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Through the looking glass

An executive perspective of UK wealth management in a Retail Distribution Review (RDR) world

created in collaboration with

In briefwhat you need to know in 30 seconds The research process The state of play The health of wealth at the start of 2013 Winning new clients: sharpening the value of wealth management from 2013 Managing existing clients: renewing the vows in an RDR environment Personnel: it aint what you do, its the way that you do it from now on Regulation and compliance: switching a foe into a friend Pricing, products and services: determining the future worth of wealth Technology: transitioning the industry into a modern era In conclusion: the future view of UK wealth management 3 4 5 6 9 11 13 15 17 19 23

Whats on the cover?



Thought Cloud






This thought cloud is based on the following question in the research programme: In the future, what words do you want the industry to be most associated with?





The UK wealth management industry is redefining its value to ensure a continuing viable business model. RDR has been the catalyst for this change. Clients will let the industry know if it is succeeding.

In briefwhat you need to know in 30 seconds

3 The centre of gravity is shifting in the UK

wealth management business model and Key Performance Indicators (KPIs) The importance of time-based advice fees will rise and asset-based charging will be challenged against value

3 The relationship model will have

a makeover where the adviser is augmented, not replaced Advisers fear their value will be diminished by technology while clients consider the value will be enhanced

3 The industry is being democratised by

a new dawn of consumer activism and selectivity A growing expectation of what firms must do for their fees will have a direct impact on the business model

3 The impact of technology on the front-

end and back-end business process will be dramatic There is recognition that greater scale and efficiency will be a consequence, but the question is still how to achieve it

3 There is a change underway to the link

between segmentation, productivity and profitability A major cause of this change has been the regulatory changes implemented since 2008, not just RDR

3 The future wealth management leader

is a knowledge manager at the core The role of intuitive and interactive CRM will level the playing field between firms of all sizes

3 The customer value proposition is

being re-written by most operators Market conditions are forcing a tipping point on what wealth firms do, and do not do, best

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The research process

Just before the dawn of the UK Retail Distribution Review (RDR) coming into reality Pershing commissioned Scorpio Partnership to carry out a market research programme with senior professionals 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 of wealth management, independent financial advice and investment management (Figure 1). These three groups in turn were made of nine constituent parts (Figure 2). Three hundred and twenty-one of these professionals provided their views through a 15 minute highly detailed online insight survey. This was supported by a further 21 face-to-face interviews with industry leaders at selected firms.
350 321 + 21 decision maker face-to-face interviews

Figure 1 Total sample distribution

Number of Respondents

300 250 200

All participants were employed by businesses that provided financial services to high net worth individuals (HNW). The definition of HNW varied considerably between institutions. In broad terms, the HNW clients represented among the largest in asset value terms for all businesses and typically clients would be booking in excess of GBP250,000 with the respective firm as a minimum. Most firms stated a much higher public minimum than this figure.

150 150 106 100 50 0 Investment Overall Wealth management Financial advice 65

3% 13%

10% 10%

Private client investment Asset manager Family office Wealth management division in large banking group Private bank 16% Wealth manager Financial planner

Figure 2 Breakdown of

distribution by business type The types of institutions selected were deliberately varied. The



objective of the assignment was to obtain a broad perspective on the current status of the wealth management industry and its strategic thinking.

7% 12% 12%

Independent Financial Advisor Stockbroker


One quarter of the participating respondents in the quantitative survey were with institutions that managed in excess of GBP5 billion. Ten percent operated at firms with GBP1-5 billion in assets under management (AUM). Thirty percent were employed by businesses with GBP100 million to GBP1 billion in AUM while the balance (34%) worked at firms with less than GBP100 million in AUM. The survey process was anonymous and operated under the standard market research guidelines.

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The state of play

Without 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. Exactly how this is going to affect the conduct of business for private client investors is still a topic of debate. The process of preparation ahead of this day was complex and cluttered with changes. While regulation such as RDR has forced an adjustment in the conduct of business what is clear is that for some time the industrys operators have been reflecting on their future business. Thus, as the dawn approached, we asked the wealth management industry what was going through their strategic thoughts. Essentially, we wanted to identify what they were planning to 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 their respective business model is. What, essentially, is going to generate revenue? Coupled to this, business leaders recognise they need to improve the positioning of their model to 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. This depends 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 respondents know what is ahead of them. Equally, they are embracing new ideas, new processes, new technologies 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 been outstandingly successful to get the industry to where it is today, the past is not a guarantee for future performance. Overall, the results of the research process indicate a growing sense of enterprise and optimism among the community. Clients are pushing for more. The industry is not afraid both to adapt to this demand but also to ask along the way if the change is worth it. If not, then it is time to pull out. The evidence in the results here shows already that the biggest success stories before 2020 will be the firms that totally embrace a modernisation of their approach from the back-office through the front-line solutions and beyond. Technology alone is not the key to this success but coupled to partnership and innovation it will go a long way.

