THROUGH THE LOOKING GLASSAn executive perspective of UK wealth managementin a Retail Distribution Review (RDR) worldCREATE...
CONTENTSIn brief—what you need to know in 30 seconds 3The research process 4The state of play 5The health of wealth at the...
THROUGH THE LOOKING GLASS 3THE UK WEALTH MANAGEMENT INDUSTRY ISREDEFINING ITS VALUE TO ENSURE A CONTINUINGVIABLE BUSINESS ...
4 PERSHING THOUGHT LEADERSHIPTHE RESEARCH PROCESSJust before the dawn of the UK Retail Distribution Review (RDR) coming in...
THROUGH THE LOOKING GLASS 5THE STATE OF PLAYWithout a doubt, on 1 January 2013 the UK wealth management industry entered a...
6 PERSHING THOUGHT LEADERSHIPTHE HEALTH OF WEALTH AT THE START OF 2013Based on the research findings, the UK wealth managem...
THROUGH THE LOOKING GLASS 7But the map for success is not clear. Each firm is likely to adopt a slightly different route.Li...
8 PERSHING THOUGHT LEADERSHIPThis then leads to the heart of the matter. Essentially, what will make wealth managementattr...
THROUGH THE LOOKING GLASS 9WINNING NEW CLIENTS: SHARPENING THE VALUEOF WEALTH MANAGEMENT FROM 2013The first focal point in ...
10 PERSHING THOUGHT LEADERSHIPThis enhanced level of segmentation will be crucial to the next stage of their business.Here...
THROUGH THE LOOKING GLASS 11MANAGING EXISTING CLIENTS: RENEWING THE VOWSIN AN RDR ENVIRONMENTWhile there is a natural impu...
12 PERSHING THOUGHT LEADERSHIPThe reality is that at the dawn of RDR there has been a convergence between the demand andsu...
THROUGH THE LOOKING GLASS 13PERSONNEL: IT AIN’T WHAT YOU DO, IT’S THE WAYTHAT YOU DO IT FROM NOW ONThere is a broad accept...
14 PERSHING THOUGHT LEADERSHIPHowever, the business development group of the UK wealth management community is alsoacutely...
THROUGH THE LOOKING GLASS 15REGULATION AND COMPLIANCE: SWITCHINGA FOE INTO A FRIENDWith a recognised pressure to increase ...
16 PERSHING THOUGHT LEADERSHIPIn reality, the historical arguments against outsourcing solutions were sharpened by the pas...
THROUGH THE LOOKING GLASS 17PRICING, PRODUCTS AND SERVICES: DETERMININGTHE FUTURE WORTH OF WEALTHThe burdens of costs have...
18 PERSHING THOUGHT LEADERSHIPEqually, while maintaining competitive pricing is a priority for wealth managers and financia...
THROUGH THE LOOKING GLASS 19TECHNOLOGY:TRANSITIONING THE INDUSTRYTO A MODERN ERAAs the debates rage around how many people...
20 PERSHING THOUGHT LEADERSHIPIn one particular area there is a growing attention among wealth managers around whattechnol...
THROUGH THE LOOKING GLASS 21Alongside CRM, the improvement of access to product and market information as well asimproving...
22 PERSHING THOUGHT LEADERSHIPThe research insight indicates that increasingly the decision makers are becoming aware that...
THROUGH THE LOOKING GLASS 23IN CONCLUSION:THE FUTURE VIEWOF UK WEALTH MANAGEMENTThe findings of this research program revea...
24 PERSHING THOUGHT LEADERSHIPRDR is driving that mindset. Indeed, regulation more broadly may have forced this issue ofva...
THROUGH THE LOOKING GLASS 25
ABOUT SCORPIO PARTNERSHIPSCORPIO PARTNERSHIP IS THE LEADING INSIGHT AND BUSINESSCONSULTANCY TO THE GLOBAL WEALTH INDUSTRY....
FIND OUT MORE ABOUTTHE COMPANY WE’VEBUILT FOR YOUWE ARE PERSHING, A BNY MELLON COMPANYPershing, a BNY Mellon company is a ...
Through The Looking Glass : An executive perspective of UK wealth management in a Retail Distribution Review (RDR) world
Upcoming SlideShare
Loading in …5
×

Through The Looking Glass : An executive perspective of UK wealth management in a Retail Distribution Review (RDR) world

558 views

Published on

Through the Looking Glass: An Executive Perspective of UK Wealth Management in a Retail Distribution Review (RDR) was produced by Scorpio Partnership in association with Pershing. This paper, which assesses the opinions of 342 senior professionals, demonstrates that creating a viable business model that is valuable for HNW and UHNW clients is top of the agenda for wealth management firms hoping to survive in the post-RDR world and continue to serve affluent investors. Consumer insights from this study will be helpful to anyone developing a marketing or engagement strategy for high net worth clients, including private banks and family offices.

