Changes that began to surface in the wealth management realm in 2008 are expected to be realized this year.
Aite Group offered that forecast in a new report, "Top 10 Wealth Management Trends in 2012." The Boston research firm said many of those trends impacting the industry this year will affect business models, profitability and investor requirements. As a result, credit unions and other financial institutions may have to quickly and frugally rethink the way they do business in order to be successful in a challenging market environment.
"For wealth management firms, 2012 is expected to be yet another year in which financial assets fail to show desired growth and investors have little appetite for risk-taking," said Alois Pirker, research director with Aite and co-author of the report.
The market's continued reshuffle is one trend that credit unions may see this year, according to Pirker. The shift began in 2008 with the acquisitions and mergers among several of the largest brokerage firms such as Merrill Lynch and Wachovia Securities, and Morgan Stanley and Smith Barney. Given that these four firms represented around one-third of brokerage and advisory assets in the United States, a major portion of the wealth management market has been in transition ever since.
Financial advisers will have more opportunities to align with independent brokerage firms. Those that have built large books of business may go the independent route, Pirker said.
"Whatever the direction these sought-after advisers will take, the industry could see another spike in breakaway activity in 2012, should those advisers who indicated their interest in leaving their current employer go through with their plans," Pirker said.
Another trend is profitability pressure. Pirker said while wealth management has indeed gained importance at many financial services firms, low levels of client activity and depressed asset levels have made the running of a wealth management business difficult in recent times. In addition to the challenges on the revenue side, the changes in regulations and client behavior have required firms to invest significantly and to reinvent their business model.
Investment programs at credit unions can also expect to see the impact of year-long efforts made by banks to deepen relationships with affluent clients, which are defined as those with $3 million to more than $10 million in assets.
Holistic and multigenerational advice along with new investments in online and mobile platforms targeted at these high net worth clients will become even more central, according to Sophie Schmitt, an Aite research director and a co-author of the wealth management report.
"The challenge for banks will be to balance making the necessary investments to capture investment assets while still meeting profit goals," Schmitt said. "Ultimately, banks are going after the wealth management business to recover revenue on the retail banking side that was lost following the Durbin amendment and implementation of the checking account overdraft rules."
Credit unions could capture another opportunity to build their presence if Aite's trend of changes in the wealth management model comes to pass in 2012. Schmitt said shifts in investor behavior, efforts by large financial services to grow organically through cross-selling and a focus on profitability may reshape pricing and delivery systems.
Enhanced online trading and reporting capabilities are another trend expected this year as large brokerage firms seek out strategies to avoid losing wealthy investors to online brokerage firms, according to Schmitt.
The trend of a "less-than-ideal investment climate" has caused a disconnect between what investors want and what traditional wealth management firms offer has caused investors to shift their attention to specialty firms offering gold investment, said Javier Paz, an Aite senior analyst who also contributed to the firm's wealth management report.
"Many of America's wealthier investors use gold and bond holdings to hedge their overall portfolio while turning to speculative trades online in search of an attractive return," Paz said. "Holding gold investments is a rational choice if the investor suspects financial system turbulence ahead."
Aite is anticipating that this will be the year when copy trading will make serious inroads into retail investing. Paz said through this channel investors can keep the investable funds in a brokerage account under their name and off the service. They can also select pre-vetted trader experts to follow similar to how a mutual fund is selected as well as copy trades placed by that person through trade replication technology.
More mass affluent retirement initiatives may also roll out in 2012. This ties in with the 77 million baby boomers that will turn 65 from January 2011 through 2029, said Greg Cherry, Aite senior analyst and a co-author of the report, citing AARP data. To meet their needs, discovery, goal setting and budgetary tools, and healthcare coverage modules are expected to have a heavier focus.
Credit unions and other financial institutions can also expect to see financial advisers taking more control over their practices this year. Cherry said as the managed account industry has evolved, the dominance once held by wire house firms have been encroached on. As a result, advisers who have been provided with better managed account platforms have proven they can generate additional revenue through overlay fees.
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