Technological and regulatory change combined with a clouded financial future keeps the financial services industry in general on its toes, but wealth managers in particular have to be nimble to keep up with these challenges.

That was the commentary on a webcast by financial analysts from New York-based Mercer this week.

“Wealth management firms face numerous challenges,” said David Hyman, Mercer’s U.S. wealth management segment leader. “By adopting a flexible framework, firms will find themselves in a more stable position and more competitive going forward. Establishing a game plan up front helps chart a more successful course for 2016 and going forward.”

Wealth managers must overcome three challenges, according to Hyman: Managing risk in a volatile investment environment, containing the cost of doing business in a shifting regulatory landscape, and attempting to enhance returns in a low-return environment.

Hyman said that the concern about risk management is driven by multiple factors, but the largest issue for advisors is the regulatory landscape. Mercer believes that the Department of Labor’s final version of the fiduciary rule will be released as soon as early March.

“Regulatory change dominates the agenda for wealth management firms around the world,” Hyman said. “We believe adherence to new regulations can be used to differentiate a wealth management business as more robust than the competition.”

The fiduciary rule is particularly onerous for U.S. wealth managers, Hyman said, because their clients are searching for enhanced returns through alternative products. As a result of the rule, regulatory scrutiny is going to increase on more complex investment products.

“We’re thinking about how wealth managers will streamline investment solutions going forward,” said Michael Curtin, a Mercer senior consultant in Europe. “The plethora of products on platforms has exploded. … Regulators are rushing wealth managers to explain the products.”

Firms should conduct investment and operational reviews and attempt to simplify their investment solutions when there is volatility, Curtin said, or adopt a two-tier process for due diligence on investment products—a streamlined process for simple products like index funds or ETFs, and a more detailed due diligence for complex or esoteric offerings.

Regulatory changes are also a major consideration as firms look to improve efficiency and contain costs.

“We’ve witnessed an impact from the shift from a transactional to a fee-based business,” Hyman said. “Full-service boutiques are on the rise, but multiple models are likely to survive in the environment of differing and changing client demand.”

Cost pressure is being driven in part by increased competition. As more advisors adapt to a fee-based business model, they also concentrate on the long-term profitability of their practices. Hyman said cost has driven much of the recent flurry of merger and acquisition activity among firms managing over $1 billion in assets.

“Some of these transactions are related to succession planning, but others were to control costs and to be able to grow in a more competitive landscape,” Hyman said.

Technology not only puts pressure on fees; it also provides wealth managers with an opportunity to drive down costs, Hyman said, giving larger firms an opportunity to provide objective advice to more clients.

Another important development in wealth management is that high-net-worth clients are warming to robo-advisors.

“Fifteen percent of the accounts at one national robo-advisor platform have more than $1 million invested,” Hyman said. “At another, one-third to one-half of the portfolios are larger than $1 million.”

While robo-advisors still lag the rest of the industry in total assets managed, Hyman noted that they have also experienced 200 percent growth in recent years.

Wealth managers should also come to terms with a global low-growth environment, said Hyman.

“It’s becoming more difficult for portfolios to meet their return objectives,” Hyman said. “Alternative and opportunistic strategies will play increasing roles in portfolios; they can not only provide different sources of returns and risks, but also more flexibility than traditional investments.”

The expectations for slower growth and changing central bank policy will drive continued market volatility.

Instead of looking at assets in terms of equities and fixed income and alternatives, classify them according to the roles they play within an overall portfolio: growth, risk reduction, income and inflation protection.

“The key differentiator is that this would be based on the goals or the needs of individuals rather than defining a specific risk tolerance or allocation benchmark,” Hyman said.

Wealthy investors will seek out more objective advice as a result of all these issues, and firms are following suit, said Hyman, “We’ve seen firms moving more of their book of business to fee only and away from commissions.”