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
558
On SlideShare
0
From Embeds
0
Number of Embeds
6
Actions
Shares
0
Downloads
30
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Through The Looking Glass : An executive perspective of UK wealth management in a Retail Distribution Review (RDR) world

  1. 1. THROUGH THE LOOKING GLASSAn executive perspective of UK wealth managementin a Retail Distribution Review (RDR) worldCREATED IN COLLABORATION WITHEXPERTCREATIVEEXPERIENCEDHONESTPRACTICALINDEPENDENTETHICALORGANISEDKNOWLEDGEABLERESPONSIBLEPERSONALINNOVATIVEUP TO DATEEFFICIENTSAFELOYALPROFESSIONALMODERNINTELLIGENTSOLID WORLD CLASSFLEXIBLEPROACTIVEHARD WORKING FRIENDLYENGAGINGINTIMATEEMOTIONAL
  2. 2. CONTENTSIn brief—what you need to know in 30 seconds 3The research process 4The state of play 5The health of wealth at the start of 2013 6Winning new clients: sharpening the value of wealth management from 2013 9Managing existing clients: renewing the vows in an RDR environment 11Personnel: it ain’t what you do, it’s the way that you do it from now on 13Regulation and compliance: switching a foe into a friend 15Pricing, products and services: determining the future worth of wealth 17Technology: transitioning the industry into a modern era 19In conclusion: the future view of UK wealth management 23What’s on the cover?Thought CloudThis thought cloud is based on the followingquestion in the research programme: In thefuture, what words do you want the industry tobe most associated with?EXPERTCREATIVEEXPERIENCEDHONESTPRACTICALINDEPENDENTETHICALORGANISEDKNOWLEDGEABLERESPONSIBLEPERSONALINNOVATIVEUP TO DATEEFFICIENTSAFELOYALPROFESSIONALMODERNINTELLIGENTSOLID WORLD CLASSFLEXIBLEPROACTIVEHARD WORKING FRIENDLYENGAGINGINTIMATEEMOTIONAL
  3. 3. THROUGH THE LOOKING GLASS 3THE UK WEALTH MANAGEMENT INDUSTRY ISREDEFINING ITS VALUE TO ENSURE A CONTINUINGVIABLE BUSINESS MODEL. RDR HAS BEEN THECATALYST FOR THIS CHANGE. CLIENTS WILL LET THEINDUSTRY KNOW IF IT IS SUCCEEDING.IN BRIEF—what you need to know in 30 secondsThe centre of gravity is shifting in the UKwealth management business modeland Key Performance Indicators (KPIs)The importance of time-based advicefees will rise and asset-based chargingwill be challenged against valueThe industry is being democratised bya new dawn of consumer activism andselectivityA growing expectation of what firmsmust do for their fees will have a directimpact on the business modelThere is a change underway to the linkbetween segmentation, productivityand profitabilityA major cause of this change has beenthe regulatory changes implementedsince 2008, not just RDRThe customer value proposition isbeing re-written by most operatorsMarket conditions are forcing a tippingpoint on what wealth firms do, and donot do, bestThe relationship model will havea makeover where the adviser isaugmented, not replacedAdvisers fear their value will bediminished by technology while clientsconsider the value will be enhancedThe impact of technology on the front-end and back-end business process willbe dramaticThere is recognition that greater scaleand efficiency will be a consequence, butthe question is still how to achieve itThe future wealth management leaderis a knowledge manager at the coreThe role of intuitive and interactive CRMwill level the playing field between firmsof all sizes
  4. 4. 4 PERSHING THOUGHT LEADERSHIPTHE RESEARCH PROCESSJust before the dawn of the UK Retail Distribution Review (RDR) coming into reality Pershingcommissioned Scorpio Partnership to carry out a market research programme with seniorprofessionals in the wealth management industry and prepare an assessment of the findings.The programme collated the views of 342 professionals operating in the three categories ofwealth management, independent financial advice and investment management (Figure 1).These three groups in turn were made of nine constituent parts (Figure 2). Three hundred andtwenty-one of these professionals provided their views through a 15 minute highly detailed onlineinsight survey.This was supported by a further 21 face-to-face interviews with industry leaders atselected firms.One quarter of the participating respondents in the quantitative survey were with institutionsthat managed in excess of GBP5 billion. Ten percent operated at firms with GBP1-5 billion inassets under management (AUM). Thirty percent were employed by businesses with GBP100million to GBP1 billion in AUM while the balance (34%) worked at firms with less than GBP100million in AUM.The survey process was anonymous and operated under the standard market research guidelines.050100150200250300350 321Overall65Investment150Wealthmanagement106FinancialadviceNumberofRespondents+ 21 decision makerface-to-face interviewsFigure 1 – Total sample distributionAll participants were employed by businesses that providedfinancial services to high net worth individuals (HNW). Thedefinition of HNW varied considerably between institutions.In broad terms, the HNW clients represented among thelargest in asset value terms for all businesses and typicallyclients would be booking in excess of GBP250,000 with therespective firm as a minimum. Most firms stated a muchhigher public minimum than this figure.10%10%16%12%12%7%17%13%3%Private client investmentAsset managerFamily officeWealth management divisionin large banking groupPrivate bankWealth managerFinancial plannerIndependent Financial AdvisorStockbrokerINVESTMENTWEALTHMANAGEMENTFINANCIALADVICEFigure 2 – Breakdown ofdistribution by business typeThe types of institutions selectedwere deliberately varied. Theobjective of the assignment wasto obtain a broad perspective onthe current status of the wealthmanagement industry and itsstrategic thinking.
  5. 5. THROUGH THE LOOKING GLASS 5THE STATE OF PLAYWithout a doubt, on 1 January 2013 the UK wealth management industry entered a new era.As the day dawned, the market place commenced operating under the RDR regime. Exactlyhow this is going to affect the conduct of business for private client investors is still a topicof debate.The process of preparation ahead of this day was complex and cluttered with changes. Whileregulation such as RDR has forced an adjustment in the conduct of business what is clear isthat for some time the industry’s operators have been reflecting on their future business.Thus, as the dawn approached, we asked the wealth management industry what was goingthrough their strategic thoughts. Essentially, we wanted to identify what they were planningto do next.> The results were blunt.> The predictions were frank.Put simply, the UK wealth management industry is brutally aware that it must adapt or perish.At the top of the agenda in 2013 there is a priority over deciding what the essence of theirrespective business model is. What, essentially, is going to generate revenue?Coupled to this, business leaders recognise they need to improve the positioning of their modelto their target audience in order to justify the value of their products and services. Once again,the respondents were aware their future rests in their ability as a business to survive. Thisdepends on clients being convinced to come to them and, ultimately, stay with them.The refreshing news from this research was that the vast majority of the respondentsknow what is ahead of them. Equally, they are embracing new ideas, new processes, newtechnologies and new solutions to upgrade their chances of surviving and thriving. Moreover,there is openness to accepting that while the old ways of wealth management have beenoutstandingly successful to get the industry to where it is today, the past is not a guaranteefor future performance.Overall, the results of the research process indicate a growing sense of enterprise andoptimism among the community. Clients are pushing for more. The industry is not afraid bothto adapt to this demand but also to ask along the way if the change is worth it. If not, then it istime to pull out.The evidence in the results here shows already that the biggest success stories before 2020will be the firms that totally embrace a modernisation of their approach from the back-officethrough the front-line solutions and beyond. Technology alone is not the key to this success butcoupled to partnership and innovation it will go a long way.
