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How wealth and asset managers can build stability in 2023

Jan 09, 2023

Wealth and asset management firms have enjoyed healthy profit margins and tremendous revenue growth over the past decade. They have acquired, expanded and thrived. But times are changing.

In the spring, the financial markets shifted from stable and growing to volatile and uncertain, which negatively impacted profit margins and revenue streams. These factors — along with rising interest rates — have added to the slowing of mergers and acquisitions activity in the last quarter of 2022.

Instead of pursuing a hyperfocus on growth, firms have started shoring up their resources by tightening control over infrastructure, processes and financial discipline.

Why the swift reaction? Firms aren’t reading the numbers as short-term blips. This time, the industry didn’t hit a speedbump — it was redirected into new territory.

So, what’s next? The only certain thing about the year ahead is, well, uncertainty. To navigate this business environment, wealth and asset management firms need to build stability and resilience.

Luckily, there’s a silver lining. Chaos introduces opportunity. As history has proven, firms that build resilience during times of market uncertainty emerge more viable, more valuable and more transferable.

2023 wealth and asset management priorities

To prepare for the next growth cycle (or create your own), your wealth and asset management firm can focus on these six strategic priorities in 2023:

1. De-risk your organization

Wealth and asset management firms can lower risk on several fronts, from people management to cybersecurity and regulation. But the biggest risk is not having a plan.

Wealth and asset managers spend a tremendous amount of time planning for their clients but not enough time mapping out their own futures. When conditions change, you need to understand what’s within your control and how to respond.

To start, assess the current state of your revenue streams, talent, prospects, etc. Then, document where you want to go.

That will bring strategies and tactics into focus. Maybe you need to expand geographically or acquire another firm to add more service lines, such as taxes or estate planning. De-risking may not be growth focused. It could mean writing a succession plan or career pathing for your existing talent. Find your weak spots, then fill them.

2. Create a comprehensive people plan

If you don’t have plans to drive engagement and retention, your competitor might. It’s a tight labor market, and top performers have optionality.

Make sure that employees are acknowledged for their contributions, energized and incentivized.

People also need to know where the firm is heading. Employees who don’t understand their company’s vision (or how they fit into it) are more likely to leave. Embed people strategies, such as career pathing and succession planning, into your business strategies.

Don’t confuse succession plans with exit plans. If something happens to a key leader, your business should be able to operate with minimal disruption.

Keep an eye on future staffing needs too, not just today’s vacancies. What roles will you need to fill? And what will future (and younger) employees want? The next generation of workers will expect digital tools, processes and experiences. Employees are an important stakeholder in your digital transformation plans. Technology can supplement staffing needs and make work a better, more efficient experience.

Focus on roles that are core to the business. If it’s too difficult or costly to onboard talent that’s tangential to the business, consider outsourcing to build depth.

Environmental, social and governance (ESG) also has staffing implications (among others). Employees choose where to work. To attract candidates, clearly communicate the firm’s values, culture and social contributions.

3. Optimize existing technology

Technology plans are a must for wealth and asset management firms. But that doesn’t mean you should chase every shiny, new piece of wealth tech. Instead, try maximizing the tools you already have.

Are you using all of the features and capabilities your CRM offers? Across the entire client lifecycle? Are business and infrastructure processes running smoothly and efficiently?

It’s becoming easier and more efficient to interact with clients digitally. You absolutely need modern ways to work, attract people and build deeper relationships. Check your existing toolbox before you invest.

4. Practice financial discipline

Wealth and asset management performance is oftentimes directly tied to the financial markets. For a long time, that was good news. Now? Not so much. The negative returns during 2022 highlighted the importance of preparing financial projections for a variety of scenarios, as well as managing cash flow.

Defining key performance indicators and using a structured reporting and review process that compares budgeted to actual throughout the year allow firms to be agile and make tactical decisions to ensure that they are prepared to capitalize on opportunities as they develop.

Firm leadership needs to have a good handle on projected cash balances and commitments, as well as be proactive in reviewing contract terms and agreements and renegotiating them as necessary.

5. Manage and use data wisely

Every firm is collecting and storing data. The best firms use it and apply it. Instead of reporting on their business performance, they’re foretelling it.

Find new ways to compile and present the information you have. Can the data answer questions? Can it gather insights to make future decisions? Data should inform strategy across all areas of your business.

Can you really see into the future through spreadsheets and dashboards? No. But you should be able to set up dominoes and understand what happens when they fall. Be ready for several possibilities, such as rate increases and valuation drops. There’s little room for error, so all the what-ifs need to be figured out ahead of time.

Firms also have a responsibility to protect their client and business data. Cyberthreats are growing and becoming more costly (financially, operationally and reputationally). Good data management and governance includes a defensive posture against cybercriminals.

6. Educate your advisors

The industry is always evolving and changing. But two issues aren’t new enough for advisors to take a pass on: cryptocurrency and ESG. Like them or not, it’s not acceptable to be uninformed. Educated advisors have opinions and speak with clients about the pros and cons, as well as opportunities and threats.

Pay attention to emerging trends, too. Next-gen clients are more skeptical of financial advice. And women are underserved in investing, even though they’re a major economic and income driver.

Investments that have been solid for a decade might be ready for a shakeup. Stay informed and open to different investment strategies and tools, such as direct indexing and private credit.

Wipfli can help you jump on 2023’s biggest wealth and asset management trends

No matter your challenges, we can help you meet them head-on. We bring decades of experience serving wealth and asset management companies and can assist you in everything from talent optimization and succession planning to data analytics and ESG.

Contact us to learn more.

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Paul T. Lally
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Ronald S. Niemaszyk
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