NEW YORK--(BUSINESS WIRE)--Oliver Wyman and Deutsche Bank today released a new Wealth Management report titled “Dare to be Different”.
Kinner Lakhani, Head of European Financials Research at Deutsche Bank, said: “Wealth Managers have capitalized on strong wealth creation to drive positive operating jaws, despite ongoing structural headwinds. However, the business model remains highly cyclical, often underestimated by the market. As the cycle extends further, this will increasingly come into focus.”
Kai Upadek, Head of Wealth Management at Oliver Wyman, said: “Wealth Managers must act now to preserve their superior valuations by focusing on more strategic and structural changes to their value propositions and business models, both of which they have failed to address in recent years.”
Wealth Managers showed strong results in 2017 with global financial wealth growing by 7 percent, but tail risks continued to grow. Net interest income tailwinds from recent USD rate hikes provided some relief, but fee pressure remains high. Costs must remain a top priority, with the industry delivering weak operating jaws and while profitability remains highly sensitive to top-line performance.
The equity market correction and volatility spike in February 2018 may be an early indicator for the approaching end of the decade-long bull run in equity markets. Efforts to diversify revenue streams over the past decade will not provide sufficient protection against revenue declines in the next market downturn. In the short-term, all revenue components are still highly correlated to equity markets. Protecting mandate penetration is the single most important driver for Wealth Managers to preserve their economics in a market downturn.
The report identifies the following three priorities for Wealth Managers:
- Focus on key competencies - Differentiated value propositions and business models can achieve up to double pre-tax margins. Wealth Managers need to stand out through a differentiated and well-articulated value proposition by focusing on key competencies. So far, the industry has mostly followed the “broad waterfront” strategy of “offering everything, everywhere to everyone.” This strategy can only be successful for a select group of Wealth Managers who have the necessary scale to orchestrate a complex geographic, client and product footprint.
- Embrace data analytics to unlock revenue upside of up to 20 percent - Data analytics has not yet lived up to its potential. Wealth Managers need to overcome challenges to realize the full revenue opportunity. They need to build a foundation for advanced analytics either in-house or embrace third-party solutions to close the capability gap. Wealth Managers also need to embed data analytics into the organizational culture and day-to-day business processes, most notably the advisor desktop, to ensure acceptance by users.
- Adapting talent management to address emerging skill gaps for nearly half of the employees - Wealth Managers must treat the transformation of their workforce as a top priority. Firms need to expand learning and training efforts to upgrade existing employees’ skillsets, particularly related to rising data analytics demands. Wealth Managers must sharpen the talent value proposition to accommodate the preferences of new and transforming talent pools. Firms will need to seek external partnerships to tap into new talent pools beyond financial services to access the required skillsets, i.e. a shift from nurturing “farmer”-profiles to sales-driven “hunter”-profiles.
The entire report can be viewed online here.
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across nearly 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 4,700 professionals around the world who help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.
About Deutsche Bank
Deutsche Bank provides commercial and investment banking, retail banking, transaction banking and asset and wealth management products and services to corporations, governments, institutional investors, small and medium-sized businesses, and private individuals. Deutsche Bank is Germany’s leading bank, with a strong position in Europe and a significant presence in the Americas and Asia Pacific.