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The health of wealth at the start of 2013

Based on the research findings, the UK wealth management industry needs a confidence boost. Client sentiment is at a low point but there are signs it could go lower. Regulatory intervention is at a high point but there are signs it could go higher. This is, potentially, a perfect storm. The grey clouds of change have been around for some time. The reality is wealth managers have experienced a period of transition that some say stretches back a decade. With this in mind, senior operators in the market are cautious about how much they 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 industrywide 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 merits of 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 overriding issue of managing regulation and compliance. Notably, among the face-to-face interview responses 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 regulation into a positive element for growth.

>F  or some, cracking this riddle is a tough challenge. >B  ut the alternatives are tougher.
Managing existing client relationships Regulations and compliance Winning new clients Personnel and skills Product and service capability Systems and technology 0% Critically important 46% 25%

Figure 3 The most important priorities for the UK wealth managers today Achieving significant progress in any of the six business priorities illustrated in Figure 3 is not a simple task. The respondents are fully aware that to survive and thrive they will need to achieve an impact in as many of these areas as possible. Fast.
























27% 10% 20% 30%

29% 40% Neutral 50% 60%

23% 70% 80%

18% 90%

3% 100%


Somewhat important

Not important

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But 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 require attention in the post-RDR landscape. Here, there is a divergence of opinion on what is and is not 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 the bigger operators believe their scale is not working to their advantage. They are conscious they can reach more clients but they may not be able to capitalise on the opportunity. They expect more but their sense is their model may either be failing them or at the very least not achieving potential. For instance, on the topic of information technology (IT) this is most pronounced relative to the boutique players. However, reporting and portfolio modelling are also seen as sources of acute frustration, relative to the professionals at smaller firms. Respondents note that both areas are critical to future growth objectives.
Fewer than 50 employees 50% 39% % of respondents agreeing 40% 39% 30% 26% 20% 10% 0% Breadth of products and services IT support and development Investment and market information Client relationship management information Transaction processing Portfolio modelling Custody and administration Compliance Accounting Reporting 31% 34% 27% 46% 41% 38% 39% 37% 27% 29% 25% 24% 27% 38% 31% 34% 28% 50 or more employees

Figure 4 The major obstacles for the UK wealth managers today based on size of business In this context, what is clear in the RDR environment is the playing field is being levelled somewhat. Crucially, that does not just bring the big firms on to the same level as the small firms. It works the other way around. This is a fundamental change in the industry rule book and the respondents here are aware they need to adjust the way they operate.

Amid this change in the landscape rules, the competitive focus is turning to how to win clients.

>T  he jury is out on whether one model

will excel over the other.

Intriguingly, the dawn of RDR has resulted in the weapons of versatility and scalability becoming 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 of the time and none wins all of the time. Critically, the respondents were aware now that in this market it is the clients that decide.

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This then leads to the heart of the matter. Essentially, what will make wealth management attractive for future HNW clients? If the businesses, of all sizes, are relatively indistinguishable in terms of clear differences around their investments, the conclusion of the leadership interviewed for this research is that the 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-based environment 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 proposition and the value of the model in the future?

Figure 5 The core business variables of UK wealth management future success With this in mind, the following six sections focus on the business variables that contribute distinctly to this. Each business will place a different level of effort on each of the variables. Ultimately, it is the individual firms combination of these variables that will underscore their unique service proposition. According to respondents, 2013 must be the year when firms get the combination right.

