'Profits' and 'controlling costs' are becoming the buzzwords for US wealth managers as they struggle to perform in tough market conditions. This was the main finding of PricewaterhouseCoopers Consulting's latest bi-annual report on US wealth managers. "Many wealth managers are starting to focus on getting their house in order. After a decade of strong growth and high margins, many organisations are using the downturn in the market to address efficiency enhancement and overall operational effectiveness gains," the report said. Those efficiencies, which included strategies for both revenue growth and cost containment, were focused on four key areas: improving the front office; managing profitability at the organisational, product and relationship levels; executing mergers and acquisitions; and growing organically. More than 80 per cent of those polled said they were undergoing or planning to undergo efforts aimed at operating effectiveness and enhancing productivity. The PwC report projects industry growth at between seven and ten per cent over the next three years, but says the most profitable and efficient wealth managers are aiming instead for 14 per cent growth during the same period. The report surveyed 29 wealth management organisations with $2.4trn in assets under management, representing nearly one-third of the North American wealth management market. With margins down from an average of 35 per cent in 2000 to 24 per cent today, those organisations that "managed down" their costs while pursuing aggressive growth strategies have been the most successful during the downturn, the report said. "Understanding and managing profitability rather than revenue has moved up the strategic agenda, as wealth managers respond to the increased scrutiny from financial markets. Client profitability is expected to become an increasingly important internal metric, defining client segmentation and service-delivery models." The report says profitability can be linked directly to fee mix, client segmentation and staffing ratios. However, only one-third of respondents said they had the necessary tools to provide profitability information at the client or relationship level. Moreover, cost-containment measures are expected to slow the deployment of technologies needed to track this critical information. But few firms found external technology solutions that worked well, and the best had to build their own systems. As many as 75 per cent of companies had CRM initiatives, but they did not provide significant productivity gains. Although the most profitable clients are "new money" investors who are very involved in their finances, the report predicts that active investors will decrease across all "old money" and "new money" segments. The continued importance of "old money" and the need to cross-sell additional products and services to existing customers will prompt a re-examination of fee systems. Discounted fees were a major driver of lower profits, but few managers believed they could eliminate them altogether. The report urges wealth managers not to assume that those clients with the greatest sum of assets bring in the most profits. "The assumption that very high-net-worth clients are the most profitable may not always be accurate, depending on the cost structure in place to serve client segments. Wealth managers must be careful not to dismiss the lower end of the market as the right service model can clearly deliver above-average profitability."