“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.