The report from Oliver Wyman and Deutsche Bank predicts roughly 10% - or $1.1trn - of total assets held offshore will leave the industry as tighter rules make it harder for the wealthy to use offshore accounts to avoid paying tax.
Assets under management growth in the sector is expected to slow from 8% to 5% per year until 2021.
The report added that offshore players have been experiencing large outflows for some time, estimating that centres in developed markets such as Switzerland have already seen more than 50% of funds exit.
Outflows from offshore jurisdictions in emerging markets such as Hong Kong and Singapore are expected to “accelerate over the next quarters”.
“We expect the majority of regularisation-driven outflows to hit the industry in advance of the full implementation of [the automatic exchange of information] by the end of 2018,” warned the report.
Based on a survey of 1,000 global HNW clients across China, Germany, Hong Kong, Singapore, Switzerland, UK and the US, Deutsche Bank found that greater transparency, disruptive competition, modest investment returns and a continued shift from active to passive strategies have all cut into wealth management margins and put pressure on fees.
"Our proprietary survey [...] shows that pricing pressures have been stronger in Europe compared to the US," it added.
As a result, profitability within wealth management is set to dive by 11% over the next five years.
Adapt adviser models
Kinner Lakhani, head of European banks research at Deutsche Bank, said: “Wealth managers have various challenges to overcome to match market expectations. We anticipate fee pressure in the context of modest forecast investment returns while cost pressures are likely to persist.
"However, these could be partly offset by benefits from rising US interest rates, growth in Asia Pacific and potentially higher client activity.”
The report urges wealth managers to identify “new revenue streams while reducing costs by digitising processes”.
It also suggests adapting advisory models, for example by investing in digital capabilities.
“Our primary research indicates that up to 32% of clients do not fit neatly into the archetypes associated with wealth managers’ traditional offerings (self-directed, participator, delegator).
"Such clients represent 39% of global HNW wealth and are currently making do with a combination of wealth managers. Developing more ‘flexible’ value propositions is key to capturing this incremental revenue opportunity,” it read.