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The Actuary The magazine of the Institute & Faculty of Actuaries

Challenges in European wealth management

Adjusting to an ageing investor population and slow stockmarket growth will be the two most important factors driving the success or failure of European wealth managers over the next five years, according to a report out recently from Mercer Oliver Wyman (may be requested from www.merceroliverwyman.com).

The report, Wealth Management: Strategies for Success, was based on research conducted among over 50 wealth managers serving all the main European countries and with clients that have investable assets of €300,000 or more. The findings reveal that wealth managers are significantly overestimating potential for growth in the market. Mercer Oliver Wyman predicts that the market will grow by an average of 7% pa over the next five years, yet wealth managers continue to believe that 10% to 15% growth will be achievable.

Market growth will be hampered by population demographics and low economic growth. The ageing population is likely to increase its allocation to safer, lower-margin investments, such as fixed income, which will lower traditional wealth management revenues for all but a few players with strong structured derivatives capabilities.

Another key issue facing wealth managers is the need for greater focus on customer relationship management (CRM). According to the report, wealth managers expect 30% of new assets over the next five years to come from existing clients, a number which jumps to 55% if clients of a parent bank are included. Despite this, only one-third of those polled has made any significant investment in CRM to understand their clients’ needs and maximise the value of existing clients. What’s more, most wealth managers conservatively estimate up to 20% of their client base to be unprofitable, yet have few systems in place to tackle this.