U.S. wealth managers' margins seen rising

BOSTON (Reuters) - Profit margins in the U.S. wealth management industry are expected to keep climbing as big banks and boutique firms both offer more expensive products, cut costs, and discard some lower-yielding business, an industry consultant predicted.

"The margins in the United States will go up as players in the industry are managing their business much better," Bruce Holley, partner at The Boston Consulting Group, told the Reuters Wealth Management Summit in Boston on Wednesday.

Over the past six years, margins for firms offering mostly brokerage products have climbed to about 11 percent from about 4 percent in 2000. They also grew to roughly 30 percent now for firms offering more fee-based products from around 20 percent seven years ago, he said.

Even as the industry is expected to swell to roughly $100 trillion in assets under management this year, Holley said it is still a cottage industry where a lot of professional management techniques have not yet been applied.

But this means there is a great opportunity to raise profitability by offering more higher fee-based products, increasing cost management and outsourcing certain services, he said.

"Right now a lot of players are broadening their models and the lines between trust banks and asset management and other things are becoming slightly more blurred. But over time, I think you'll find the industry coming to a more focused model," he said.

Currently one of the problems is that many firms may say they are targeting a certain segment of the market, perhaps the very wealthy, but in reality most of their clients don't fit the bill, Holley said.

(Reporting by Svea Herbst-Bayliss)