  6. 6. 6 PERSHING THOUGHT LEADERSHIPTHE HEALTH OF WEALTH AT THE START OF 2013Based on the research findings, the UK wealth management industry needs aconfidence boost.Client sentiment is at a low point but there are signs it could go lower. Regulatory interventionis at a high point but there are signs it could go higher. This is, potentially, a perfect storm. Thegrey clouds of change have been around for some time.The reality is wealth managers have experienced a period of transition that some say stretchesback a decade. With this in mind, senior operators in the market are cautious about how muchthey want to stretch in the coming years. That is not to state they are not prepared to stretch—they know they must. But when they stretch it will be within their means.When asked in this research program what their priorities were in the RDR world, the industry-wide focus is on ensuring there are still clients to manage. According to the respondents,top of the list (at 46% critically important) is keeping hold of the ones that they already have.Although, not far behind, is the need to win the clients they do not yet have (Figure 3).The respondents note, however, the challenge is that clients are not just questioning the meritsof the wealth model. They are actively choosing either to look elsewhere or act independently.Nestled cosily in between the client focus priorities and client activism remains the overridingissue of managing regulation and compliance. Notably, among the face-to-face interviewresponses digging deeper into this issue, it is clear that a mindset shift is underway. Essentially,the heads of businesses recognise they must convert the challenges presented by regulationinto a positive element for growth.> For some,cracking this riddle is a tough challenge.> But the alternatives are tougher.Figure 3 – The most importantpriorities for the UK wealthmanagers todayAchieving significant progress inany of the six business prioritiesillustrated in Figure 3 is not asimple task. The respondents arefully aware that to survive andthrive they will need to achieve animpact in as many of these areasas possible. Fast.27%32%34%39%39%46%29%32%28%27%25%25%23%18%18%15%19%12%18%15%18%16%13%14%3%3%2%3%4%3%0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Systems andtechnologyProduct andservice capabilityPersonneland skillsWinningnew clientsRegulations andcomplianceManaging existingclient relationshipsCritically important Important Neutral Somewhat important Not important
  7. 7. THROUGH THE LOOKING GLASS 7But the map for success is not clear. Each firm is likely to adopt a slightly different route.Lifting the bonnet on these priorities uncovers a whole new set of building blocks that requireattention in the post-RDR landscape. Here, there is a divergence of opinion on what is and isnot working depending on the size of the business (Figure 4).If size is measured purely by number of employees, the results suggest senior executives at thebigger operators believe their scale is not working to their advantage. They are conscious theycan reach more clients but they may not be able to capitalise on the opportunity. Theyexpect more but their sense is their model may either be failing them or at the very least notachieving potential.For instance, on the topic of information technology (IT) this is most pronounced relative to theboutique players. However, reporting and portfolio modelling are also seen as sources of acutefrustration, relative to the professionals at smaller firms. Respondents note that both areas arecritical to future growth objectives.Amid this change in the landscape rules, the competitive focus is turning to how to win clients.> The jury is out on whether one modelwill excel over the other.Intriguingly, the dawn of RDR has resulted in the weapons of versatility and scalabilitybecoming increasingly interchangeable among all sizes of wealth management business.Distinguishing firms purely on size or capabilities is increasingly difficult.The reality based on the performance of the past several decades is that both win some ofthe time and none wins all of the time. Critically, the respondents were aware now that in thismarket it is the clients that decide.Figure 4 – The major obstacles forthe UK wealth managers today basedon size of businessIn this context, what is clear in theRDR environment is the playing fieldis being levelled somewhat. Crucially,that does not just bring the big firms onto the same level as the small firms. Itworks the other way around. This is afundamental change in the industryrule book and the respondents hereare aware they need to adjust the waythey operate.39%26%31%34% 27% 27%25%29%24% 27%39%46%41%38% 39%37%38%31%34%28%0%10%20%30%40%50%ComplianceITsupportanddevelopmentBreadthofproductsandservicesClientrelationshipmanagementinformationInvestmentandmarketinformationAccountingReportingTransactionprocessingPortfoliomodellingCustodyandadministration%ofrespondentsagreeingFewer than 50 employees 50 or more employees
  8. 8. 8 PERSHING THOUGHT LEADERSHIPThis then leads to the heart of the matter. Essentially, what will make wealth managementattractive for future HNW clients?If the businesses, of all sizes, are relatively indistinguishable in terms of clear differencesaround their investments, the conclusion of the leadership interviewed for this research is thatthe focus needs to shift clearly on the client proposition and ultimately the client experience.In the words of one chief executive: “As the industry moves from a commission-basedenvironment to a wealth management model, the number one priority is the client proposition.Advisers must be clear about what they are doing for their fee.”The challenge is to determine what the principal factors are that contribute to the propositionand the value of the model in the future?Figure 5 – The core business variables ofUK wealth management future successWith this in mind, the following sixsections focus on the business variablesthat contribute distinctly to this. Eachbusiness will place a different levelof effort on each of the variables.Ultimately, it is the individual firm’scombination of these variables thatwill underscore their unique serviceproposition. According to respondents,2013 must be the year when firms getthe combination right.TodaysbusinessvariablesWinning newclientManagingexisting clientsRegulation andcompliancePersonnelSystems andtechnologyProduct andservicesPricing
  9. 9. THROUGH THE LOOKING GLASS 9WINNING NEW CLIENTS: SHARPENING THE VALUEOF WEALTH MANAGEMENT FROM 2013The first focal point in the RDR world is around the process of generating business. Oneof the two major sources for this is through winning new clients;the other working withexisting clients.The tough news is that over the past several years, the industry has had a mixed record inits capacity to win new customers. The majority of respondents note that the combinationof increased competitive forces, confused positioning of many firms, and ageneral lack ofdifferentiation between all have led to a polluted market.With this in mind, more visionary operators recognise that with RDR there is now an opportunityto redefine their approach to the market. This opportunity to adapt is a rare one and those thatdo not adjust now will suffer.This redefinition essentially will boil down to a restatement of the values of the individualbusiness model. This, in turn, will lead to an articulation of a value proposition.In essence—what exactly does the firm believe and what does it do? These two pointsare critical grid references for new clients and even existing clients, according to surveyrespondents (Figure 6).In the words of one chief executive of a boutique wealth