Winning new client Systems and technology Managing existing clients

Product and services

Todays business variables

Regulation and compliance



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Winning new clients: sharpening the value of wealth management from 2013
The first focal point in the RDR world is around the process of generating business. One of the two major sources for this is through winning new clients; the other working with existing clients. The tough news is that over the past several years, the industry has had a mixed record in its capacity to win new customers. The majority of respondents note that the combination of increased competitive forces, confused positioning of many firms, and ageneral lack of differentiation between all have led to a polluted market. With this in mind, more visionary operators recognise that with RDR there is now an opportunity to redefine their approach to the market. This opportunity to adapt is a rare one and those that do not adjust now will suffer. This redefinition essentially will boil down to a restatement of the values of the individual business 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 points are critical grid references for new clients and even existing clients, according to survey respondents (Figure 6). In the words of one chief executive of a boutique wealth manager: The single most important thing right now is being able to demonstrate your value. It is about being able to explain clearly what clients are paying for.

Segmenting clients and understanding their needs Clearly defining what we do and how it is different from others Marketing, advertising and PR




Figure 6 The strategies for winning new business in 2013 Essentially, therefore, the results show most firms are now frantically redrafting their customer value proposition with a belief that this will re-boot the client acquisition process. Arguably, many should







Regional or international expansion Internal and external introductions 0%




12% 20%

49% 40% 60%

39% 80%

have done this sooner, but for whatever reason the reality is they have not done so.

% of respondents This is most important This is also important This is low priority

Unfortunately, the value proposition is only part of the way forward for the UK wealth management industry in 2013. When pressed about business priorities, senior decision makers interviewed note they also need to get their focus clear on what types of clients would be the most commercially viable for their business model. Once again, it is a frank admission but the reality appears to be many operations in the UK (both large and small) are struggling to find their optimal profitability level.

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This 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 to targeting wealthier customers may yield results in the short run but it has been a poor recipe for long term endurance. Equally, going upstream to pursue clients with larger wallets is not necessarily a route of success for many. Fundamentally, the industry is seeking ways forward to reach suitable clients and to ensure they know them as well as they can in order to provide the right solutions. Critically, the research findings indicate that the segmentation for new clients will now be focused more on life stages rather than wealth status. Meanwhile, segmentation among existing clients will adopt a much colder review of which clients 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 more intelligently to identify which clients will represent the most sustainable revenue and, ultimately, profit. This concept is not newit is often the first stated objective for most chief executives. But as RDR dawned the importance of getting this right this time is very evident in the results. With rising costs and falling revenues being experienced among an alarming number of operators business leaders realise they cannot wait for results to happen.

>F  irms have to seize the initiative and act.

>Otherwise they will soon be operating

on vapours.

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Managing existing clients: renewing the vows in an RDR environment

While 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 maintainingand 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 appear anxious about actually acting in the first half of 2013. The findings indicate that with existing clients many advisers are nervous of the reaction to the outcome of explaining the new regime in relation to fees and services. This hesitation by some may present opportunity for others in the market. Some of the more visionary operators, however counter-intuitive it may seem for many, are looking at ways to harness regulation and compliance as an ally for new business creation. In fact, they are actively seeking to use the situation to renew their commercial vows with their wealthy customers.
Investment % of respondents stating very/ critical importance Wealth Management 88% 81% 70% 81% 78% 77% 78% 76% 70% 73% 72% 68% 75% 73% 63% 63% 56% 49% Segmenting clients and understanding their needs Improving client relationship management systems Fine-tuning products and services Enhancing risk profiling processes Improving client communications Improving service and advice levels Enhancing reporting capabilities Financial advice

Figure 7 The leading factors for managing existing clients from 2013 (all models) Respondents expect to use the situation in these early months of 2013 to re-examine the relationship with their clients and plan a future that would be both beneficial for the client and also for the service provider.

100% 86% 80% 80% 73% 60%


To that end, when asked about what they will do with existing clients after segmenting them properly the next priority is to enhance their level of interaction. In fact, these operators are expecting to go on the front foot during 2013 in a charm offensive to cement business with current clients (Figure 7). This was particularly notable among the wealth management business models, relative to the independent financial advisers and investment managers. A first scan of the research results might suggest this conclusion is incorrect. Yet, when one considers that the wealth management firms were slightly late in their recognition they would need to adapt to the RDR regime, this result makes more sense. After these two 2013 calls for action around segmentation and communication, the top priorities cluster very quickly around technology and process. In essence, the industry is trending toward a better sytematisation of approach to how it prepares its capabilities and then delivers them.
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The reality is that at the dawn of RDR there has been a convergence between the demand and supply of improved usability and functionality of technology to support wealth management business processes. This is alongside a heightened commercial need for these services based on both consumer and competitive pressures. In the past, many businesses have shied away from the big Tech question. The principal reasoning has been an expectation of huge implementation costs. Many also believed, often wrongly, that their more manual approach to winning and maintaining business would be sufficiently effective. To an extent they were not wrong. At the time However, the changing dynamics of the marketnot least led by the requirements of compliance and regulationhave meant firms can no longer defer the modernisation topic. The responses by business leaders to this research program, as reflected in Figure 7, point at this conclusion. According to survey respondents, wealth business must reconfigure its relationship model so that it can be delivered in a consistent and commercial manner to as many clients as its business model can profitably support. In reality, the respondents results state the industry is trending fast towards an upgrade in its infrastructure. This is not solely because it needs the back office to be better organised. In fact, it is mostly because there is a recognition that the upgrade will enable the front office essentially the point of sale in retail parlanceto become a more effective component of the business model.

