The wealth management industry continues to undergo significant transformation. As firms progress on their unique transformation journeys, four key challenges to firms’ operating models have emerged: costs, regulatory change, increasingly complex client demands and the need for technological innovation.
Finding ways to address these challenges is essential for firms’ ability to continue their operations and remain competitive against a dynamic industry backdrop.
It’s encouraging to see firms’ growing acknowledgement that the key to unlock this operational efficiency and competitiveness is access to, and integration of, data.
Cost control
Central to cost considerations are wealth managers’ ability to prove they offer good value for money.
As with any service, clients are willing to pay, but only if they see value and understand it, and with the turbulent market backdrop, some firms have struggled to articulate their value proposition, which in turn drives potential and existing clients to look to other providers.
This is particularly acute when it comes to integrating digital solutions at the front-end, and meeting regulatory demands.
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We’ve seen the pace at which firms have upgraded their technologies to meet increased client expectations regarding digital advice; while this has clear upside in firms’ ability to engage more easily with clients, the costs associated with these upgrades are further squeezing already-tight margins.
On regulation, a report by NextWealth in February found regulatory disruption is consistently cited by IFAs as the biggest business challenge, with compliance costs limiting firms’ ability to work with more clients. The recently-implemented Consumer Duty has also added to wealth managers’ bill, with research published by Quilter in 2023 indicating a third of advisers were expecting fee increases in order to adhere to FCA guidelines.
Increasingly complex demands
This is on top of the significant administrative requirements relating to new regulation, which have the potential to consume large volumes of management teams’ time, and placing new demands on consistency and quality of day-to-day operations.
Wealth managers are also increasingly faced with more diverse, complex client demands, including from an allocation and fund structure perspective. A few years ago, this was the growing appetite for tech-enabled solutions; nowadays, complex requests are also manifesting in the types of asset classes that clients want to access. For example, private markets are seeing particular demand, which outgoing Schroders CEO Peter Harrison noted will only take a ‘larger and larger allocation’.
The power of data
It’s no secret that firms are in receipt of immense volumes of data to address these challenges and maintain their operational efficiency. However, what is not consistent is firms’ ability to harness this data when looking to validate, process and interpret it.
When it comes to integrating data-enabled solutions to meet operational challenges, there are various options at firms’ disposal. As firms upskill on the role of data at the core of their operations, we expect these to become increasingly mainstream.
Outsourcing is one solution. While not a new concept, it has become more nuanced of late with the emergence of dedicated external third-parties capable of supporting firms as they integrate data into their operations.
By outsourcing these functions, management teams are able to focus on their day-to-day activity – providing the best service and value to clients – and delegating the time and resource-intensive task of integrating data-enabled solutions to third party specialists. The benefits, especially for end-clients, are also clear.
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For example, having the right tech-enabled tools for insights into fund flows help firms remain competitive. Firms need to oversee the full spectrum of asset classes and investment approaches, with visibility over the most popular investment types, to meet client interests and remove the risk of client turnover.
At Allfunds, we are helping our own clients meet this challenge by enabling users to compare funds and access insights that draw information from external market data vendors, simplifying decision-making in areas such as portfolio management.
Tackling Consumer Duty
Although future regulatory changes are difficult to predict, it’s clear from the implementation of Consumer Duty that RegTech solutions are in high-demand. The automated nature of these tools in passing information across the investment chains is essential to firms’ operational efficiency, and requires firms to be in receipt of sufficient data to demonstrate regulatory alignment.
Again, external data vendors play a critical role here in helping ensure firms’ compliance amid growing regulatory scrutiny of their delivery of fair value to customers.
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Finally, addressing the wider technological challenge, firms that integrate white-labelled digital client portals and data-led functionalities to enhance their end-clients’ experience, will see this become an important differentiator in client retention.
The unifying factor is the criticality of truly data-driven technology infrastructure across the wealth management industry. This is still relatively nascent but the pace new third party providers are emerging to meet this growing need indicates a strong upward trajectory. This will be a strong enabler of firms’ further transformation in the future.
Tom Wooders is UK country head at Allfunds
