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The 2024 outlook for wealth management: Be prepared for the unexpected

Dec 12, 2023

In the current business landscape, building stability in the wealth management industry demands a strategic approach that emphasizes forward-thinking initiatives. It is imperative to concentrate on pertinent and agile tactical maneuvers, ensuring that your business not only thrives but also distinguishes itself in a fiercely competitive environment. Relying on a high-level strategic plan from just a few years ago is no longer a viable option.

For 2024, crafting a dynamic plan becomes paramount, one that facilitates swift progress toward your objectives while providing the flexibility to adapt to internal or external hurdles or disruptions, akin to the capabilities of your car’s navigation system that readjusts when the conditions you’re facing suddenly shift.

M&A slowdown

Historically, growth in the wealth management sector was propelled by a robust mergers and acquisitions market. However, the landscape has evolved. The opportunities to acquire another firm or to be acquired have been an integral component of client and revenue expansion. However, escalating interest rates have elevated capital costs and have caused an M&A slowdown, prompting a shift in expectations and necessitating innovative approaches. Recent volatility in the stock market has further squeezed profit margins, intensifying the need for alternative strategies among wealth management firms.

In 2024 and beyond, the key to success lies in a meticulous examination of firm performance and competitive positioning as an independent entity. This may necessitate delving deeper, which may not have been undertaken in quite some time. Prioritizing the identification and development of employees’ capabilities becomes crucial to ensuring the presence of the right talent. Additionally, integrating technology systems that cater to both clients and overall business needs should be at the forefront of your agenda.

While artificial intelligence and expanded process automation are strategic considerations, the current reality underscores the indispensability of skilled individuals within your team. The ability to attract and retain capable professionals is central to maintaining stability and achieving growth in the near term. In essence, a comprehensive and adaptive approach, encompassing strategic planning, talent management and technological integration will position your wealth management firm for sustained success in the evolving business landscape.

The efficacy of your staff recruitment and retention initiatives, intertwined with the strategic use of cutting-edge technological tools, significantly influences your client cultivation capabilities. In the realm of wealth management, these priorities are inherently interconnected and crucial for fostering sustained success. Recognizing and optimizing this synergy is paramount in navigating the competitive landscape and ensuring the continued growth and prosperity of your firm.

The right people in the right roles

Firms should be compelled to scrutinize their operational efficiencies to strategically position themselves for organic growth. This involves a meticulous examination of the financial structure against the backdrop of a dynamic economic landscape, with a keen focus on operational costs.

In the pursuit of enhanced efficiency, organizations must discern between fixed and variable costs. An essential consideration is the evaluation of tasks suitable for in-house handling versus those that could be outsourced to third-party entities.

For instance, the contemplation of outsourcing CFO functions instead of maintaining a full-time position warrants careful analysis. This principle extends to other critical domains, such as compliance, technology or human resources.

Strategic staff restructuring emerges as a prudent move in the pursuit of optimal resource allocation, directing focus towards pivotal infrastructure components, particularly wealth advisors who are instrumental in revenue generation.

Critical to this process is the discernment between “nice-to-have” and “must-have” costs. Take marketing budgets, for example, which present a nuanced decision-making challenge. While trimming expenses, such as conference and travel budgets may seem financially prudent, it necessitates a careful evaluation of the potential missed opportunities in attracting new clients.

In essence, the discernment of cost priorities requires a careful understanding of the strategic value each expense brings to the overall business objectives. By strategically aligning operational efficiencies with essential business functions, firms can position themselves for sustained organic growth in a dynamic economic environment.

Technology integration and optimization

In the year ahead, firms are expected to place a heightened emphasis on maximizing the full functionality of their existing technological infrastructure, prioritizing optimization over new investments. It is imperative for firms to help ensure that they are leveraging their current technological assets in the most effective manner to meet their business objectives.

A unified approach is essential, where all team members operate on a cohesive system, possess a comprehensive understanding of the data they collect, and are adept at organizing and using it. The proficient use of data for informed decision-making becomes a key competency that organizations must foster in their workforce.

In the recruitment landscape, particularly when targeting individuals from Gen Z, prospective hires will inquire about the technology platforms employed within the business, both internally and those presented to clients. The quality and efficiency of your communication technology infrastructure will significantly influence the interest of potential talent in joining your organization.

To attract the best and brightest individuals in the competitive market, it is essential to have state-of-the-art technology. Conducting a thorough technology assessment becomes indispensable to determine whether the various pieces of technology in use are performing in a cohesive and holistic manner. This evaluation not only enhances operational efficiency but also reinforces the firm’s appeal to top-tier talent seeking a technologically advanced and forward-thinking work environment.

Client cultivation

In order to foster meaningful connections with clients and prospects, wealth management firms need to meet individuals where they are in terms of their preferences and technological inclinations. Younger clients often seek greater access to a diverse array of digital information concerning their accounts and portfolios, in contrast with the preferences of many baby boomers.

However, it would be a mistake to overlook the technological affinity of baby boomers, who have increasingly come to rely on technology for communication, banking and shopping. Hence, they too anticipate a high level of access and a superior user experience within the technological framework provided by their chosen wealth management firm.

In addition, wealth management firms tend to put in insufficient effort to engage and retain the next generation of clients, particularly Gen Z. While some firms may explain that the current net worth of Gen Z clients falls below traditional minimum thresholds, such a perspective is myopic. Neglecting the outreach to this emerging generation jeopardizes the establishment of valuable connections that represent the future of the business.

Firms that proactively build and nurture relationships with next-gen clients position themselves favorably for future success, especially as the wealth of these clients accumulates over time, often at a faster pace than previous generations.

Successfully engaging with Gen Z entails a keen understanding of their desire for personalization in investment planning, coupled with a pronounced interest in socially responsible funds. Adjusting communication strategies, such as employing terms like “financial wellness” and conducting a “financial health check,” is crucial to capturing their interest.

Gen Z clients value transparent conversations about their journey to financial stability and the construction and management of their investment portfolios. They seek education rather than a sales pitch, aiming to comprehend the value derived from their advisor. Firms adopting a forward-thinking mindset, embracing technology and fostering robust connections with both staff and clients, position themselves strategically for business success amid evolving economic dynamics.

Understand your current position

As part of strategic positioning, assess your firm’s standing in the competitive landscape. Beyond historical growth, understanding your current position within the industry is critical. Questions regarding agility and flexibility should be addressed, as growth can sometimes impede nimbleness. Similarly, assessing whether the firm is sufficiently sized to capitalize on opportunities available to larger organizations is pivotal. Wealth management firms that expanded their service offerings, such as trust services, as they grew, retained more client business in-house to meet evolving needs. Recognizing your growth stage is crucial to avoiding a competitive disadvantage and widening your range of service lines.

In the upcoming year, maintaining focus on multiple priorities — your people, clients, operations and technology — is essential to sustain resilience and foster the continued growth of an independent business in the wealth management sector.

How Wipfli can help

No matter the challenges facing your wealth management firm, Wipfli’s team can help you meet them head-on. We bring decades of experience serving wealth management firms and can assist you in everything from talent optimization and outsourcing services to strategic planning and digital transformation. Contact us to learn more.

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Paul T. Lally
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