It’s a perfect storm for anyone offering wealth management products.
Firstly there’s large – and increasing - regulatory pressure. You only have to look at how busy the consultant community is as they help Banks and Wealth Managers make the necessary changes for MIFID 2. And if the recent past teaches us anything, the regulator will announce MIFID 3 pretty much the moment MIFID 2 is over.
Secondly too little money is being chased by too many providers. And there’s also the recent, much publicised, digitisation trend with digital or robo advice front and centre.
So how do Wealth Managers embrace and respond to this? Can operating and IT platform options make the difference?
If you ask industry consultants and commentators, they’ll say there is close to zero choice for leveraging mature outsourcing capabilities from the institutional asset management market. As a result, most operators in this sector have an outdated patchwork of systems – expensive to manage, with operational risk increasing as skills in older systems become scarce.
So if your aim is to acquire, rather than to be acquired, now is the time to take an objective look at your business model to:
- Assess how you truly differentiate;
- Identify the things your customers value – and are willing to pay for; and
- Recognise the things you do that your customers don’t value.
We must focus on the things our clients truly value in today's digital world.
Adapt or be acquired
Becoming a scaled, profitable business with the capability to acquire will likely mean change: getting rid of expensive, risk-heavy patchwork quilts of systems and moving to an operating platform that supports business growth. Your model should be:
- efficient – seamlessly taking clients through the full lifecycle (on-boarding, assessment, investment management, operations, IT);
- agile – technology should help you adapt quickly to change and regulatory demand rather than slowing you down;
- stable – do it once, do it right, reducing the need for high-risk expensive IT projects;
- focused – supporting the things you do well and the things your clients value rather than holding on to outdated, non-value-add services.
Value what your customers value
It’s important to be pragmatic when considering non-differentiatable services. For years, Wealth Managers have believed that a high-end client base equals a bespoke, in-house operating model. But the truth is that trading a fund or security is simply a process defined by outside factors like legislation and regulation, which is almost impossible to differentiate (unless you do it badly or at too high a cost). So focus on the things your clients truly value in today’s digital world.
To become a strong, sustainable acquirer rather than a target for acquisition you need to:
- Get more out of your model - Partner with a scaled low-cost partner to minimise operating and IT costs;
- Embrace digital trends - Don’t hide from the future. Create an agile technology platform you can change easily; and
- Focus on what your client values - Bespoke isn’t best – get the basics right then use precious resources to focus on the things your clients value and will therefore pay for.
Hugh Evans is Managing Director, Business Development at FNZ. His primary focus is building relationships as well as working closely with our product and technology teams to help FNZ’s proposition evolve to meet clients’ ever changing needs.