The coronavirus crisis is changing the wealth management landscape. But as corporate strategies are upended and earnings across the industry are slashed, opportunities for some firms may begin to present themselves as highly leveraged rivals trip up in the quickly changing market.
Rating agencies, meanwhile, are busy downgrading wealth managers across the board.
According to a March 20 report by Moody’s analyst Fadi Abdel Massih, independent broker-dealers may be heading for a “fundamental credit challenge.” Fed rate cuts and equity losses are hurting client assets, causing firms to alter their positions.
According to a March 18 report from S&P Global Ratings, the global economic downturn will force firms to push down their annual EBITDA by as much as 25% to 50%. Large broker-dealers, however, can tape their scale and infrastructure.
“Almost every single company in the securities and broker-dealer space” is being affected according to Moody’s. And while that is a grim outlook for many firms across the wealth management landscape, it will give an opportunity to large firms with better balanced books and higher credit ratings to acquire other struggling firms and to cherry pick advisors.
That’s good news for many financial advisors in Massih’s eyes: “The wealth management business remains attractive because it has the advisory revenue component, which is recurring by nature. Some companies will be less flexible than others, and they might be ripe to be acquired by larger players.”
Nonetheless, we are still living in uncertain times and forecasting the future remains a fool’s errand.
The Near Future Looks Grim
The length and depth of the market downturn will make the difference when it comes to effects on the wealth management industry. Layoffs, cutbacks, holds on technology improvements--despite the current industry direction--are all likely to take place in the coming weeks/months.
The last several years has seen a dramatic increase in private equity firms quiring other broker-dealers and wealth managers. They were good moves at the time, but the quick economic downturn has caused instability in the landscape.
On March 19, Moody’s Investor Services announced via report that they’ve changed the Advisor Group’s outlook to ‘negative’ from ‘stable’ and downgraded its corporate family rating for the $2.7 billion in debt issued by Independent Broker-Dealer to “B3” from “B2”--Just one month after completing their $1.3-billion deal to buy Ladenburg Thalmann. The news came just two days after they shifted the outlook for Cetera Financial Group to negative from stable.