Evolve your wealth management practice to meet client needs

Fewer people have more money and assets. The top 1% of US earners controls close to one-third of the nation’s wealth; the top 10% controls about two-thirds.¹ The trend that started in the late 1980s shows little sign of abating. The stock market has been on a tear for much of the past year, boosting portfolios even further. As clients build wealth and look to pass it along to the next generation, they may outgrow the capabilities of their current firms. We have seen that this creates challenges and opportunities for wealth managers.

High-net-worth clients have evolving needs

Affluent and high-net-worth clients (HNW), those with at least $2 million and $5 million in assets respectively, have benefitted from market growth.² The rising wealth concentration is fueling demand for more specialized guidance. Wealthier clients may come to require services beyond the average client as their assets grow, including separately managed accounts (SMAs), alternative investments, legacy planning, and multi-generational wealth transfer.

Firms that upskill and expand their offerings, in our view, stand to keep their client base and possibly grow. But firms that don’t evolve with their clients risk losing them or, at least, earning less money than they might otherwise. According to recent Practice Innovation Index (PII) survey results, wealth managers with an average AUM greater than $5 million per client saw their assets grow 22% annually over the last five years. Whereas wealth managers with an average AUM between $2 and $5 million per client saw their assets grow 17.6%. The average growth across all wealth managers was 19.8%. By this measure, the money is moving upstream. The clients may soon follow.

Wealth managers are increasingly moving upmarket themselves to concentrate on fewer but more profitable relationships. But working with HNW clients requires a better service model. Top-performing practices have an opportunity to combine technical expertise and an understanding of family dynamics to create a comprehensive suite of services that may be tailored to different clients. It’s a shift toward deeper client engagement and more specialized advice.

Serving the evolving needs of HNW clients

As growth accelerates and demographics shift among HNW clients, firms may need to adapt. Broader service offerings may help a practice meet clients where they are and where they’re going. PII data shows that top-quartile wealth managers more commonly offer many high-end services, such as charitable and philanthropic planning and trust management. Comprehensive multigenerational estate planning, for example, is provided by less than half of wealth managers but by more than three-quarters of top-tier wealth managers.

According to PII respondents, top-performing practices also serve evolving needs through strategic partnerships with external specialists. We have seen that affluent clients often work with multiple financial professionals, including CPAs, attorneys, estate planners, and insurance specialists. So, offering a wider suite of services through these strategic relationships may position a wealth manager to better coordinate their clients’ financial lives. It may also help a practice enhance its value proposition.

Multi-generational transition planning is a complex offering that may add further value. The wealth management industry is facing a historic generational wealth transfer, with an estimated $105 trillion expected to change hands in the coming decades.³ Top-performing practices are proactively laying the groundwork, building relationships with the next generation and embedding multi-generational planning into their core service model. By understanding family dynamics, these practices may align strategies with client values and help ensure that wealth transfer goals are clearly articulated and implemented. Proper implementation may help move a practice upmarket.

We have seen that HNW clients tend to have investments allocated across a wider range of non-traditional asset classes commonly known as alternatives. These might include private equity, private credit, venture capital, hedge funds, and private placements. We have also seen that investors with a longer-term horizon increasingly turn to alternatives for portfolio diversification, enhanced return, and high-yield opportunities. Providing access these high-quality investment strategies and exclusive private placement opportunities may differentiate practices looking to attract the higher end of the wealth market.

Evolving portfolio construction and product use

We have seen that with growing client wealth comes a larger appetite for advanced investment strategies. And that appetite may extend far beyond alternatives to include tax-aware strategies, direct indexing, and portfolio customization. Wealth managers have struggled to keep pace with client expectations. That may present another opportunity for practices looking to expand.

Top-quartile practices are evolving their product mix and portfolio construction approach. Mutual funds are giving way to ETFs, SMAs, and alternatives across the industry, and that shift is more pronounced among HNW clients. These investors appear to want differentiated solutions to tax, cash flow, and estate planning needs that may help preserve wealth. Firms moving upmarket are looking to provide those investment capabilities.

Product selection is just part of the equation. Some practices are leveraging dynamic asset allocation frameworks and comprehensive risk analytics tools to build more resilient portfolios. This is very common among leading wealth managers, according to the PII, with 60% turning to dynamic portfolio construction and comprehensive risk analytics. We believe better risk management and performance attribution are valuable service offerings in a crowded marketplace.

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