Amid compressing margins in traditional financial services profit centers, such as investment banking and retirement plan recordkeeping, more financial services firms are looking at their wealth management divisions as potential drivers of growth going forward.
“Wealth management is becoming more important,” says Mike Wunderli, a managing director at Echelon Partners. “It’s the steadiest part of the business and the most highly valued part of the business, because it is recurring and transparent.”
By contrast, the investment banking business is highly profitable, but it’s less predictable and less sticky, Wunderli says.
“I think there’s a paradigm shift in the importance of wealth management in all of these bulge bracket investment bankers or in the international diversified financial services firm,” Wunderli adds. “Many of them may be seeing a future that is morphing toward a greater emphasis on wealth management, and they want their leadership to come from that space and help drive that space.”
As wealth management becomes more important to financial services firms, so does the leadership and viewpoint of wealth managers. That has led to an increasing number of wealth management professionals moving into high-profile leadership positions.
When UBS recently announced that Iqbal Khan would soon take over as the sole president of the organization’s global wealth management business, CEO Ralph Hamers said in a press release that the firm’s global wealth management business and its Americas region, in particular, are strategically important.
“Both offer significant growth opportunities for us,” Hamers said. News reports suggested that Khan’s promotion put him in line to eventually succeed Hamers as the company’s CEO, though that was not addressed directly by the firm at this time.
Competitor Credit Suisse, for its part, announced in July that it had tapped Ulrich “Ueli” Körner as its new group CEO. Körner was previously Credit Suisse’s CEO for asset management and spent six years leading UBS’ asset management division earlier in his career.
“With his profound industry knowledge and impressive track record, Ueli will drive our strategic and operational transformation, building on existing strengths and accelerating growth in key business areas,” Credit Suisse Chairman Axel P. Lehmann said in a statement.
A Credit Suisse statement announcing the appointment, which came as part of comprehensive review, said one of Körner’s objectives would be to help the company transition into a more “capital-light, advisory-led business,” with the goal being more consistent performance.
Citigroup CEO Jane Fraser, who took on her current role in 2021 after leading its wealth management and retail banking operations, has also cited wealth management as a key driver of growth for the company. Her plan involves combining the company’s private bank and consumer wealth businesses to create a more streamlined experience for clients, and one that can serve a broader swath of consumers.
The focus on wealth management is not exclusive to banks. Voya has announced that Heather Lavallee, CEO of its wealth solutions business, which includes the retirement plan business as well as a growing retail wealth management channel, will take over as CEO of Voya in January.
“As the CEO of our wealth solutions business—which delivered record earnings during 2021—and in her prior leadership roles, Heather has distinguished herself as an extraordinary executive focused on growth, innovation and culture,” current CEO Rod Martin said in a statement on the appointment.
And SageView Advisory Group, a traditionally retirement-focused advisory group, has just named Jorge Bernal as its chief operating officer. Bernal previously served as a managing director and co-head of advisory services for Goldman Sachs Financial Management.
Bernal’s appointment was the latest in a flurry of hires following the acquisition of SageView by Aquiline Capital Partners last year and a renewed commitment by the firm to expand through mergers and acquisitions. Randy Long, SageView founder and CEO, says that Bernal’s appointment came after a nationwide search.
“How fortunate we were to land Jorge,” Long says. “He saw what we were trying to do and the vision of trying to bring wealth and retirement together, and he brought all of his wealth experience and his background in operations and technology.”
Long says SageView has doubled in size over the past 18 months to more than 250 employees, and has been evolving to meet growing demand from plan sponsors for not only portfolio management but also financial and wealth management services for plan participants. Meanwhile, Sageview’s wealth management division has grown to more than $4 billion.
“You can make the argument that there are greater margins in the wealth management than in the institutional consulting side,” Long says. “But I don’t think that’s necessarily what’s driving it. There’s just this void, a huge need among Americans for a trusted adviser. And when you are already working with their retirement plan, there is almost an implied trust between the employer and the provider.”
A Fidelity survey last year found providing advice and guidance to participants was one of the top three drivers of adviser value among plan participants, after improving employee outcomes and service satisfaction.
As more retirees keep assets with their 401(k), there’s also a greater need for assistance with withdrawal strategies, Long adds.
“They want someone to help them with asset location and which account to withdrawal from, when to take Social Security,” Long says. “It’s a much broader perspective, and that’s where the holistic approach comes in.”
The emphasis on wealth management—and on leaders with a wealth management background—is also occurring at middle-market firms, says David Speicher, a principal co-leading the financial services practice at JM Search. This reflects the experience that wealth management executives have in leading their side of the business, including front-line perspective around profit-and-loss, investment knowledge, product knowledge, technology, digitalization and the customer experience.
“The asset management side tends to focus on some of those things, but not all of it,” Speicher says. “It’s helpful to have talent coming in with so many arrows in their quiver in terms of the experience and exposure that they have. That makes them naturally attractive as candidates.”
In addition, the revenue generation coming from wealth management has been growing over the past few decades and will continue to do so for the next few decades as wealth transfers to the next generation, sources agree.
“The growth projections are absolutely insane, so these multi-faceted financial services companies where wealth management is one piece of the overall business can’t help but see the writing on the wall with those dynamics,” Speicher says. “And as fintech continues to grow and automate wealth management, that’s just going to increase profitability.”
Many firms are also recognizing how wealth management overlaps with other areas of their business. For investment bankers, for example, helping a successful Baby Boomer sell their business might also be an opportunity to create a wealth management client.
“There are so many potential wealth management clients out there right now that may not have two nickels to rub together, but on paper they are worth $2 million,” Wunderli says. “The banks are recognizing that if they help them sell the business or go public, they might be more likely to get the wealth management business afterward.”
These shifts could represent a boon to individual wealth managers who may find their services in greater demand, even as the existing talent pool shrinks due to aging advisers and a dearth of new entrants.
“If the money is supporting one side of the business and there is a need for and a lack of available talent, companies are going to take care of the wealth managers and advisers who do a good job,” Wunderli says. “There is just going to be much more money going toward that. We have clients that just pretty much have to pay whatever they ask for because they can’t afford to lose them.”
That’s particularly true for advisers with a strong relationship with their clients.
“There’s always the risk that if they leave the company, the client will leave with them,” Wunderli says.
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