BCG: Small Advisors Face Big Challenges

Wealth managers face a very challenging future, particular smaller advisors that will need to deliver more personalized services while charging lower fees, according to the Boston Consulting Group (BCG).

That is a major takeaway from a report, Global Wealth 2020, recently released by BCG, a global wealth management consulting firm founded in 1963 that now has 85 offices in 48 countries. BCG has released a global wealth report every year for the last 20 years, and this year’s report included predictions on how the industry will change over the next 20.

The report also includes a look at how global wealth and the number of millionaires has increased dramatically during the decade-long bull market. It also predicts that the wealthy will pay a high price as a result of the pandemic because of their greater exposure to equities and market volatility.

But what will be most interesting to financial advisors is the report’s analysis of the current state of the wealth management industry and how firms will need to evolve in order to thrive from now until 2040. Most wealth managers have not done enough to position themselves to remain relevant to clients in the years to come, BCG finds.

I spoke with the report’s lead author, Anna Zakrzewski, a BCG managing director and partner based in Zurich, to get more insight on the findings.

Wealth managers today

Whether the economy sees a quick rebound, slow recovery or lasting damage from the COVID-19 pandemic, wealth managers globally will face more pressure for several reasons, the BCG report says. One is that asset-based fees, which are more vulnerable to market declines, make up a higher percentage of income than in the past – 45% in 2018 versus 30% in 2013. Also, more wealth managers are operating in the red (9% when 2020 started versus 5% in 2007) and many have higher cost-to-income ratios than when the 2008 financial crisis hit (77% in 2018 versus 60% in 2007).