The wealth management sector is facing a sea of changes. Banks and wealth management firms are hiring more, but managers must grapple with new technologies and regulatory changes, while investors’ preferences have shifted.
Wealth managers have faced the chastening experiences of a global banking crisis and regulatory upheaval. HSBC stoked the fire this month when it was engulfed in a tax scandal at its Swiss private bank.
Many traditional highstreet banks have withdrawn from the industry. Others, such as Barclays and Lloyds Banking Group, are catering to fewer private clients.
This is much the result of the global financial crisis and the Financial Conduct Authority’s retail distribution review, which changed advisors’ fee structures.
But wealth management companies and units at banks such as Morgan Stanley and JPMorgan have increased their global hiring significantly, according to the banks and leading business schools.
“We are currently seeing a rise in hiring in private wealth management,” says Tony Somers, director of the Career Management Center at HEC Paris, a French business school.
There is increasing demand for MBAs in particular from private wealth management divisions of large banks, says Christelle Cuenin, assistant director of corporate partnership development at INSEAD, a global business school.
BNY Mellon has opened eight new private banking offices in the past four years, and has increased its roster of portfolio managers and private bankers by 6%, it said.
Germany’s Deutsche Bank has bolstered recruitment for its asset and wealth management business over the past year in both the US and Asia Pacific, according to the bank.
So-called “buyside” firms in all capacities have increased demand for new hires in private banking and wealth management, says Gil Yancey, executive director of the Career Center at GWU School of Business in the US.
Private wealth groups like Rathbones and Julius Baer Group are recruiting more than other asset management areas and private equity firms, according to Pauline Ma, senior finance career coach at GWU’s Career Center.
“Private wealth management firms or the private wealth management divisions of bulge bracket banks all seem to be hiring the most,” she says, with insurance companies also active.
GWU has seen demand from not just from American firms but from Chinese wealth management groups that are expanding rapidly.
Many banks are pushing their wealth management operations into emerging market countries.
The focus is on locations with notable private wealth growth such as Asia, says Tony at HEC Paris.
Switzerland’s UBS, the world’s biggest wealth manager by assets, plans to hire more people for its wealth management business, and plans to open offices in Rio de Janeiro and Belo Horizonte, according to its Brazil unit, which has 370 employees.
Credit Suisse Group has also expanded its wealth management operations in south America, with plans to open new offices in Belo Horizonte and Porto Alegre.
Investment banking divisions were once banks’ shining stars and students’ career destinations of choice – but there has been a shifting of the balance in capital markets since the global financial crisis.
“At a more senior level for the MBAs, the demand for investment banking is less, with an increase in interviews for private baking and transaction advisory,” says Adila Khan, career advisor for finance at Oxford’s Saïd Business School.
The wealth management units of both UBS and Credit Suisse are now outperforming their investment banks, according to their latest quarterly reports.
Asset managers are set to be paid more than investment bankers in 2016, according to analysis from New Financial, a think-tank.
Compensation cost per employee at investment banks fell 25% between 2006 and 2014 to $288,000, but average compensation cost per employee at asset managers rose 22% to an estimated $263,000, New Financial says.
As well as spuring better financial performances in some areas, the crisis has also changed the types of investment products investors are pouring capital into.
Low-cost passive products have become more popular, such as exchange traded funds and index trackers, as investors have grown frustrated with higher-charging active funds that are run by managers.
Passives have grown popular among wealth managers, due to their low ongoing charges for accessing a diverse range of markets, such as gold and other raw materials.
“The most important effect of these funds is the fact that they trade margin for volume – hence their availability to a large number of investors,” says Jesús Palau, professor at the Department of Economics, Finance and Accounting at ESADE Business School.
Data from the Investment Management Association show index trackers had £77 billion in assets under management in 2014, accounting for about 10% of all UK retail funds.
Across Europe, the ETFs market hit a record $459 billion in May last year, according to ETFGI, the consultancy.
Inflows and surging salaries have made wealth and asset management more attractive to MBA students.
At both London Business School and the Tuck School of Business in the US, investment management has risen to be the second most popular finance career among MBAs.
Professional services group PwC recently predicted that assets under management would surge from $64 trillion in 2014 to more than $100 trillion in 2020.
Despite mounting pressure on the investment management industry, wealth managers’ pay remains difficult to determine, but fees have begun to rise.
The fee tariff for discretionary services has risen by as much as 12% in the past year, according to a survey of 500 high net worth individuals by Ledbury Research, a market research group.
According to SCM Private, an asset management firm, the average wealth management charge including the cost of the investments is 3.24% a year. But additional transaction costs amount to an average of 0.41% per year.
However, research by Numis Securities found that wealth managers in some cases charge as much as 7.5% a year in upfront fees.
Pauline at GWU says that compensation for MBAs is about the average earned within other areas of financial services, such as private equity or in hedge funds. “Compensation is really driven by production and can vary widely,” she says.
But at Stanford GSB, a business school in California, MBAs working in investment management earn $27,000 more in salary than graduates at investment banks.
Despite technology being widely adopted across the global financial services industry, the business of wealth management remains largely conducted on a face-to-face basis.
A survey of 1,000 wealthy investors by Scorpio Partnership, a strategy consultancy, found that the use of technology in the investors’ wealth management relationships was considered to be among the lowest valued services.
Wealth managers are increasingly detached from their companies and banks, according to Elisa Zagami, head of career development at MIP Politecnico di Milano, an Italian business school, which requires a consultancy approach to clients.
“For private wealth management, the number one quality companies seek in their financial advisors is sales and relationship management skills,” says Pauline at GWU.
One private wealth management hiring manager recently told the business school that a background in finance isn’t enough, she says. “Candidates must show the desire and ability to sell and connect with people.”
Pauline adds that regulatory and compliance issues are a priority for all financial services companies, and that financial advisors may need to pass additional exams.
“Regulatory knowledge within wealth management is particularly important,” says Paul Schoonenberg, head of MBA careers at Aston Business School, as the industry responds to change.
While most wealth management firms will value an MBA, some investment companies and particularly asset managers require additional qualifications, such as charted financial analyst, or CFA, status.
Aberdeen Asset Management, for instance, Europe’s largest listed fund manager, requires the Investment Management Certificate or CFA for investment management roles.
But both Kempen Capital Management and State Street Global Advisors, one of the world’s biggest fund houses, accept both MBA graduates and CFA holders.
Elisa at MIP says that the strongest aspect of the MBA degree is that it provides a 360 degree view of companies’ structures, as well as a range of technical skills.
“But also the soft skills, which are fundamental for the advisor to be able to deal with existing clients and to seek new customers,” she adds.