The bear market has hit the world’s richest investors hard, and this is creating a major upheaval for many of the wealth managers and private banks that manage their money.

According to a Boston Consulting Group report released Monday, the world’s leading wealth management firms and private banks face a fourth straight year of declining revenues — down by more than 25% from their peak in January 2000. The world’s millionaires and billionaires lost US$1.9 trillion of their wealth in the past year alone.

In Canada, the assets under management for wealthy households (defined as having more than US$250,000 in assets under management) declined by 11.7% in 2002 to US$794 billion. The financial services revenues from wealthy households fell even more — by 15.1% to US$7 billion.

“The wealth management industry is suffering right across North America and Europe,” said Paul Orlander, vice president and director in BCG’s Toronto office.

“Those companies that are succeeding have revamped their business approach to focus on their competitive strengths rather just rely on getting their share of a growing pot. Here in Canada, the reality is not only are there fewer wealthy investors, but those who have maintained their wealth are much more cautious and have greater distrust of the markets and of the investment industry,” he said.

The report notes that wealth managers’ economics continued to deteriorate in 2002. Many firms cut costs, but these cuts often didn’t match revenue declines. It observes that many institutions need to find new ways to manage and reduce costs to improve their competitive position.

One of the report’s key findings is that wealthy investors are increasingly seeking trusted advice and are turning away from sales-side research as they seek more conservative, impartial guidance for their fortunes. Ivestors are focusing more on absolute returns than on relative returns and are much more interested in risk management and asset allocation strategies.

http://www.newswire.ca/releases/July2003/21/c4065.html