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How resilient is your wealth and asset management business?

Feb 05, 2023

Recent stock market volatility and economic uncertainty are requiring wealth and asset management firms to reexamine business priorities.

It may be time for financial teams to pivot from the growth mindset they’ve had for at least a decade to a focus on business stability and conservation. All in all, it’s an unfamiliar place to be, and the shifting environment may be disconcerting for your organization.

Even relatively small costs such as client meals and entertainment and large, fixed costs such as payroll and office space are coming under greater scrutiny. And while a closer examination of spending is necessary, it’s hardly sufficient to ensure resiliency through this unpredictable period.

The need for a strategy

After years of plotting a course with the goals of increasing revenue, gaining more clients and pursuing business acquisitions, what most wealth and asset management firms lack is (simply put) a strategy that incorporates detailed business financial data in their planning.

With a greater emphasis on the need for stability and viability, the urgency to have an actionable plan that uses current financials has never been greater.

Here are some critical points to look for when assessing the resiliency of a wealth and asset management firm:

  • Know your burn rate: Do you know how much cash your firm goes through a month and whether that level is sustainable given current revenue? Can you weather a bad storm for three months? Six months? Or prolonged market volatility?
  • Use data to drive financial decisions: To determine where to add, invest or cut costs, are you looking at the correct and most current and relevant key financial data for your firm to take an informed action with major consequences for your operations? Wealth and asset management firms typically have great data on their clients and their clients’ financials, but less than optimal data on the business of the firm, nor deep knowledge of how to use the data they do have effectively.
  • Determine which roles (or pieces of roles) can be outsourced: It’s not uncommon that within wealth and asset management firms, officers and other staff often wear multiple hats (e.g., combined CEO an CFO; combined CFO and controller), but this kind of multifunctioning may not serve your organization well, as you miss out on the benefits of a specialist with deep experience in the strategic components you need, especially in times of financial stress.
  • Understand how reactive talent decisions can derail your operations: During a business downturn, it’s tempting to think first about staff reductions to save money. But when conditions rebound, you’ll be scrambling to ramp up again. Outsourcing work throughout the organization allows you to spend money on the specific projects or cost centers that you identify as priorities, without the overhead (whether it’s financials, IT, HR or marketing). You retain the ability to scale up or down as conditions change, with minimal disruption to the overall balance sheet.
  • Don’t overlook operational inefficiencies: Addressing your firm’s technology needs to serve clients optimally does not mean your internal systems are where they should be. It’s easy for your underlying tech systems to fall behind when it comes to important upgrades. Inadequate attention to the backend of your processes can lead to both higher costs and inefficiencies over the long run.
  • Examine your risk management practices: Cyberattacks, third-party improprieties, unexpected leadership and staff departures are all potential risks for your organization. You need safeguards and contingency plans to limit the harm from unforeseen events affecting your business.

Developing a thoughtful, multipronged plan for resiliency will provide knowledge and confidence to help your firm weather any market conditions. It will also enable you to emerge on top of your game when the inevitable rebound occurs.

Learn more in this webinar about the challenges financial services firms are facing in building stability.

How Wipfli can help

Business resiliency doesn’t happen accidentally. A proactive, strategic approach is the only way to make sure your wealth and asset management business can withstand and thrive though uncertainty.

Wipfli specialists have the skills and experience to assess your current vulnerabilities and chart a sustainable path. Contact us to learn more.

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Paul T. Lally
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Christina Klein Trapp, CPA, MST
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How to create financial confidence
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