Our industry is full of benchmarking surveys. The problem is, many of them do little more than report stats and give no real insight into the factors that cause some firms to outperform the others. The Boston Consulting Group’s Global Wealth 2015 report is different in that it gives us a look at what the keys to success actually are by focusing on what the wealth management industry’s most successful players are doing right. Using the data from benchmarking studies conducted over the past 3 years, BCG identified those whose performance has consistently outperformed their peers.
To identify consistently top firms, BCG’s research took into account growth, financial performance, operating models, sales excellence, employee efficiency, client segments, products, and trends along a number of dimensions, including locations, markets, client domiciles, and different peer groups. Taking into account the overall strong asset performance over the past 3 years, the top performers were those firms who clearly stood out in terms of generating high revenues per relationship manager, acquiring new assets, achieving best-in-class revenue and cost margins, and doing all of this with a lean organization.
Top performers are consistently superior in multiple categories. This included gains of net new assets of 16.1% of the previous year’s AUM; 6% over average performers in revenue margin; -36% over average performers in cost margin; and -2% over average performers in total FTEs.
In seeking to determine why these top firms were consistently out-performing their peers, BCG found that they all conducted the following five mission critical activities:
- Segment-specific Value Propositions and Coverage Models. A one-size-fits-all, cookie-cutter approach is no longer viable in today’s wealth management industry. This applies not only to operations and costs, but to clients as well. BCG concludes that customers will not continue to pay too much for services they don’t need or understand, or for insufficient guidance and advice.
- Rigorous Price Realization in Target Client Segments. The most successful managers clearly define which client segments they are targeting. This leads to more effective price realization, and ultimately can result in significant revenue increase.
- A Differentiated Advisory Offering. Clients demand a clear value proposition in our age of the “robo-advisor” and low-cost online brokerage services. And it’s not just about differentiating the advisory process – it also applies to the client experience.
- A Focus on Front-Office Excellence. The high performing firm can achieve more than double the revenues of average performers. Likewise for the acquisition of new assets. However, though the benefits are clear, many managers still struggle to optimize their front-office.
- The Ability to Measure and Manage Profitability. BCG found that for their 2015 benchmarking participants, few steered their businesses based on profitability. Rather, revenue-based measures were the approach favored by the top performers.
Creating the executive “mental shelf space” and resources to attack these mission critical activities means clearing away other non-critical activities. Top advisors rely on the Adhesion investment platform to handle back office functions while delivering a superior, personalized client experience.
Next week we’ll take a deeper dive into the mission critical activities themselves.
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