COVID-19 has had a lasting impact on every sector. The changes imposed by the pandemic and subsequent lockdown have impacted our health, our personal and professional lives, creating unprecedented disruption for businesses of all shapes and sizes. As countries tentatively emerge, almost every firm is recalibrating their strategy, resizing – not necessarily downsizing – and preserving capital to adapt to the new world.
No-one knows exactly what happens next. Yet leaders are still expected to know the right next move for their firm, and for their clients. The right strategy will play a significant role for businesses as they reinvent themselves to reflect changes in demand and customer behaviour.
But where to start – and how to set the right direction?
The impact of COVID-19 on the wealth management industry has not been as acute as some industries. Wealth management is arguably in an enviable position, in that most firms have an element of annuitized income – in some cases up to 85% or 90%. (Some may even tell you 100%, although if they do, we respectfully demur.)
Clearly as markets fall, so do fees as a percentage of AUM, which against costs that are largely fixed, means an immediate impact on profit margins. Firms that have outsourced more have fared slightly better, as the cost associated to the outsourced provider rise and fall with the value of assets.
In Q1, as markets fell, some investors took the opportunity to put more money to work that was previously sitting in cash. This activity, be it into discretionary mandates attracting additional fee income, or commission earned from advisory or execution only transactions, has helped offset the lower fees earned because of the market fall.
Those clients who invested in equities at the bottom of the market in March have seen around a 25-30% increase to date, which in turn has expanded assets under management to an extent. Many commentators are forecasting markets falling to lower levels than they are at today as the global economy drops into an inevitable recession but for the time being markets have bucked the expected trend. Whether the longer term recovery is V, W or U-shaped, staying invested in a diversified portfolio, with a long-term investment plan and realistic expectations must still be the right approach for most clients. It is safe to say that the services of wealth managers are still needed by just as many people if not more going forward…
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