Another challenge comes from the low-cost replicator funds. These tracker funds can generally match, or even outperform, many active funds' performance for a fraction of the fees. For wealth managers, this means a migration away from a stock-picking mentality to that of an asset allocation or overlay manager. Additionally, wealth management services already are following a pattern set by investment banking brokerage services: more and more of these services are being unbundled and, in the process, pricing is becoming far more transparent. As has been the case elsewhere in financial services, such transparency is leading to lower margins for low-value-added services. Unbundling also offers the ability to segment the market more effectively, competitively pricing basic services but charging premiums for services that are particularly high touch or in greater demand.
For wealth managers this is a significant challenge to where they add value, and we are seeing evidence of a shift to fee structures based on assets under management or managed money and away from transaction fees (a minority of the assets under management already accounts for a disproportionate amount of wealth managers' earnings). In the future we expect wealth managers to make serious efforts to discern where value is created, and where clients perceive—and are willing to pay for—that value. We believe this will result in the majority of accounts being shifted toward pricing based on assets under management while still incorporating some element of transactional pricing.
The Impact on Operating Models and Talent
Given the changes in wealth generation and the fund management industry in general, Accenture believes the operating model used by private banks and wealth managers for the past 20 years is increasingly unsuitable. Private banks have long wished to tie clients to the corporate brand rather than the individual relationship manager. But as long as the latter controlled access to clients, sold them products and helped them with strategic stock and fund selection, shifting from a personal to a corporate relationship was difficult, if not impossible. On the other hand, as clients demand an ever-broader range of products, there is the equally important need to expand business operations to maximize the opportunities presented by rising wealth levels. These demands, along with a potential shortage of professionals within the industry, are placing a considerable strain upon the scaling up of the traditional relationship and operating model.
Accenture believes client satisfaction will rest upon how a wealth manager implements a new business model to provide a broader stream of resources, including product-and-market experts from differing geographies, estate planners, experts in charitable giving and tax advisors. Indeed, we predict a major shift in the role and duties of the relationship manager. These professionals will increasingly move away from direct selling and investment selection and become more responsible for advice and strategic direction, drawing on the expertise of a wide range of outside advisors covering legal and trust issues to health-care solutions to alternative investments such as property or art. The result will be that relationship managers soon will have more in common with those who make asset allocations in the family offices of ultra-high-net-worth individuals than they do with stock-picking fund managers.