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Impact on the private wealth management industry

Post globalization period witnessed widespread changes in the global financial markets that have played a significant role in regulating monetary flow across borders. The current global financial crisis has made a severe impact on all sectors of the economies across the world. The United States sub-prime mortgage crisis has crippled major economic powers causing severe setbacks in economic growth and development. Market prices have soared in the past few months and the financial markets are witnessing one of the most unstable market conditions.

Banks and financial institutions are struggling to survive in such challenging economic conditions. Working in market conditions that restrict the avenues of growth and opportunities and limited resources can be most challenging for any business. Financial institutions in the face of credit and liquidity crunch are shifting their locus of attention from fulfilling the needs of the consumer and providing satisfactory service in an effort to survive in the tough market conditions.

The financial service institutions can only survive by understanding and meeting the consumer demands and expectations. The financial markets in the past few months have become very risky and the credit crunch has created a sense of uncertainty and confusion in most investors. This has led to

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decline in consumer confidence on the financial institutions and lack of consumer confidence will result in financial market instability.

Unless the financial institutions take steps to reinstate consumer confidence and encourage active participation in banking and other related products and services the financial markets will not stabilize. Impact on the competitive landscape The wealth management industry is driven by the changing dynamics of the economies and the social demographics that govern the trend and pattern of investment and asset management of the high net worth individuals. Over the years the developed countries have reported increasing numbers of wealthy individuals and the rise in cost of living and affluent lifestyle.

The rising property prices, boom in private equity and strengthening stock markets had all contributed to the wealth generation in these countries. The G7 countries of Canada, France, Italy, Germany, Japan, US, and UK are the major economies driving the global wealth management industry. However, the downfall in the economy has declined the growth rate of the industry. The wealth management industry became more diversified and aggressive over the years. The increasing number of players entering the industry to tap the extensive potential is phenomenal.

This has no doubt opened a huge arena of choices for the client base but it has also led to intense global competition between the major players and the local financial service groups as well. The new generation of well-educated and demanding wealthy customers is better informed and explores the alternatives available to them before making a decision. This has made the role of today’s wealth managers all the more challenging and requires a specialist approach to their domain area.

The financial service providers feel the importance of strategic wealth management and the traditional approach is slowly giving way to newer and effective ways of reaching to the customers. The strategic move adopted by the local and smaller industry players has been to strengthen their holds in the local markets and then extend into the global market. The bigger players in the market face stiff competition from these local and emerging players. The competition has intensified not only for clients’ wallet share but also for quality wealth managers.

The last couple of years have seen exceptional growth in profitability and total assets under management. Assets under management are those financial assets that are managed by the wealth managers in return of advisory or management fee. As per the Price Waterhouse Coopers global private banking survey, 2007, the growth has been fastest in the developing countries of Asia-Pacific and the wealth managers have observed a 28 percent increase in number of clients and 34 percent increase in assets under management in the past one year.

The marked difference in the wealth statistics of the developed countries and the developing countries is observed in the pattern of wealth acquisition. While most of the wealthy clients in the developed economies acquire wealth through inheritance the newly created wealthy individuals in the developing countries are mostly entrepreneurs who have expanding businesses and are still scaling the success ladder.

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