This story, accompanied by a video interview of WISE, explores the all-important world of fees and revenue structures at wealth managers, private banks and trusts.

At a time of strong margin pressures, wealth managers’ only relief is organic growth, demonstrating the need for fee realization, according to a new report from WISE. (See below for a video interview by this news service of David Lincoln, partner and co-founder at the firm.)

The US firm, a boutique advisory business that focuses on data for the industry, said in a WISE Price Insights white paper that for every $1 billion of assets, a single basis point improvement in realized fees equates to $100,000 in recurring fee revenue for years. Significantly, it said, the typical investment management account lasts for at least seven to eight years, while a trust account endures for 15 to 20 years or more. 

“For most bank wealth managers and trust companies, 2022’s final receipts will show steep declines from stellar margin and revenue outcomes in 2021. Although private banking has shown signs of life, 2023 brings numerous red flags for firms’ investment management and trust (IM&T) businesses,” the document said. “Of greatest concern is the likelihood of sizable compensation increases in a challenging revenue environment. Thanks to both inflation and competition, compensation has increased by 4 per cent annually for bank wealth managers overall and 6.5 per cent for just the IM&T business since 2018.”

“Variable compensation, in particular, has grown rapidly, reflecting strong demand for growth-oriented talent. At the same time that compensation is increasing, revenues are declining: by mid-year 2022 total revenues were down 1 per cent versus the previous 12 months. Assets declined by nearly 6 per cent. Margin pressure is likely for most firms."

The report, written by Lincoln and Karen Rush, managing director, said that the industry is leaving potential revenue “on the table” and should act.

“Many wealth management firms seek safety in numbers by aiming for the middle when setting fees. The “middle” insulates managers from pushback by sales teams and from the perceived risk of losing new business opportunities,” they wrote. “Eighty per cent of firms we surveyed that cater to high net worth (HNW) clients aim to align their fees with the market middle. In service-intensive ultra-HNW segments, more firms favor higher stated fees, however, about 60 per cent of multifamily offices still target the middle.”

“While common, we think the conventional practice leaves revenue on the table. Our analysis shows that firms that stated fees higher than market benchmarks earn more revenue per dollar of assets than other firms,” they said. 

Tom Burroughes, group editor at the WealthBriefing family of news services, talks to David Lincoln here about the significance of the report’s findings.