Wealth Management Trends: Fee Compression, Automation, Outsourcing

Recent wealth management trends show the future is bright for the wealth management industry, but they also reveal roadblocks that can impede growth.

Firms, therefore, should think about how they will take advantage of opportunities and protect themselves from the threats.

5 Wealth Management Trends

Rising Global Wealth

Despite the bad news we often see in mainstream and social media, good things are happening in this world.

From a financial standpoint, the good news includes the global poverty rate hitting a record low, while more people are becoming rich.

  • A record number of Americans are now millionaires (11 million).
  • A record number of women rank among the world’s richest.
  • There are more billionaires than ever before (2,754 people).
  • Asia produced an average of 2,000 new millionaires every day in 2017, per Capgemini SE.

The rising number of wealthy individuals and families means more potential business for wealth managers.

In addition, crazy fast growth in Asia is resulting in a shortage of wealth managing talent in financial hubs like Hong Kong and Singapore, where wealth managers could see a 30% pay increase by switching firms.

Therein lies opportunity in Asia for firms to help serve a growing market where the demand for talent can’t keep the pace. Firms that understand the clients’ needs and offer the right products and services, while successfully  navigating the regulatory and cultural environments, will win big.

More Advisory Firms, Fewer Winners

There are now 12,578 SEC-registered advisors, up 3.3% from last year, according to the annual Investment Adviser Association poll.

However, “disproportionately few” wealth managers will reap the full benefits, as one of our recent blog posts highlighted.

Wealth managers must stand out from the competition by increasing their marketing and networking efforts while developing cost and competitive advantages. The marketing strategy should include targeting the younger demographic, in an effort to replace eventual departures of the older clientele.

Fee Compression

A TD Ameritrade report stated that RIA operating profit margins fell to 20% in 2017, compared to 24% in 2016.

A McKinsey report also pointed out additional threats:

  • Declining fees
  • Decreasing revenues per advisor
  • Fewer commissionable equity trades per advisor
  • Fewer new clients per advisor

Rising compliance costs eat into the margins further, complicated by regulations like GDPR, MiFID, and SFTR. A WealthManagement poll surveyed roughly 65 compliance professionals at broker-dealers and RIAs, and the respondents said their compliance budgets have increased by an average of 9%.

Robotic Process Automation (RPA)

Robots don’t have to be seen as a threat; rather, they can complement wealth managers in serving their clients.

RPA systems can automate client servicing and reporting tasks, and it can allow for time to focus on more human-required tasks like financial planning strategies and personal calls or meetings with clients.

RPAs can be especially helpful in back-office reconciliation reporting, promoting higher reporting accuracy and quicker completion.

There will be an initial startup investment, but the cost savings thereafter are not insignificant. KPMG says robotic process automation can cuts costs for financial services firms by up to 75%.


The Financial Times reported that more wealth managers are looking to outsource in an effort to cut costs, mentioning that wealth management middle-tier firms are especially struggling to control expenses.

Rising operations and compliance costs have therefore prompted firms to outsource compliance and their back-office functions.

In addition to the lower costs, there are other benefits of outsourcing:

  • Reduced operational risk (less employee turnover, fewer reporting errors)
  • Increased efficiency (quicker turnaround time for tasks,
  • Scalability (add and remove staff as needed to match the workload)
  • Leveraged technology (RPA implementation; portfolio accounting software management)

Outsourcing allows firms to focus on what they know and do best.

Andrew Waldren, the chief operating officer of multi-family office Sandaire, said, “Outsourcing allows wealth managers to spend more time focusing on their core competencies.”

The Next Step for Wealth Managers

The recent wealth management trends show opportunities and challenges facing the industry, and while the stats may be interesting, firms must look at the trends to develop a strategy.

Rising wealth might translate to more clients and revenue, but not all firms will benefit from the growing pie, unless they take the right measure to stand out from their competitors.

The threat of fee compression requires a serious look at areas to cut costs, and solutions like RPA and outsourcing may help.

The future is bright for wealth managers; they just have to prepare and position themselves accordingly.


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