CHALLENGES FOR WEALTH MANAGEMENT FIRMS IN 2016: ARE YOU PREPARED?

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1 HEALTH WEALTH CAREER CHALLENGES FOR WEALTH MANAGEMENT FIRMS IN 2016: ARE YOU PREPARED? David A. Hyman, CFA US Wealth Management Segment Leader Michael Curtin Senior Investment Consultant, Wealth Management, Europe

2 TODAY S SPEAKERS DAVID A. HYMAN, CFA US Wealth Management Segment Leader MICHAEL CURTIN Senior Investment Consultant Wealth Management, Europe MERCER

3 2016 THEMES - CHARTING THE COURSE RISK MITIGATION CONTAIN COSTS ENHANCE INVESTMENT RETURNS Government regulation Investment and operational reviews Streamline investment solution Increased competition Complement existing research platform Robo-advisors Alternative asset allocations Fixed income Review current model portfolios MERCER

4 RISK MITIGATION 1 GOVERNMENT REGULATION REGULATORY CREEP POST CRISES OPPORTUNITY TO DIFFERENTIATE COST OF FAILURE CAN BE CATASTROPHIC FIDUCIARY RULE IN US MIFID II IN EUROPE MERCER

5 RISK MITIGATION 2 DUE DILIGENCE INCREASED REGULATORY SCRUTINY MORE COMPLEX INVESTMENT PRODUCTS MERCER

6 RISK MITIGATION 3 STREAMLINE INVESTMENT SOLUTION STOCKS OPTIONS ETFS MUTUAL FUNDS FIXED INCOME Source: Merrill Lynch MERCER

7 COST CONTAINMENT 1 INCREASING COMPETITION TRANSACTIONAL à FEE-BASED BUSINESS FOCUS ON LONG-TERM PROFITABILITY INCREASING M&A ACTIVITY RIA GROWTH MERCER

8 COST CONTAINMENT 2 COMPLEMENT TIME TO MARKET MARKET/ TECH FAMILIARITY BENEFITS OF SCALE BUILD, BUY, PARTNER ESOTERIC ASSET CATEGORIES COST IP MANUFACTURE OR DISTRIBUTE? MERCER

9 COST CONTAINMENT 3 ROBO ADVISER ESTIMATED US ROBO-ADVISORS ASSETS UNDER MANAGEMENT (IN TRILLIONS OF DOLLARS) ~ ~ Shift from non invested assets 1 Shift from invested assets ~ E 2017E 2018E 2019E 2020E 1 Non-invested assets include liquid funds (e.g. cash and cash equivalent deposits) 2 Invested assets include credit market instruments, corporate equities, mutual funds, IRAs, and 401(k) Source: A.T. Kearney simulation model MERCER

10 ENHANCE INVESTMENT RETURNS 1 ALTERNATIVE ALLOCATIONS Expect more volatility and larger sell-offs Opportunities for dynamic strategies and de-risking Prudence around leverage and collateral REDUCED MARKET LIQUIDITY A MATURING CREDIT CYCLE Tilt growth assets towards less equity-sensitive assets Merit in holding some dry powder Prepare for opportunities in distressed debt Seek valuable sources of alpha Consider absolute return and similar flexible strategies TILT FROM BETA TO ALPHA THINK LONG TERM Plan for slow rise in rates Use your illiquidity budget Risk is not a number: consider a broader perspective on risk MERCER

11 ENHANCE INVESTMENT RETURNS 2 FIXED INCOME 15% Private Debt Good liquidity (daily) Moderate liquidity (c. monthly) 12% Distressed Debt Poor liquidity (> quarterly) Very illiquid (c. 5-7 years) Return 9% Multi-Asset Credit Emerging market debt KEY CONSIDERATIONS 6% 3% Absolute Return Loans Unconstrained Bond Securitised High Yield Expected return Expected risk Liquidity Active versus passive Fixed rate vs floating rate Regional focus Credit quality Tolerance for complexity Lower Risk Medium Risk Higher Risk Risk/Volatility MERCER

12 ENHANCE INVESTMENT RETURNS 3 MODEL PORTFOLIOS RATHER THAN VIEWING ASSETS IN TERMS OF EQUITIES AND FIXED INCOME, VIEW THEM IN THE CONTEXT OF THE ROLE EACH ALLOCATION WILL PLAY WITHIN THE OVERALL PORTFOLIO GROWTH ASSETS RISK REDUCTION ASSETS INFLATION PROTECTION ASSETS INCOME ASSETS Growth Drive long-term capital appreciation Risk Reduction Provide stable cash flow; help to reduce risk Inflation Protection Help to protect against unanticipated inflation Income Provide diversified income stream MERCER

13 RECAP RISK MITIGATION CONTAIN COSTS ENHANCE INVESTMENT RETURNS BUILDING YOUR PLATFORM TODAY FOR A SUCCESSFUL TOMORROW MERCER

14 QUESTIONS? DAVID A. HYMAN, CFA US Wealth Management Segment Leader MICHAEL CURTIN Senior Investment Consultant Wealth Management, Europe QUESTIONS Please type your questions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for. To submit a question while in full screen mode, use the Q&A button, on the floating panel, on the top of your screen. FEEDBACK Please take the time to fill out the feedback form at the end of this webcast so we can continue to improve. The feedback form will pop-up in a new window when the session ends. MERCER

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