With so many high-profile financial meltdowns, mere existential angst among fund managers can pass unnoticed. Globally, retail assets fell 22 per cent last year, according to the Boston Consulting Group, with the US hardest hit. Falling markets were not solely responsible. Fed up with poor advice, clients rushed into low-cost exchange-traded funds or savings accounts. With operating margins at five-year lows, wealth managers – from buttoned-up Swiss bankers to swashbuckling US retail brokers – are having a quiet crisis.
Hence much lip service about greater “client-centricity” – especially in Switzerland, where pursuing volumes dented some private banks' reputation as guardians of client wealth. In the US, where commission-driven retail brokers led the mass affluent to their second round of substantial losses in a decade, the Treasury has now proposed brokers assume a fiduciary duty to put client interests first. That would divide brokerage from investment banking. It could also nudge the industry towards a “trusted adviser” model, with more transparent pricing based on assets under management rather than transactions – which clients say they want. This may have a silver lining for the sector. Scale is not the be all and end all, as the most profitable outfits have fewer clients per manager, a PwC survey suggests.
Yet the industry is seemingly heading the other way. In the US, deals have furthered concentration, creating three full-service brokerages – Bank of America, Morgan Stanley Smith Barney and Wells Fargo. The markets could force further change – even if the result is personal care for the truly wealthy and cut-price automation for the rest. Retail trading volumes dropped 60 per cent after the dotcom bust, points out Bernstein Research. If equity markets go sideways for the foreseeable future, coaxing clients from their low-margin boltholes will be harder still. That is enough to give any broker nausea.