U.S. financial management: A plan for growth for the next decade

U.S. financial management: A plan for growth for the next decade


The rising hopes for post-pandemic recovery indicate the need to be prepared for the future of technology, consumer demands, and the society that will determine how the world of wealth management will evolve in the coming years. system.



The field of wealth management has been a growing sector; however, it is undergoing a series of rapid disruptions. While the pandemic slowed productivity of this U.S. sector of wealth management throughout 2020, the past twelve months have led to hope that the right conditions for a significant wave of innovation and experimentation throughout the wealth management sector are in the right place. KATE BEACHAM  These conditions include rapid technological advances and rapidly changing consumer demands and behavior (accelerated because of the epidemic), and an economic environment that is stimulating.


To be successful in this ever-changing business environment, companies must focus on growth, adopt an innovative approach, and be ready to shift resources in the face of an evolving environment rapidly. To free up funds to invest in strategic projects and be prepared for any market decline, companies should review their cost structures and improve their record on cost management.


To help guide this effort To guide the process, this document provides a review of the U.S. wealth management industry's current situation and then provides four main themes that outline the future growth story we expect to see. We offer topics that wealth managers must consider in their plans to prosper in the evolving environment. We also provide questions for self-assessment of the organization.


Recovering from the crisis: resilient but not without a scratch

At face value, the U.S. wealth management industry entered 2021 from a position of strength--record-high client assets, record growth in the number of self-directed and advised clients, and healthy pretax margins (Exhibit 1). But, underneath these impressive figures, the reality was not as clear, with the most sluggish two-year growth in revenue since 2010and low operating leverage. The lower margins and the shrinking profit pools resulting from this were caused principally by low-interest rates and inconsistent cost control (Exhibit 2.).


In the end, although the industry is currently enjoying a strong market performance, it is also facing significant crosscurrents, including equity market and interest rate uncertainty, as well as industry-specific issues such as a lack of cost discipline as well as increased competition from fresh players, and an older growing advisor workforce.


Despite this uncertain outlook, U.S. wealth management remains an expanding industry with less-than-optimal revenue growth forecasts. McKinsey's analysis suggests that revenue pools will increase by around 5 percent annually over the next five years. A change in market performance causes moderate net flows and the ongoing shift from advisory to brokerage (where the revenue yields tend to be higher). But, the increase will not be evenly divided across the various segments of the industry. We anticipate digital advice platforms, such as hybrid and Robo-advice, to multiply, perhaps exceeding their revenue growth rate by more than 20 percent annually. In terms of growth, the next to grow are registered financial advisors (roughly 10 percent annually), which is followed by regional and national brokers-dealers (6 percent) and direct brokers (5 percent) as well as wirehouses (2 percent) and various broker-dealers (independent retail and owned by insurance) as well as a private bank (1 1 percent). Suppose interest rates rise to their pandemic level, including direct brokerages and wirehouses. In that case, they will be the most benefited due to their dependence on the interest income from cash to generate profits and the growth rate overall for the industry averaging 7 percent annually, similar to the rate of growth seen between 2015 and the year 2018.



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