Wealth Management Whine: The wealth management industry is on the eve of a major consolidation. Are the woes self-inflicted?

July 15, 2013, 5:36 P.M. ET

The Wealth Management Whine

By Robert Milburn

Steven Crosby, senior managing director at PricewaterhouseCoopers, predicts a five-fold, global increase in mergers and acquisitions in the wealth industry – during just the next two years. In Europe, meanwhile, he’s expecting a ten-fold increase in mergers among wealth management firms.

Crosby’s startling call is largely determined by the raw data found buried in PwC’s 2013 Global Private Banking and Wealth Management Survey. The PwC survey, now in its 20th edition, is drawn from interviews with senior banking executives. A third of the survey’s 200-plus participating wealth management companies expect “significant consolidation” in the next two years, versus just 7% in 2011.It’s the new regulatory environment that is responsible for a lot of the contraction, Crosby says. “In the old days, it was regulation like Sarbanes Oxley, and we would say, ‘We have to deal with it and it’s going to be a mess but we’ll get through it.’” What is going on now, is entirely different, he insists.  “Now you have cascading waves of regulation that don’t seem to end.” Examples: The specifics of the Volcker rule, which would ban proprietary trading at banks, are still up in the air; Obamacare, which will have knock-on effects in the wealth industry, seems to move one step forward before taking three steps back.

So managers are having trouble staying on top of the constantly evolving rules. “It’s hard to design a business and be compliant when you have to hire lobbyists, and watch the Code of Federal Regulations like a hawk,” says Crosby. The latest consolidation wave will start when smaller and weaker wealth managers acknowledge they can no longer keep up with the changing landscape, and the larger and financially stronger shops move in to vacuum up the weaker players, bulking up to afford the IT and other investments needed to comply with the new rules.

But let’s be honest. It’s typical of Wall Street to blame regulators for problems of their own doing. In Europe, for example, decades of badly-executed political and economic union, papering over banking-sector weakness and high-handed treatment of customers, are surely the more important causes for the coming wealth-management consolidation.

But any added time spent complying with regulation, does, logically, take face-time away from a firm’s clients, and that in turn does increase the chances of further client disaffection. Crosby does have a point there, and it’s a problem compounded by the fact wealthy individuals these days expect much more than just a bit of investment and asset allocation advice. The successful wealth managers today must also be able to offer services like family business succession planning, efficient wealth transfer strategies via trusts, and legacy securing services that might range from philanthropic advice to educating second-generation heirs about the responsibilities of affluence.

All while the aging matriarch and patriarch are looking over the wealth manager’s shoulder. Being “80 is the new 60,” Crosby notes, “and advisors need to be aware of the challenges associated with extended retirement.” Effective advisors must shift from a one-bucket model, of save and invest, to a multi-bucket portfolio that can provide cash flow for significant medical expenses, save for a grandkid’s college, and fund private charitable foundations – over a longer time frame.

Neither can old fashioned loyalty and inertia be relied on to keep a client’s assets in-house.  PwC noticed that increased input from heirs and spouses – those pesky interlopers! –are breaking clients free from their past banking relationships. The survey asked participants to rank the top reasons clients leave their organization; “a decision to change by next generations” newly came in as the third reason for the loss of business. The first reasons cited were the more typical “change in personal circumstances” and “poor investment performance.”

PwC also found only 8% of the survey’s respondents consider the spouse when advising their client and his (usually) assets. Big mistake, folks. “Women tend to outlive their male partners,” the survey notes, “and stand to gain control of wealth through not only their own efforts but also through inheritance and divorce.” The effectiveness at bringing heirs and spouses into the fold, Crosby says, increases the chance the wealth manager will hold on to the assets. For more on patronizing bankers who diss the “little woman” only to find the widowed client bolt for a banker who respects their intelligence and input, we suggest you check out Penta “In Praise of Housewife Economics.”

While Crosby believes technology will help solve some of these issues, with client data analysis available in real time, he also thinks the more successful wealth managers will understand the importance of the “total family relationship” – and learn how to articulate wealth strategies well beyond the formulaic platitudes and clichés. But, for right now, it’s a pity-fest. “We think being a successful wealth manager is harder than it’s ever been before,” says Crosby.

Perhaps so, but our conversations with clients over the years suggests that a lot of the industry’s current hardships were directly brought on by the wealth managers themselves. It’s simple really – treat clients like chattel, and they will eventually trample you on their way out the door.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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