manager: “The single most importantthing right now is being able to demonstrate your value. It is about being able to explain clearlywhat clients are paying for.”Unfortunately, the value proposition is only part of the way forward for the UK wealthmanagement industry in 2013. When pressed about business priorities, senior decision makersinterviewed note they also need to get their focus clear on what types of clients would be themost commercially viable for their business model. Once again, it is a frank admission but thereality appears to be many operations in the UK (both large and small) are struggling to findtheir optimal profitability level.Figure 6 – The strategies forwinning new business in 2013Essentially,therefore,the resultsshow most firms are now franticallyredrafting their customer valueproposition with a belief that thiswill re-boot the client acquisitionprocess.Arguably,many shouldhave done this sooner,but forwhatever reason the reality is theyhave not done so.12%16%21%27%22%49%50%51%50%61%39%35%28%23%17%0% 20% 40% 60% 80% 100%Internal and externalintroductionsRegional or internationalexpansionMarketing, advertising and PRClearly defining what we do andhow it is different from othersSegmenting clients andunderstanding their needs% of respondentsThis is also important This is low priorityThis is most important
  10. 10. 10 PERSHING THOUGHT LEADERSHIPThis enhanced level of segmentation will be crucial to the next stage of their business.Here, there appears to be a greater willingness to be revisionist in the segmentation approach.By the end of 2012, many operators were aware that an “anybody, anytime” approach totargeting wealthier customers may yield results in the short run but it has been a poor recipefor long term endurance. Equally, going “upstream” to pursue clients with larger wallets is notnecessarily a route of success for many.Fundamentally, the industry is seeking ways forward to reach suitable clients and to ensurethey know them as well as they can in order to provide the right solutions. Critically, theresearch findings indicate that the segmentation for new clients will now be focused more onlife stages rather than wealth status.Meanwhile, segmentation among existing clients will adopt a much colder review of whichclients are going to have the most consistent requirement of the solutions on offer. Ultimately,based on the comments from the respondents, it appears businesses now are looking moreintelligently to identify which clients will represent the most sustainable revenue and,ultimately, profit.This concept is not new—it is often the first stated objective for most chief executives. But asRDR dawned the importance of getting this right this time is very evident in the results. Withrising costs and falling revenues being experienced among an alarming number of operatorsbusiness leaders realise they cannot wait for results to happen.> Firms have to seize the initiative and act.> Otherwise they will soon be operatingon vapours.
  11. 11. THROUGH THE LOOKING GLASS 11MANAGING EXISTING CLIENTS: RENEWING THE VOWSIN AN RDR ENVIRONMENTWhile there is a natural impulse to win new clients among UK wealth management operators,what is equally important is consolidating the relationships with existing business. Indeed,the vast majority of the 342 participants consider maintaining—and hopefully deepening—existing relationships to be at the heart of future survival.Curiously, it appears that while many were willing to state it as a priority of action they appearanxious about actually acting in the first half of 2013. The findings indicate that with existingclients many advisers are nervous of the reaction to the outcome of explaining the new regimein relation to fees and services.This hesitation by some may present opportunity for others in the market. Some of the morevisionary operators, however counter-intuitive it may seem for many, are looking at ways toharness regulation and compliance as an ally for new business creation. In fact, they are activelyseeking to use the situation to renew their commercial vows with their wealthy customers.To that end, when asked about what they will do with existing clients after segmenting themproperly the next priority is to enhance their level of interaction. In fact, these operators areexpecting to go on the front foot during 2013 in a charm offensive to cement business withcurrent clients (Figure 7).This was particularly notable among the wealth management business models, relative tothe independent financial advisers and investment managers. A first scan of the researchresults might suggest this conclusion is incorrect. Yet, when one considers that the wealthmanagement firms were slightly late in their recognition they would need to adapt to the RDRregime, this result makes more sense.After these two 2013 calls for action around segmentation and communication, the toppriorities cluster very quickly around technology and process. In essence, the industry istrending toward a better sytematisation of approach to how it prepares its capabilities andthen delivers them.Figure 7 – The leading factors for managingexisting clients from 2013 (all models)Respondents expect to use the situation inthese early months of 2013 to re-examinethe relationship with their clients and plan afuture that would be both beneficial for theclient and also for the service provider.80%70%77%70%73%73% 63%73%88%78%76%68%63%49%86%81%81%78%72%75%56%40%60%80%100%SegmentingclientsandunderstandingtheirneedsImprovingclientcommunicationsImprovingclientrelationshipmanagementsystemsImprovingserviceandadvicelevelsFine-tuningproductsandservicesEnhancingriskprofilingprocessesEnhancingreportingcapabilities%ofrespondentsstatingvery/criticalimportanceWealth Management Financial adviceInvestment
  12. 12. 12 PERSHING THOUGHT LEADERSHIPThe reality is that at the dawn of RDR there has been a convergence between the demand andsupply of improved usability and functionality of technology to support wealth managementbusiness processes. This is alongside a heightened commercial need for these services basedon both consumer and competitive pressures.In the past, many businesses have shied away from the big “Tech” question. The principalreasoning has been an expectation of huge implementation costs. Many also believed, oftenwrongly, that their more manual approach to winning and maintaining business would besufficiently effective. To an extent they were not wrong. At the time…However, the changing dynamics of the market—not least led by the requirements ofcompliance and regulation—have meant firms can no longer defer the modernisation topic.The responses by business leaders to this research program, as reflected in Figure 7, pointat this conclusion. According to survey respondents, wealth business must reconfigure itsrelationship model so that it can be delivered in a consistent and commercial manner to asmany clients as its business model can profitably support.In reality, the respondents’ results state the industry is trending fast towards an upgrade inits infrastructure. This is not solely because it needs the back office to be better organised. Infact, it is mostly because there is a recognition that the upgrade will enable the front office—essentially the “point of sale” in retail parlance—to become a more effective component of thebusiness model.> This finding was a crucial element of the entireresearch process.Looking to the future, it is apparent that wealth managers, investment managers and advisersalike recognise that the relationship management process must be fast, efficient and accurate.Human error, as the saying goes, is not an easy option to manage but human effectiveness is.