>T  his finding was a crucial element of the entire

research process.

Looking to the future, it is apparent that wealth managers, investment managers and advisers alike 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.

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Personnel: it aint what you do, its the way that you do it from now on
There is a broad acceptance among UK wealth managers of the need to upgrade systems and processes to meet the post-RDR world. What is equally clear is the wealth business still, at its core, relies on the effectiveness of its people. The decision around the allocation of the human resource within the business model is a vital variable in the future success of the wealth management company.

> Simply said, but when it comes to people matters

nothing is ever that simple.

Client facing 100% 88% % of respondents stating very/ critical importance 80%


Business development 89%

Strategic management

Figure 8 Different perspectives on the way forward from within the model The survey results reflect this complexity of the human factor. When different decision-makers were pressed about the prioritisation issues in their business to ensure they had the right mix of people and skills to achieve their strategic objectives, the results identified a breadth of opinion.

78% 81% 78% 76% 76% 71% 71%

76% 71% 69% 55% 68% 67% 59% 56% 65% 56% 60% 47% 41% 33%


40% 38% 20% Offering more product and service training Improving communication between divisions within the organisations Enhancing staff retention through non-financial benefits Increasing bonus incentives for client management activity Reducing productrelated bonus incentives

To an extent, this is unsurprising given the different motivators and impulses of the executives depending on their areas of responsibility. The differences, however, do also tell us a great deal about the state of the corporate mind in UK wealth management. They also hint at the development road map of the industry for the next 12-36 months. Focusing on the views of strategic managementtypically the office of the CEOthe priorities of action are centred on keeping staff and essentially raising their productivity. The CEOs are evidently not focused on adding more staff. To achieve their goal of getting more out of the current resource, the CEOs are expecting to need to be more creative about how they do this as they can no longer just increase the wagesmost 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-financial benefits are generating a higher level of business productivity. But the popularity of this concept may not be shared by all. Notably, the business development professionals that took part in this research take a diametrically opposed view. To an extent, this is not surprising as they are effectively hardwired to generate revenues and the profile of business developers is attuned to a more instant form of financial reward.

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Recruiting more staff


However, the business development group of the UK wealth management community is also acutely aware that such an approach can impact on behaviour. This might, they acknowledge, at times be damaging. In fact, it is notable the business development officers are strongly in favour of 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 not disagree hugely with the view of the business developers on either point. However, it is worth noting that non-financial benefit option is in fact their third highest priority for the future. In fact, when looking at the results in relative terms, it is only a few pips away from being the second most important priority for the future. It could well be, therefore, that the CEO and strategic management are on to something and it may also suggest that business development executives may need to up their game to justify their position and economicsparticularly when many of them have arguably struggled in recent years.


2% 17%

Figure 9 Headcount expectations over the next five years

Increase a lot Increase a little Stay the same Decrease a little Decrease a lot

Ultimately, the results do point toward a strong desire to enhance the productivity levels of the existing resources in the business. Indeed, the plan for future growth is essentially being plotted against a relatively moderate increase in headcount with 58% of executives anticipating a slight rise over five years.



While these results do not suggest we are in a mend and make do environment, it is clear the heads of this industry are conscious they will not be able to solve problems purely but throwing more people into the mix. This does not mean, equally, that they are in financial spending lockdown as most leaders openly recognise they must improve other areas of the business to keep competitive.

