4 Ways Wealth Managers Are Preparing for Uncertain Times

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Wealth managers face challenging times as global markets have entered a period of uncertainty while their clients increasingly demand sustainable returns, according to a new report from Mercer.

Over the next two years, wealth managers’ biggest challenges involve managing their clients’ investments and meeting return objectives with an acceptable level of volatility. They are also focused on improving the client experience.

At the same time, margin pressure, higher fixed costs and increasing regulatory requirements are prompting many wealth managers to look to outsourcing, insourcing or strategic alliances as potential solutions.

Mercer conducted its study in the first quarter among 125 participants in 26 countries across six regions.

See the gallery for four ways wealth managers around the world are gearing up for the challenges of the next two years.

Michael S. Fischer

NOT FOR REPRINT

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1. Positioning portfolios for increasingly unforgiving markets.

The pandemic accelerated key global macro trends that were gaining momentum before 2020 — lower than expected investment returns and market volatility — and brought inflation to the forefront.

57% of respondents say inflation is the top investment challenge at a global level over the next 2 years.
50% of wealth managers expect investment returns to be lower in the next two years.
59% of respondents believe the biggest investment opportunity is in diversifying portfolios away from traditional equities and bonds.

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2. Accessing return and liquidity in alternatives.

Anticipating lower investment returns in coming years, wealth managers are looking to alternatives — in particular, private markets — to provide further diversification and enhanced returns. At the same time, they must carefully balance these objectives with clients’ liquidity needs.

73% of respondents are either currently invested in illiquid assets or are considering doing so over the next 12 months.
85% cite the search for better yields or enhanced investment returns as the primary reason for allocating to illiquid assets.
71% identify concerns about long lock-in periods as a reason for not investing in illiquid assets.

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3. Placing a priority on client experience and business growth.

While wealth managers prepare for coming challenges, they are also focused on improving client experience and managing investors' evolving expectations. They’re also concerned about their growth prospects in the face of continued fee and margin pressure, increased regulatory challenges and disruptive technology.

78% of respondents say their priority is to improve the client experience over the next two years.
53% believe that regulatory challenges are the biggest threat to their organizations’ growth.
45% want to outsource elements of their portfolio operations governance or seek third-party assistance, especially in bolstering ESG investment offerings and integration.

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4. Meeting growing client demand for sustainable solutions.

ESG-focused investments are part of a paradigm shift. With client demand on the rise, wealth managers are seeking to integrate ESG considerations further into their processes while they balance key stakeholders’ needs with a scalable product proposition.

82% of respondents say client demand for ESG investments has increased over the past year.
64% cite societal sentiment as the chief driver of their clients’ appetite for ESG investments, followed by reputational risk considerations.
20% of respondents — a surprisingly low number, Mercer noted — selected generating active return as one of the top two reasons for strengthening their exposure to ESG investments.

(Image: Adobe Stock)

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