Mercer has come up with a list of strategies and priorities for wealth management firms and advisors to tackle in 2015 if they want to 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,” said Cara Williams, senior partner and the global head of Mercer Investments’ Wealth Management business and Global Technology Solutions, in a statement. “These are strategies to improve investment results in a low-return environment, strategies to reduce risk, and strategies to contain costs.”
Mercer takes a look at these three overarching strategies that Williams outlined above and recommends 10 priorities for wealth management firms to address in 2015.
Strategies to improve investment results a low-return environment
1. Position portfolios for growth in a low-growth environment.
With rates at near-historic lows and the U.S. in its fifth year of a bull market in equities, Mercer says to assume that returns in both equities and fixed income in 2015 will be below recent levels.
In order to position portfolios for growth in this environment, Mercer suggests advisors should “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, no longer exclusively available to the wealthiest investors or most sophisticated institutions, can be a way to reduce risk, enhance returns or otherwise improve the likelihood of realizing investment objectives.
Mercer says to evaluate how alternatives can be integrated into a broader group of clients’ investment strategies.
“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,” Mercer states.
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,” Mercer says.
Integrating environmental, social and governance factors into the investment process can be a way for wealth management firms to distinguish their offering and products.
4. Adopt a client communication technology strategy.
A common frustration among clients is frequently communication and direct access to portfolio information. Mercer suggests that wealth providers can fix this frustration and enhance client satisfaction, as well as better manage fixed costs, by adopting smart technology.
“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,” Mercer states.
Staying up to date with technology, Mercer notes, will require investment to remain ahead of the competition.
Strategies to reduce risk
5. Review the resources required to deliver value to clients and resolve the “build versus buy” question.