2024 trends in U.S. wealth management: Prepare for the unexpected
In the current business landscape, stability in the wealth and asset management industry demands a strategic approach that emphasizes forward-thinking initiatives. Firms must concentrate on pertinent and agile tactical maneuvers to ensure their business not only thrives but also distinguishes itself in a fiercely competitive environment. Relying on a high-level strategic plan from a few years ago is no longer a viable option.
In 2024, crafting a dynamic plan will become paramount. Wealth and asset management firms need a strategic plan that facilitates swift progress toward objectives and offers flexibility to address to disruptions. Wealth management capabilities and strategies should be like your car’s navigation system: adjustable when the conditions you’re facing suddenly shift.
M&A slowdown
Historically, robust mergers and acquisitions propelled growth in the wealth management sector. Opportunities to acquire or be acquired have been an integral component of client and revenue expansion. However, the landscape has evolved. Escalating interest rates have elevated capital costs and slowed M&A, prompting a shift in expectations and necessitating innovative approaches. Recent volatility in the stock market has further squeezed profit margins, intensifying the need for new strategies for wealth management firms.
In the future of wealth management, the key to success lies in meticulously examining the firm’s performance and competitive positioning as an independent entity. This may require delving deeper into data and insights than wealth management firms are accustomed (or that they’ve undertaken in quite some time).
Staffing is another major issue for wealth and asset management firms. They need to prioritize efforts to identify and develop employee capabilities to find and lock-in the right talent.
Additionally, wealth management firms need to integrate technologies that cater to clients and their overall business needs. Modern, integrated wealth and asset management tools should be at the forefront of your technology agenda.
While artificial intelligence and expanded process automation are strategic considerations, they cannot replace skilled individuals within your team. Capable professionals will remain indispensable, even as technology grows. Firms need to attract and retain skilled professionals to maintain stability and grow in the near term.
In essence, wealth and asset management firms need a comprehensive and adaptive approach to strategic planning, talent management and technological integration to position themselves for sustained success in the evolving business landscape.
Firms that have stronger staff recruitment and retention initiatives and strategically integrated technology will also be better at cultivating clients. In wealth management, staffing and technology priorities are inherently connected and crucial to sustained success. Recognizing and optimizing this synergy is paramount if firms are to navigate new wealth management trends and the increasingly competitive landscape.
The right people in the right roles
Firms should scrutinize their operational efficiencies to position themselves for organic growth. This involves meticulously examining your financial structure against the dynamic economic landscape and keeping a keen eye on operational costs.
To pursue enhanced efficiency, organizations must discern between fixed and variable costs. It’s essential to evaluate which tasks are suitable for in-house handling versus those that could be outsourced to third-party entities.
For instance, outsourcing CFO functions instead of maintaining a full-time position is a wealth management trend that warrants careful analysis. This principle extends to other critical domains, such as compliance, technology and human resources.
Strategic staff restructuring is a prudent move toward optimal resource allocation. Firms need to focus on pivotal infrastructure components, particularly in firms where wealth advisors are instrumental in revenue generation.
Firms need to critically discern between “nice-to-have” and “must-have” costs. Take marketing budgets, for example, which present a nuanced decision-making challenge. Trimming expenses such as conference and travel budgets may seem financially prudent, but it could mean missing opportunities to attract new clients.
To rank cost priorities, firms need to understand the strategic value each expense adds to the business overall. Efforts to create operational efficiencies must stay in alignment with essential business functions.
Technology integration and optimization
In the year ahead, firms need to maximize the functionality of their existing technology and infrastructure and prioritize optimization over new investments. Firms must leverage their current technological assets effectively to meet their business objectives.
A unified approach to technology is essential. All team members should operate on a cohesive system, possess a comprehensive understanding of the data they collect, and be adept at organizing and using it. Data proficiency for informed decision-making is a key competency that wealth management organizations must foster in their workforce.
Prospective hires, particularly from Gen Z, will ask about the technology platforms your wealth management firm uses, both internally and to present to clients. The quality and efficiency of your technology will significantly influence potential talent and their interest in joining your organization.
To attract the best and brightest individuals in this competitive market, wealth and asset firms need state-of-the-art technology. Conduct a thorough technology audit to determine whether your tech stack is performing in a cohesive and holistic manner. This evaluation will enhance operational efficiency and strengthen the firm’s appeal to top-tier talent who want a technologically advanced and forward-thinking work environment.
Client cultivation
To foster meaningful connections with clients and prospects, wealth management firms need to meet individuals where they are in terms of technological preferences and inclinations. Younger clients often seek greater access to a diverse array of digital information about their accounts and portfolios, particularly compared to baby boomers.
However, it would be a mistake to overlook the technological affinity of baby boomers, who increasingly rely on technology for communication, banking and shopping. Baby boomers also anticipate easy access and superior technology experiences from their wealth management firm.
Wealth management firms tend to put in insufficient effort into engaging and retaining the next generation of clients, particularly Gen Z. While some firms may decide the current net worth of Gen Z clients falls below traditional minimum thresholds, this perspective is short-sighted. Neglecting this emerging generation jeopardizes the chance to build valuable connections that secure the future of the business.
Firms that proactively build and nurture relationships with next-gen clients will be positioned favorably for future success, especially as these clients accumulate wealth over time, often at a faster pace than previous generations.
Successfully engaging with Gen Z requires a keen understanding of their desire for personalization in investment planning and a pronounced interest in socially responsible funds. Communication strategies that use terms like “financial wellness” or encourage a “financial health check” are likely to capture their interest.
Gen Z clients value transparent conversations about their financial stability and the construction and management of their investment portfolios. They seek education rather than a sales pitch, and they want to understand how advisors add value. Firms that adopt a forward-thinking mindset, embrace technology and foster robust connections with staff and clients will find themselves strategically positioned for success.
Understand your current position
As part of strategic positioning, assess your firm’s standing in the competitive landscape. If your firm lacks agility or flexibility, create a plan to strengthen those areas or to scale those abilities as you grow since growth can sometimes impede nimbleness.
Similarly, assess whether the firm is sufficiently sized to capitalize on opportunities that are available to larger organizations. Wealth management firms that expanded their service offerings, such as trust services, as they grew, retained more client business in-house because they were able to meet clients’ evolving needs. Recognizing your growth stage can help you avoid inheriting competitive disadvantages and empower you to widen your range of service lines.
In the upcoming year, wealth and asset management firms must maintain focus on multiple priorities —people, clients, operations and technology — to sustain resilience. With thoughtful and agile strategies, independent businesses in the wealth management sector can grow and thrive through change.
How Wipfli can help
No matter the challenges facing your wealth management firm, Wipfli’s team can help you meet them head-on. We have decades of experience serving wealth management firms and can assist you in everything from talent optimization and outsourcing to strategic planning and digital transformation. Contact us to learn more.
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