  13. 13. THROUGH THE LOOKING GLASS 13PERSONNEL: IT AIN’T WHAT YOU DO, IT’S THE WAYTHAT YOU DO IT FROM NOW ONThere is a broad acceptance among UK wealth managers of the need to upgrade systems andprocesses to meet the post-RDR world. What is equally clear is the wealth business still, at itscore, relies on the effectiveness of its people.The decision around the allocation of the humanresource within the business model is a vital variable in the future success of the wealthmanagement company.> Simply said,but when it comes to people mattersnothing is ever that simple.To an extent, this is unsurprising given the different motivators and impulses of the executivesdepending on their areas of responsibility.The differences, however, do also tell us a greatdeal about the state of the corporate mind in UK wealth management.They also hint at thedevelopment road map of the industry for the next 12-36 months.Focusing on the views of strategic management—typically the office of the CEO—the prioritiesof action are centred on keeping staff and essentially raising their productivity.The CEOs areevidently not focused on adding more staff.To achieve their goal of getting more out of the currentresource, the CEOs are expecting to need to be more creative about how they do this as they canno longer just increase the wages—most likely because their resources do not permit this option.What is interesting on this point is there is a growing school of thought that the non-financialbenefits are generating a higher level of business productivity. But the popularity of thisconcept may not be shared by all. Notably, the business development professionals that tookpart in this research take a diametrically opposed view. To an extent, this is not surprising asthey are effectively hardwired to generate revenues and the profile of business developers isattuned to a more instant form of financial reward.Figure 8 – Different perspectives on theway forward from within the modelThe survey results reflect this complexityof the human factor. When differentdecision-makers were pressed about theprioritisation issues in their business toensure they had the right mix of peopleand skills to achieve their strategicobjectives, the results identified abreadth of opinion.71%76%69%59%65%60%88%76% 71%68%38%47%81%71%55%67%76%41%78%78%89%56%56%33%20%40%60%80%100%ImprovingcommunicationbetweendivisionswithintheorganisationsOfferingmoreproductandservicetrainingEnhancingstaffretentionthroughnon-financialbenefitsIncreasingbonusincentivesforclientmanagementactivityReducingproduct-relatedbonusincentivesRecruitingmorestaff%ofrespondentsstatingvery/criticalimportanceClient facing Operations Business development Strategic management
  14. 14. 14 PERSHING THOUGHT LEADERSHIPHowever, the business development group of the UK wealth management community is alsoacutely aware that such an approach can impact on behaviour.This might, they acknowledge, attimes be damaging. In fact, it is notable the business development officers are strongly in favourof reducing the product-related bonus incentives that are felt still to be prevalent in the industry.When considering the client facing professional viewpoint on this topic, it appears they do notdisagree hugely with the view of the business developers on either point. However, it is worthnoting that non-financial benefit option is in fact their third highest priority for the future. Infact, when looking at the results in relative terms, it is only a few pips away from being thesecond most important priority for the future.It could well be, therefore, that the CEO and strategic management are on to something and itmay also suggest that business development executives may need to up their game to justifytheir position and economics—particularly when many of them have arguably struggled inrecent years.While these results do not suggest we are in a “mend and make do” environment, it is clear theheads of this industry are conscious they will not be able to solve problems purely but throwingmore people into the mix. This does not mean, equally, that they are in financial spendinglockdown as most leaders openly recognise they must improve other areas of the business tokeep competitive.Figure 9 – Headcount expectationsover the next five yearsUltimately,the results do point toward a strong desireto enhance the productivity levels of the existingresources in the business.Indeed,the plan for futuregrowth is essentially being plotted against a relativelymoderate increase in headcount with 58% of executivesanticipating a slight rise over five years.17%58%12%11%2%Increase a lotIncrease a littleStay the sameDecrease a littleDecrease a lot
  15. 15. THROUGH THE LOOKING GLASS 15REGULATION AND COMPLIANCE: SWITCHINGA FOE INTO A FRIENDWith a recognised pressure to increase revenue and a much reduced budget for growth, thechallenges of the wealth decision-maker are hard enough before the ingredient of complianceis added. For the vast majority of participants, the financial burden imposed by regulationremains a major factor, in their mind, for their challenges in terms of business effectivenessand profit margin.The past 24 months indicate, however, that the pace of regulatory adjustment is unlikely todecrease. In the words of one chief executive of a large private bank: “The cost of regulation isputting pressure on the business to focus on its existing processes.”> This issue of focus is an interesting one.Solving the financial drag of compliance on business performance remains a riddle to most inthe industry it seems. For some it appears to be the focal point of paramount frustration withthe only solution being cutting costs to keep the business ticking over.Naturally, some of this cutting is reasonable but as 2013 began it appears a growing senseof trepidation is emerging that reductions in headcount will have a much greater impact onthe capacity for the business to continue to be effective. Some even now wonder whether thereductions may make the business even more exposed to non-compliance in the future.In the words of one head of investment management at a mid-tier wealth manager: “If we getregulation wrong then it is game over.”Interestingly, based on this point, there is a rising tendency to re-focus on the core practices ofthe business and who is going to be required to do the roles. This is resulting in a refreshed andpotentially less protective debate around outsourcing.In this context, senior decision maker interviewees express a willingness to consider everyaspect of the business process as potentially up for review. As long as the ends can justify themeans, then there is likely to be little argument against this in the post-RDR environment.Figure 10 – The top areas where the effective cost management will be appliedAs a result of the requirements imposed by compliance the management knives typically slash out at people costsand usually this is in the middle and back office. Although notably there are now almost as much favour towardsmore adjustments being made in the front line than many would assume.36%Managingcompliancecosts32%Managingheadcount insupport functions31%Reducingmarketingcosts30%Managingfront officeheadcount28%Outsourcingback officefunctions% ofrespondents