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Regulation and compliance: switching a foe into a friend

With a recognised pressure to increase revenue and a much reduced budget for growth, the challenges of the wealth decision-maker are hard enough before the ingredient of compliance is added. For the vast majority of participants, the financial burden imposed by regulation remains a major factor, in their mind, for their challenges in terms of business effectiveness and profit margin. The past 24 months indicate, however, that the pace of regulatory adjustment is unlikely to decrease. In the words of one chief executive of a large private bank: The cost of regulation is putting 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 in the industry it seems. For some it appears to be the focal point of paramount frustration with the only solution being cutting costs to keep the business ticking over.

Figure 10 The top areas where the effective cost management will be applied As a result of the requirements imposed by compliance the management knives typically slash out at people costs and usually this is in the middle and back office. Although notably there are now almost as much favour towards more adjustments being made in the front line than many would assume.

% of respondents






Managing compliance costs

Managing headcount in support functions

Reducing marketing costs

Managing front office headcount

Outsourcing back office functions

Naturally, some of this cutting is reasonable but as 2013 began it appears a growing sense of trepidation is emerging that reductions in headcount will have a much greater impact on the capacity for the business to continue to be effective. Some even now wonder whether the reductions 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 get regulation wrong then it is game over. Interestingly, based on this point, there is a rising tendency to re-focus on the core practices of the business and who is going to be required to do the roles. This is resulting in a refreshed and potentially less protective debate around outsourcing. In this context, senior decision maker interviewees express a willingness to consider every aspect of the business process as potentially up for review. As long as the ends can justify the means, then there is likely to be little argument against this in the post-RDR environment.

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In reality, the historical arguments against outsourcing solutions were sharpened by the past 24 months which have helped many in the industry recognise what they consider to be core to their business. As a result, in the next 2-5 years there will be a clear recalibration in the comfort levels 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-run be 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 are forcing an upgrade in the levels of connection with the customer base. The manual processes are 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 financial services industry as a whole. In the words of one chief executive of a major private bank: One of the key challenges is going to be coming to terms with the new regulatory framework but I feel a lot more positive about how 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 on commercial terms within the regulatory guidelines. The early grumblings during 2011-2012 that RDR would be the death knell of parts of the wealth management industry have been replaced by a more muted tolerance of the situation coupled to a more outspoken effort to help shape future regulatory initiatives so that the industry can continue.

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Pricing, products and services: determining the future worth of wealth

The burdens of costs have a direct impact on the decisions made around pricing. At the heart of this factor for UK wealth managers is how to ensure they can demonstrate the value of their capabilities 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 can charge to private clients will continue to be reduced. The concern is no-one ultimately knows how far these reductions will go. Based on historical evidence, the area where the greatest decline 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 much more oriented to solutions. Setting aside any component of their solution which actually involves intellectual skills, this terminology, they feel, either enables them to justify retaining higher fees as competitors reduce their fees or puts a brake on the downward fee trend. Or both. Neither is that sophisticated and both fail to grasp that renaming a product a solution does 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 commercial terms on which they operate with external platforms. However, while this is inevitably felt to be a sensible move by most CEOs in the industry, it is worth noting the other areas of focus to ensure the business remains competitive when it comes to products and services. (Figure 11)
Investment 100% 86% % of respondents stating very/ critical importance 80% 84% 79% 75% 74% 71% 60% 64% 57% 40% 35% 20% Assessing platform provider arrangements Ensuring competitive pricing Developing solutions internally from within our group Increasing the range of products and services offered Decreasing the range of products and services offered Outsourcing to a discretionary fund manager 79% 74% 69% 64% 66% 63% 64% 58% Wealth Management Financial advice

Figure 11 The top areas to


maintain a competitive product and service in 2013 For instance, when considering the three core different models of the industry, the slight variances in approach to competitiveness are noteworthy. Both the investment management and financial advice models adjudge the review of platform arrangements are a central plank of their competitiveness for the near term. This represents a key plank of their strategy in 2013. Meanwhile, wealth managers are unconvinced on this matter the expectation of many respondents is this will change during 2013.

