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Cara Williams, global head of wealth management at Mercer

Mercer identifies 10 priorities Wealth Management firms should consider in 2015


Mercer has identified 10 priorities that wealth management advisors should consider to best serve their clients in 2015, and to help them stand out in an increasingly competitive environment.

“There are three sets of challenges that we find are common to wealth management firms competing in today’s environment,” says Cara Williams (pictured), Senior Partner and the Global Head of Mercer Investments' Wealth Management business and Global Technology Solutions. “These are strategies to improve investment results in a low-return environment, strategies to reduce risk, and strategies to contain costs. Our recommended top 10 priorities for wealth management firms to address in 2015 are organised along these lines.”

1. Position portfolios for growth in a low-growth environment 

Rates are at, or near, historic lows and the US is more than five years into a bull market in equities. Assume returns in both equities and fixed income in 2015 will be below recent levels. In this environment, advisors ought to look beyond the traditional and consider less constrained funds or those with longer term perspectives.

2. Determine if alternative investment strategies are appropriate for a broader group of clients

Alternative investments are being “democratised” and are no longer exclusively available to the wealthiest investors or most sophisticated institutions. Evaluate how alternatives can be integrated into the client’s investment strategy to reduce risk, enhance returns, or otherwise improve the likelihood of realising investment objectives. In some cases, there may be a “liquid” alternative strategy that will help meet client investment objectives, and in other cases clients may benefit from the illiquidity premium expected of other alternative strategies.

3. Consider impact and socially aware investing as part of portfolio design

Investment that considers sustainability isn’t about changing the world — it is about how the world is changing. Wealth management firms have an opportunity to distinguish their offering by integrating environmental, social, and governance (ESG) factors into their investment process and products

4. Adopting a client communication technology strategy

Disruptive technology is transforming the wealth management industry and we expect the pace of change to accelerate with increased use of cloud computing, applications, social media and mobile (CASM). Communication and direct access to portfolio information is frequently cited by clients as their main frustration. Wealth providers can significantly enhance client satisfaction and better manage fixed costs with the adoption of smart technology but this will require investment to stay ahead of the competition.   

5. Review the resources required to deliver value to clients and resolve the “build versus buy” question

Rapidly changing markets, technology, the regulatory environment, and competitive pressures have shattered the economics of the traditional wealth management business. To survive, thrive, and best serve the needs and interests of their clients, wealth managers need to review the core skills that provide them with a competitive advantage, and evaluate which resources are best sourced internally versus through an external partner, consultant, or other vendor. Wealth managers that are able to effectively assess the evolving requirements, how best to allocate resources and focus on serving their clients will succeed.

6. Conduct investment and operational product risk assessments

Product and portfolio risk, from both an investment and operational perspective, is increasingly important and should be fully integrated into the investment process.  A full understanding of the products that clients are investing in is essential.  Furthermore, risk assessments at the firm level can help to mitigate losses. When wealth management firms select an investment manager that subsequently underperforms its benchmark, losses are limited to the spread between actual results and that of the benchmark. When a manager is selected that subsequently suffers a profound operational failure or fraud, the loss to the firm and its clients is much more profound. Yet few wealth managers invest the same care in operational due diligence as they do in investment due diligence. Take the necessary steps to protect the firm and its clients from operational failures.

7. Beware rear view product risk assessments

Many industry models that assess product risk are backward looking in nature and overly reliant on measures of historic volatility.  Wealth advisers and clients need to place much greater emphasis on forward-looking and qualitative indicators of risk to fully appreciate potential outcomes. These factors will also become increasingly critical in client risk profiling

8. Evaluate the firm’s governance process

Traditional governance models are designed to protect the interests of the firm and its clients. Yet many have failed to do this. Constraints include limited resources, decision-making that is not responsive to the changing investment environment, or calcified operating models. Evaluate the firm’s governance environment, consider its effectiveness at meeting the needs of the firm and its clients, and contract or develop the resources, data, and processes that are necessary for a robust and fluid governance process in today’s investment climate.

9. Discuss fee budgets with your clients, and ensure they get what they pay for

Fees should be a factor in investment decision-making. Some clients prefer the certainty of lower investment expenses coupled with greater use of index-oriented products; others are more comfortable with active fees and the potential for alpha from active management. It is important to help clients to distinguish between alpha and beta and to reserve higher fees for strategies with the potential for higher alpha.

10. Remember that fees always matter

Evaluate business models, services, and enhancements that allow you to deliver exceptional service and products while continuing to reduce the cost to your clients.

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