  16. 16. 16 PERSHING THOUGHT LEADERSHIPIn reality, the historical arguments against outsourcing solutions were sharpened by the past24 months which have helped many in the industry recognise what they consider to be core totheir business. As a result, in the next 2-5 years there will be a clear recalibration in the comfortlevels of management around what is internal and external to the business model.Alongside the cost management theme of the decision makers in wealth management there is,notably, a rising sentiment around how compliance aligned to outsourcing might in the long-runbe seen as an ally to the revival of the industry.While it is not a widely popular theme given the daily processes of conducting business now,there is grudging acceptance that the regulatory requirements in some areas of business areforcing an upgrade in the levels of connection with the customer base. The manual processesare not efficient in resolving this nor are they as accurate, it seems.In essence, the focus on strengthening the client engagement processes cannot be seen,ultimately, as a bad thing for the individual business or for the reputation of the financialservices industry as a whole.In the words of one chief executive of a major private bank: “One of the key challenges is goingto be coming to terms with the new regulatory framework but I feel a lot more positive abouthow this is going to shape the industry than with the old regulatory regime.”The transition of enemy to ally will not be sudden and may ultimately never be fully embraced.However, the necessity of the market will impel wealth managers to work out how to operate oncommercial terms within the regulatory guidelines.The early grumblings during 2011-2012 that RDR would be the death knell of parts of the wealthmanagement industry have been replaced by a more muted tolerance of the situation coupled to amore outspoken effort to help shape future regulatory initiatives so that the industry can continue.
  17. 17. THROUGH THE LOOKING GLASS 17PRICING, PRODUCTS AND SERVICES: DETERMININGTHE FUTURE WORTH OF WEALTHThe burdens of costs have a direct impact on the decisions made around pricing. At the heartof this factor for UK wealth managers is how to ensure they can demonstrate the value of theircapabilities to clients that is at a fee level on which they can operate commercially.The challenge faced by all operators is the assumption that, overall, the fees that they cancharge to private clients will continue to be reduced. The concern is no-one ultimately knowshow far these reductions will go. Based on historical evidence, the area where the greatestdecline in fees will be experienced is in the sale of investment products.This explains why most operators now position themselves a “non-product pushers” and muchmore oriented to “solutions”. Setting aside any component of their “solution” which actuallyinvolves intellectual skills, this terminology, they feel, either enables them to justify retaininghigher fees as competitors reduce their fees or puts a brake on the downward fee trend. Orboth. Neither is that sophisticated and both fail to grasp that renaming a product a solutiondoes not change it from being a product.Whatever the terminology, the industry must recalibrate its economics in 2013. As a first step,the response of business leaders surveyed is, as a priority, to re-evaluate the commercialterms on which they operate with external platforms. However, while this is inevitably felt tobe a sensible move by most CEOs in the industry, it is worth noting the other areas of focus toensure the business remains competitive when it comes to products and services. (Figure 11)Figure 11 –The top areas tomaintain a competitive productand service in 2013For instance,when consideringthe three core different models ofthe industry,the slight variances inapproach to competitiveness arenoteworthy.Both the investmentmanagement and financial advicemodels adjudge the review ofplatform arrangements are a centralplank of their competitiveness forthe near term.This represents akey plank of their strategy in 2013.Meanwhile,wealth managers areunconvinced on this matter theexpectation of many respondents isthis will change during 2013.86%57%71%64%79%64%64%79%74%69% 66%58%84%91%75%74%63%35%20%40%60%80%100%AssessingplatformproviderarrangementsEnsuringcompetitivepricingIncreasingtherangeofproductsandservicesofferedDevelopingsolutionsinternallyfromwithinourgroupOutsourcingtoadiscretionaryfundmanagerDecreasingtherangeofproductsandservicesoffered%ofrespondentsstatingvery/criticalimportanceWealth Management Financial adviceInvestment
  18. 18. 18 PERSHING THOUGHT LEADERSHIPEqually, while maintaining competitive pricing is a priority for wealth managers and financialadvisers the investment managers are less focused here. In this area the focus of most wealthmanagers and financial advisers is to identify a common pricing standard that is universallyaccepted. This is so they can be compared fairly between each other when it comes to theclient making the choice. They are acutely concerned about the pricing model for theirintellectual skills such as financial planning and wealth structuring. This is currently why manydefine these skills as part of a solution.However, as several investment managers wryly note, once a common pricing standard isarrived at, the next phase of pricing evolution commences as there is downward fee pressureimposed by market forces. They have, as many commented, seen it all before.Meanwhile, alongside these two points it is interesting to note the tendency among all modelsto believe that in the immediate future value and pricing will be augmented by increasing theproduct and service range on offer. This is coupled, in our view to an equal desire to create moreinternal capabilities for products or services or both. The purpose of this is to ensure a greatermargin is secured in the revenue relative to what may need to be paid away to third parties.Figure 12 – The top areas to maintain acompetitive product and service by 2018This latter point is critical when oneconsiders what the industry believeswill be important for their commercialvalue by 2018. By then, the debate overoutsourcing will be resolved, it appears.In fact, the main priority will be toenhance the capabilities of the businessto generate internal products.77%77%62%77% 77%69%71%69%69%52%47% 48%81%68%75%72%53%34%20%40%60%80%100% DevelopingsolutionsinternallyfromwithinIncreasingtherangeofproductsandservicesofferedEnsuringcompetitivepricingAssessingplatformproviderDecreasingtherangeofproductsandserviceofferedOutsourcingtoadiscretionaryfundmanager%ofrespondentsWealth Management Financial adviceInvestment