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Equally, while maintaining competitive pricing is a priority for wealth managers and financial advisers the investment managers are less focused here. In this area the focus of most wealth managers and financial advisers is to identify a common pricing standard that is universally accepted. This is so they can be compared fairly between each other when it comes to the client making the choice. They are acutely concerned about the pricing model for their intellectual skills such as financial planning and wealth structuring. This is currently why many define these skills as part of a solution. However, as several investment managers wryly note, once a common pricing standard is arrived at, the next phase of pricing evolution commences as there is downward fee pressure imposed 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 models to believe that in the immediate future value and pricing will be augmented by increasing the product and service range on offer. This is coupled, in our view to an equal desire to create more internal capabilities for products or services or both. The purpose of this is to ensure a greater margin is secured in the revenue relative to what may need to be paid away to third parties.
Investment Wealth Management Financial advice

Figure 12 The top areas to maintain a competitive product and service by 2018 This latter point is critical when one
% of respondents

100% 81% 80% 77% 71% 60% 77% 69% 68%

75% 69% 62%

77% 72%

77% 69%

considers what the industry believes will be important for their commercial value by 2018. By then, the debate over outsourcing will be resolved, it appears. In fact, the main priority will be to enhance the capabilities of the business to generate internal products.

52% 40%

53% 47% 48% 34%

20% Increasing the range of products and services offered Developing solutions internally from within Ensuring competitive pricing Outsourcing to a discretionary fund manager Assessing platform provider Decreasing the range of products and service offered

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Technology: transitioning the industry to a modern era

As the debates rage around how many people to employ, where they should be working and what types of product and service they should seek to sell, there has been a steady undercurrent around 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, it was often approached with about as much enthusiasm as when firms talk about the role of branding and marketing. Ironically, all three topics (branding, marketing and technology) are cited in independent research surveys of client interests as the major features which private clients consider as central 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 market leaders recognise technology can be a positive agent of change. For many, it is enabling firms of different scales and propositions to compete on a relatively level playing field. Indeed, if the technology had not been in place, many of the smaller players would have little chance of maintaining a stake in the private client wealth management race. Thus, there is a groundswell of opinion that technology developments in the context of the wealth management model have initiated a democratisation of the industry. In the words of one managing director of a mid-sized wealth manager: Technologythat is where the big opportunity lies to get greater leverage from your infrastructure.

Figure 13 The top areas of business capabilities frustration in 2013 Indeed, when it comes to infrastructure it is worth noting where the major pain points are in the current models. While compliance has been addressed earlier in this report, over half of the remaining top issues of pain in the business models have a technology element to them in terms of solutions to alleviate constraints.
Investment 50% % of respondents agreeing 45% 40% 35% 35% 30% 26% 20% IT support and development Compliance Investment and market information Accounting Reporting Transaction processing Client relationship management information 33% 43% 37% 33% 32% 38% 35% 35% 31% 29% 27% 35% 28% 27% 37% 38% 38% 31% 27% 25% 28% 22% 23% 22% Portfolio modelling 25% 21% Custody and administration Wealth Management Financial advice

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Breadth of products and services

Areas where technology increasingly plays an additive role


In one particular area there is a growing attention among wealth managers around what technology can do. This is in client relationship management (CRM) systems. The majority of operators now openly acknowledge that they currently possess CRM systems that are either not fit for purpose or are not effectively linked to the rest of the business and client relationship 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 the wealth management model (Figure 14). The face-to-face interviewees consistently remark that a 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 centralised information management resource that will be able to efficiently stimulate the relationship model into activity with a commercial focus. In the words of one chief executive of a smaller private client investment manager: Most firms have not understood that managing data is vitalgetting the systems in line is going to make a big difference going forward. In his view, CRM was at the heart of this development.
Investment Wealth Management 94% 90% 80% 87% 81% 89% 87% 80% 74% 72% 60% Improving client relationship management systems Improving access to product and market information Improving custody, administration and reporting capability Financial advice

Figure 14 The top areas where firms are prioritising systems and technology enhancements Therefore, the survey results are hinting that the age of the rolodex banker may at last be coming to a close.


For those that did have CRM solutions linked into the business process, they frankly admit that they had not yet adapted to the new solutions. In their defence, for many it is typically a recent introduction 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 additional benefit which is business data on productivity levels of their advisers. At a management level this type of data will increasingly become a cornerstone of evaluation on the future of their business strategy, according to respondents. Essentially, the data is going to enable businesses to plot which types of clients are doing the right type of business while, equally, they will be able to determine which advisers are the most valuable to the model and why.

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Alongside CRM, the improvement of access to product and market information as well as improving custody, administration and reporting capabilities all rank high on the business critical agenda. What is relevant is that across all three business types the sense of importance is constant. Finally, what is clear from the responses given is that the industry is seeking constructive ways in which to improve not just its impression of what it does for clients, it also seeking to transform the reality of what it does for clients.

