Compensation in the wealth and asset management industries is expected to rise by up to 10-15 per cent this year.

Compensation in the wealth and asset management industries is expected to rise by up to 10-15 per cent this year, according to a report by executive search firm Russell Reynolds Associates. Hiring is also up although this comes off of 2009’s low base.

Pay in Canada, Europe and Asia is expected to jump even more - 15 to 20 percent – than the US although bonus pools will be finalized later this year than in previous years.

“Top-line growth was the focus of much of the hiring activity this year, though very few firms seemed to be in expansion mode; few added headcount on a net new add basis,” the report said.

Although most major cost cutting is over, firms continue to do more with less. This translated into delaying replacement hires by expanding the responsibilities of existing executives without a commensurate increase in pay.

“Firms are still trying to do more with less and thinking hard before spending on new hires,” Deb Brown, managing director in Russell’s Asset and Wealth Management practice said. “But they are also choosing where they want to make their mark in the new environment and deliberately and strategically building in that direction.”

Chief investment officers were in demand this year by family offices, endowments, foundations, pension funds, sovereign wealth funds, and asset and wealth managers.

Consolidation continued, with the top 20 firms capturing almost 90 per cent of new asset flows, which Russell attributes to superior product execution and stable business models.

“Recent consolidation will fuel additional consolidation, as those left behind resort to acquisitions to grow assets. This is especially true in wealth management, where organic growth is more difficult,” the report concluded.  

Profitability, meanwhile, will not likely return to pre-downturn levels anytime soon because of the current asset mix, cost structure and existing strategies for growth/investment. Russell maintains that leadership must have the courage to divert resources to areas of double-digit growth and away from stagnant or low-growth strategies.

The number of internal promotions into senior executive roles was dwarfed by the frequent decision to recruit from the outside.

Small boutiques gained market share and the largest national brokerage platforms consolidated. All but two of the top 40 firms lost or gained ground in 2009 and early 2010 compared to 2008.

The exodus of clients and advisors from the traditional large brokerages remained a challenge to those firms. Winners included boutique private banks, independents and registered investment advisors.

The key to retaining top-producing advisors centered on open architecture, a strong brand without controversy, and a full suite of support services such as trusts and risk management. Firms that offered guaranteed income products and alternative strategies were also more attractive to advisors.

In the mass affluent segment, the continued focus was on solutions-based advice under traditional fiduciary standards that included attention to liquidity, longevity and wealth transfer, not just diversified asset allocation.

“Boring is the new brilliant” became the mantra and firms returned to the basics to get business back on track. In the minds of wealthy clients and advisory talent, quality programs were those defined by integrity, transparency and simplicity.

Canada

In Canada banks continued to play an increasingly dominant role in the wealth management market.

As previously reported by Family Wealth Report Bank of Montreal launched a new private wealth group under BMO Harris Private Banking in Canada that caters to families with at least C$25 million ($24.31 million) in net worth, while Scotiabank entered into an agreement to acquire The WaterStreet Group, a multi family office advisory firm. The acquisition is the bank’s entry into the ultra high net worth arena.

Independent Canadian wealth managers responded to the challenge presented by the domestic banks by developing improved product lineups and mutual fund distribution strategies.

Compensation levels are expected to rebound from 2009, with overall compensation levels expected to increase by 20 percent to 25 percent.

Russell warns, however, that given the uncertainty in the marketplace in the second half of the year, these percentages may be moderated before the end of the year.