Wealth Managers See Revenue Growth Despite Margin Squeeze: Fitch

Despite a decrease in margins, wealth management firms and brokerages can anticipate ongoing revenue growth. The first half of 2024 saw a rise in transaction-based and advisory revenues for retail brokerages and wealth practices due to increased client activity and the value of assets under management, which was supported by market appreciation, organic net new client flows, and consistent advisor recruiting, according to a Fitch Ratings report.

That’s despite pre-tax margins falling from the record levels many companies reached last year — and perhaps presenting further difficulties, according to the report.

“Due to recent market volatility, margin pressure will persist, yet remain strong and supportive of ratings,” Fitch wrote. The ratings agency stated that customer cash balances, excluding money market funds, showed another fall in the first half of the year. However, with the Federal Reserve’s funds rate likely at its peak, the industry is ready for “cash sorting activity to moderate this year.”

Fitch also noted increasing regulatory monitoring of cash sweep programs, as well as rises in cash sweep rates by big asset management firms.

It also observed that independent firms aren’t likely to feel much effect. “For the independent channel, cash sweeps remain a small percentage of total advisory assets and primarily serve as a source of account liquidity,” the company wrote.