  19. 19. THROUGH THE LOOKING GLASS 19TECHNOLOGY:TRANSITIONING THE INDUSTRYTO A MODERN ERAAs the debates rage around how many people to employ,where they should be working and whattypes of product and service they should seek to sell, there has been a steady undercurrentaround the question of the role of technology in the future wealth management model.For most respondents in this research, technology remains a thorny topic. Historically, itwas often approached with about as much enthusiasm as when firms talk about the role ofbranding and marketing.Ironically, all three topics (branding, marketing and technology) are cited in independentresearch surveys of client interests as the major features which private clients consider ascentral factors in both why they chose a wealth management and why they continue with them.Notwithstanding the client perspective, what is notable now is that many more of the marketleaders recognise technology can be a positive agent of change. For many, it is enabling firmsof different scales and propositions to compete on a relatively level playing field. Indeed, ifthe technology had not been in place, many of the smaller players would have little chance ofmaintaining a stake in the private client wealth management race.Thus, there is a groundswell of opinion that technology developments in the context of thewealth management model have initiated a democratisation of the industry.In the words of one managing director of a mid-sized wealth manager: “Technology—that iswhere the big opportunity lies to get greater leverage from your infrastructure.”Figure 13 – The top areas of business capabilities frustration in 2013Indeed,when it comes to infrastructure it is worth noting where the major pain points are in the current models.Whilecompliance has been addressed earlier in this report,over half of the remaining top issues of pain in the business modelshave a technology element to them in terms of solutions to alleviate constraints.45%43%37%35%38%35%37% 38% 38%31%35% 33% 33%35%27% 27%25%28%23%25%35%26%32%31%29% 28% 27%22%21%20%30%40%50%ComplianceITsupportanddevelopmentClientrelationshipmanagementinformationBreadthofproductsandservicesInvestmentandmarketinformationAccountingReportingTransactionprocessingPortfoliomodellingCustodyandadministration%ofrespondentsagreeingWealth Management Financial adviceInvestment22%Areas where technology increasingly plays an additive role
  20. 20. 20 PERSHING THOUGHT LEADERSHIPIn one particular area there is a growing attention among wealth managers around whattechnology can do. This is in client relationship management (CRM) systems. The majorityof operators now openly acknowledge that they currently possess CRM systems that areeither not fit for purpose or are not effectively linked to the rest of the business and clientrelationship process. All accept this is not a sustainable mode of conduct for the future.As a result, CRM development is widely accepted now as the key to the future success of thewealth management model (Figure 14). The face-to-face interviewees consistently remark thata centralised resource on all elements of client knowledge and activity is an obvious benefit.Many more claim it is a necessity. But, more important to many is the idea of a centralisedinformation management resource that will be able to efficiently stimulate the relationshipmodel into activity with a commercial focus.In the words of one chief executive of a smaller private client investment manager: “Most firmshave not understood that managing data is vital—getting the systems in line is going to makea big difference going forward.” In his view, CRM was at the heart of this development.For those that did have CRM solutions linked into the business process, they frankly admit thatthey had not yet adapted to the new solutions. In their defence, for many it is typically a recentintroduction so the processes are still being embedded into the relationship model.For those that have fully adapted to their solutions, they are also now reaping an additionalbenefit which is business data on productivity levels of their advisers. At a management levelthis type of data will increasingly become a cornerstone of evaluation on the future of theirbusiness strategy, according to respondents.Essentially, the data is going to enable businesses to plot which types of clients are doing theright type of business while, equally, they will be able to determine which advisers are the mostvaluable to the model and why.Figure 14 – The top areas where firms are prioritisingsystems and technology enhancementsTherefore, the survey results are hinting that the age ofthe rolodex banker may at last be coming to a close.94%89%72%87%81% 74%90%87% 80%60%80%100%ImprovingclientrelationshipmanagementsystemsImprovingaccesstoproductandmarketinformationImprovingcustody,administrationandreportingcapabilityWealth Management Financial adviceInvestment
  21. 21. THROUGH THE LOOKING GLASS 21Alongside CRM, the improvement of access to product and market information as well asimproving custody, administration and reporting capabilities all rank high on the businesscritical agenda. What is relevant is that across all three business types the sense of importanceis constant.Finally, what is clear from the responses given is that the industry is seeking constructiveways in which to improve not just its impression of what it does for clients, it also seeking totransform the reality of what it does for clients.What is crucial about the above statements and technology is that with technology thebusiness can act more consistently and the business management can also regain a level ofcontrol on how their business develops.The commentary from face-to-face interviews for this research shows a greater awarenessof this in the UK than in the past. Historically, the senior management have often foundthemselves hostage to the dictates of their client advisers and with limited line of sight of theend client or their true needs. In fair weather and positive markets this is manageable, but infoul weather and negative market circumstances this is no longer a viable option.The perfect storm leading up to the dawn of RDR underscored the sense of foul weather whichis prompting leadership to re-equip their business models for the future.As a result, it is becoming more widely accepted that technology is a better ally in the process ofdelivering the relationship model than previously considered. In the past, it has been seen as achallenger (or worse) to the fabric of the model—relationship management delivered by a person.Figure 15 – Primary descriptors which the industry wants to be associated with in the futureThe ambition of how the business wants to be perceived is relevant in this context (Figure 15).It becomes more difficultto underscore this reputation if the relationship model breaks due to poor content management,poor reporting andadministration,poor connectivity levels and so on.Indeed,these factors are widely recognised as of equal,if not greater,importance to the client relative to the investment performance of the underlying funds managed by the advisers.EXPERTCREATIVEEXPERIENCEDHONESTPRACTICALINDEPENDENTETHICALORGANISEDKNOWLEDGEABLERESPONSIBLEPERSONALINNOVATIVEUP TO DATEEFFICIENTSAFELOYALPROFESSIONALMODERNINTELLIGENTSOLID WORLD CLASSFLEXIBLEPROACTIVEHARD WORKING FRIENDLYENGAGINGINTIMATEEMOTIONAL
  22. 22. 22 PERSHING THOUGHT LEADERSHIPThe research insight indicates that increasingly the decision makers are becoming aware thattechnology is not able to replace this model and nor should that be the objective. In reality,technology should make that model more effective and more commercial.> It should also make it more delightful to the clientand this is,ultimately,what they will pay for.
