Weathering the storm in Wealth Management 2007

Table of Contents

• DATAMONITOR VIEW
  • CATALYST
  • SUMMARY
• ANALYSIS
  • The majority of wealth managers are not concerned about the risk of a global economic downturn
    • There are two broad schools of thought on the economic outlook for the next two years
    • Very few wealth managers acknowledge that a market downturn is on the way
  • Datamonitor believes that 2008-09 will be characterized by struggling economies worldwide
    • Rising interest rates, excessive borrowing and negative savings rates have combined in a perfect storm that will shake most of the world' s economies
    • The widespread securitization of loans will compound this problem
    • Consumers were not alone in overextending themselves; state debt servicing is up against budget, while tax revenues are sharply down, which may signal a muni bond crisis ahead
    • The US economy is not healthy enough to ' expand' itself out of these conditions
    • Foreign direct investment may also boost the economy; unfortunately foreign investors have run for the hills
    • A continued Treasury sell-off may further depress the dollar and, at worst, force interest rate hikes
    • Another major terrorist attack in the US will destabilize the economy further
    • Market capitalization, to varying degrees, will fall worldwide as US stock markets continue their jitters
  • Communication, risk assessment and effectively marketed products will be the keys to success in the downturn
    • A structured communication program should have already been implemented to address customer concerns about market volatility
    • Risk assessment is more important now than ever
    • The potential to deepen share of wallet is significant
    • Risk-averse clients will demand insulation and reassurance from the downturn
    • Clients will be tempted to hold investments in cash
    • Risk-loving clients should be encouraged to see the opportunities in volatility and in mis-matches
    • Product development will be a combination of new launches, and intelligently marketed existing products
    • The lending side of the business will also be important as re-mortgaging opportunities will abound when rates come down
  • Wealth managers who don' t anticipate client needs in the market recovery will lose them
    • A shift back into stock market-related investments should be marketing-led, not client-led
    • As the market improves, clients will again want more say in their investments
    • The best client managers will be poached from those wealth managers without a retention plan already in place when the market improves
  • APPENDIX
  • Definitions
    • Currency peg
    • Exchange-traded fund (ETF)
    • Guaranteed fund/ Capital-protected fund
    • Risk tolerance
    • Uncorrelated investment
  • Methodology
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
  • List of Figures
    • Figure 1: US troubles have spread to the rest of the world
    • Figure 2: Less than 10% of wealth managers were most concerned about a potential recession as of September 2007
    • Figure 3: General obligation and revenue muni yields have increased in recent weeks, while Treasury yields have decreased, indicating a shift from munis to Treasuries
    • Figure 4: The US has run a trade deficit since 2001
    • Figure 5: US dollar exchange rates have fallen against the European currencies since the last market downturn
    • Figure 6: Net assets in guaranteed funds have grown strongly from mid-2006
    • Figure 7: Net sales into equity-linked UCITS have been negative in 2007