Figure 15 Primary descriptors which the industry wants to be associated with in the future The ambition of how the business wants to be perceived is relevant in this context (Figure 15). It becomes more difficult to underscore this reputation if the relationship model breaks due to poor content management, poor reporting and administration, 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.













What is crucial about the above statements and technology is that with technology the business can act more consistently and the business management can also regain a level of control on how their business develops. The commentary from face-to-face interviews for this research shows a greater awareness of this in the UK than in the past. Historically, the senior management have often found themselves hostage to the dictates of their client advisers and with limited line of sight of the end client or their true needs. In fair weather and positive markets this is manageable, but in foul 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 which is 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 of delivering the relationship model than previously considered. In the past, it has been seen as a challenger (or worse) to the fabric of the modelrelationship management delivered by a person.

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The research insight indicates that increasingly the decision makers are becoming aware that technology 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.

>I  t should also make it more delightful to the client

and this is, ultimately, what they will pay for.

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In conclusion: the future view of UK wealth management

The findings of this research program reveal that UK wealth management is conscious of the obstacles and opportunities it faces. RDR has been a watershed moment for many operators in realising 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 suggests that 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 while others 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 combination of new and existing clients. Crucially, all realise the clients they are targeting are more able now than ever to vote with their feet and are more conscious than ever that they should consider the economics of the relationships they have with financial providers.

Figure 16 The primary drivers of change in the wealth management models of tomorrow

69% of respondents believe that fee transparency makes good client management much easier

65% believe that client facing

staff must be supported by technology rather than replaced by technology eg. good CRM capabilities

66% think that wealth management needs to be competitive with other parts of the financial services industry and do not view it as a premium service

A 59% of respondents believe that the business needs of the firm are best met by working with external specialists that focus on technology systems B C

65% believe that good people are more important than good systems and technology in a wealth management business

58% believe that it is the service that differentiates a wealth manager

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RDR is driving that mindset. Indeed, regulation more broadly may have forced this issue of value and fees onto the table of discussion faster than many firms would have liked. But that discussion 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 the right way forward. Another reality for the industry is that the future is not going to become less competitive or less demanding. In fact, the expectations on the wealth management business modelwhichever strategic paths the respective decision-makers choose to takeis that the future processes are going to need 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 is a sense that the growth rate of the wealth management sector is sufficiently robust such that they 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 in this report. In doing that there is less of a chance of falling on the wrong side of the success equation.

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Scorpio Partnership is the leading insight and business consultancy to the global wealth industry. The firm specialises in understanding the wealthy and the financial institutions they interact with. We have developed four transformational disciplinesSEEK, THINK, SHAPE and CREATEeach designed to enable business leaders to strategically assess, plan and drive growth. The solutions Scorpio Partnership develops regularly win awards for its institutional clients and help them financially profit. Scorpio Partnership has conducted more than 300 global assignments across 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 wealth management industry for the three consecutive years and has been runner up for Agency of the Year two years in succession*. The firm is independent and owned by management.
For more information go to For further information please contact Scorpio Partnership +44 (0)20 7811 0120 *Wealth Briefing, Financial Services Forum 2013 Scorpio Partnership. All rights reserved

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We Are Pershing, a BNY Mellon company Pershing, a BNY Mellon company is a leading global provider of financial business solutions to more than 1,500 institutional and retail financial organisations and independent investment advisers with approximately $1.06 billion in global client assets who collectively represent over five and a half million active investor accounts. From offices in London, Liverpool, Jersey and Dublin, Pershing supports European wealth management companies onshore and offshore with approximately 32 billion of global customer assets representing around 516,000 investors. Our whole-of-market, multi-currency, multi-asset class solution combines sophisticated front-end technology and flexible middle office capabilities with execution, settlement and custody services underpinned by a robust regulatory compliance and control framework with dedicated CASS experience and expertise. BNY Mellon provides investment services all around the world with around $26.2 trillion in assets under custody and/or administration. We provide services at each phase of the investments cycle and can help clients create, hold, manage, distribute and restructure investments. We deliver the full breadth and depth of our investments capabilities to serve a diverse range of individuals and institutions. We enhance transparency, facilitate liquidity and help our clients manage risk in financial transactions. 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. Pershing Securities International Limited is regulated by the Central Bank of Ireland. Pershing (Channel Islands) Limited is regulated by the Jersey Financial Services Commission. Trademarks belong to their respective owners.