  23. 23. THROUGH THE LOOKING GLASS 23IN CONCLUSION:THE FUTURE VIEWOF UK WEALTH MANAGEMENTThe findings of this research program reveal that UK wealth management is conscious of theobstacles and opportunities it faces. RDR has been a watershed moment for many operators inrealising what they should, and should not, prioritise to maintain their commercial viability.The conclusions drawn by participants are not,by any means,universally consistent.This suggeststhat most are still trying to find their footing in the new world order of wealth management in the UK.Some still believe their essence of success will be the absolute emphasis on personal touch whileothers believe they will get ahead of the pack through an improved systematisation of their business.All accept they need more business and that the sources of this are going to be a combinationof new and existing clients. Crucially, all realise the clients they are targeting are more able nowthan ever to vote with their feet and are more conscious than ever that they should consider theeconomics of the relationships they have with financial providers.Figure 16 – The primary drivers of change in the wealth management models of tomorrow69% of respondents believe thatfee transparency makes good clientmanagement much easier65% believe that client facingstaff must be supported bytechnology rather than replacedby technology eg. good CRMcapabilities59% of respondentsbelieve that the business needs ofthe firm are best met by workingwith external specialists that focuson technology systems58% believe thatit is the service thatdifferentiates awealth manager65% believe that goodpeople are more importantthan good systems andtechnology in a wealthmanagement business66% think that wealthmanagement needs to becompetitive with other partsof the financial servicesindustry and do not view itas a premium serviceABC
  24. 24. 24 PERSHING THOUGHT LEADERSHIPRDR is driving that mindset. Indeed, regulation more broadly may have forced this issue ofvalue and fees onto the table of discussion faster than many firms would have liked. But thatdiscussion was bound to arise and in reality it has been occurring for some time now in the UK.One reality of all of these views is there is obviously no universally accepted answer to theright way forward. Another reality for the industry is that the future is not going to become lesscompetitive or less demanding.In fact, the expectations on the wealth management business model—whichever strategicpaths the respective decision-makers choose to take—is that the future processes are going toneed to be faster, more efficient and more accurate in order to win market share.The optimism reflected by many that participated in the research programme is clear. There isa sense that the growth rate of the wealth management sector is sufficiently robust such thatthey can thrive. Equally, they all felt the mistakes would be made by others.This optimistic conviction is a necessary part of the business world.Although not everyone will be right!With that in mind we would encourage paying close attention to the results and comments reflected inthis report.In doing that there is less of a chance of falling on the wrong side of the success equation.
  25. 25. THROUGH THE LOOKING GLASS 25
  26. 26. ABOUT SCORPIO PARTNERSHIPSCORPIO PARTNERSHIP IS THE LEADING INSIGHT AND BUSINESSCONSULTANCY TO THE GLOBAL WEALTH INDUSTRY.The firm specialises in understanding the wealthy and the financialinstitutions they interact with. We have developed four transformationaldisciplines—SEEK, THINK, SHAPE and CREATE—each designed to enablebusiness leaders to strategically assess, plan and drive growth.The solutionsScorpio Partnership develops regularly win awards for its institutional clientsand help them financially profit.Scorpio Partnership has conducted more than 300 global assignmentsacross wealth for institutions in the banking, fund management, regulation,IT and technology, insurance and charity sectors.Scorpio Partnership has been voted best global consultancy to the wealthmanagement industry for the three consecutive years and has been runnerup for Agency of the Year two years in succession*.The firm is independentand owned by management.For more information go to www.scorpiopartnership.comFor further information please contactScorpio Partnership+44 (0)20 7811 0120office@scorpiopartnership.com*Wealth Briefing, Financial Services Forum© 2013 Scorpio Partnership. All rights reservedSCORPIO PARTNERSHIP DISCIPLINE TEAMSLEVERAGE EXPERTISE IN:SEEKTHINKSHAPECREATE
  27. 27. FIND OUT MORE ABOUTTHE COMPANY WE’VEBUILT FOR YOUWE ARE PERSHING, A BNY MELLON COMPANYPershing, a BNY Mellon company is a leading global provider of financialbusiness solutions to more than 1,500 institutional and retail financialorganisations and independent investment advisers with approximately$1.06 billion in global client assets who collectively represent over five and ahalf million active investor accounts.From offices in London, Liverpool,Jersey and Dublin, Pershing supportsEuropean wealth management companies onshore and offshore withapproximately £32 billion of global customer assets representing around516,000 investors.Our whole-of-market, multi-currency, multi-asset class solution combinessophisticated front-end technology and flexible middle office capabilitieswith execution, settlement and custody services underpinned by a robustregulatory compliance and control framework with dedicated CASSexperience and expertise.BNY Mellon provides investment services all around the world with aroundWe provide services at each phase of the investments cycle and can helpclients create, hold, manage, distribute and restructure investments. Wedeliver the full breadth and depth of our investments capabilities to servea diverse range of individuals and institutions. We enhance transparency,facilitate liquidity and help our clients manage risk in financial transactions.pershing.com/europe© 2013 Pershing Limited. Pershing Limited is an affiliate of Pershing LLC, member FINRA, NYSE,SIPC, a wholly owned subsidiary of The Bank of New York Mellon Corporation (BNY Mellon).Registered Office:Capstan House, One Clove Crescent, East India Dock, London E14 2BH.Authorised and Regulated by the Financial Conduct Authority in the UK, no. 124415. PershingSecurities International Limited is regulated by the Central Bank of Ireland. Pershing (ChannelIslands) Limited is regulated by the Jersey Financial Services Commission.Trademarks belong totheir respective owners.PAP-LTD-TLG-4-13

×