The wealth management industry hasn’t stood still in 2023, writes Allfunds’ Tom Wooders. We’ve seen important regulatory changes, such as the introduction of Consumer Duty, alongside the continued roll-out of new technologies, including a greater role for AI in advice and the ongoing evolution of digital wealth platforms.
These influences have sharpened the industry’s focus on what the future holds, and how firms can continue attracting and engaging their clients amid such transformative changes.
As the industry continues to grapple with shifting dynamics and a turbulent market environment, we see three critical influences that firms should be prepared for in 2024: ongoing industry consolidation, a continued shift towards outsourcing, and evolving (and increasingly complex) client demands.
A shrinking landscape
Earlier this year, a survey by PwC found that by 2027 16% of existing asset and wealth management (AWM) organisations will have been subject to consolidation in one form or another. For this to be the case, consolidatory activity would need to unfold at twice the pace we’ve seen up to now.
Firms are increasingly recognising the benefits of consolidation, in terms of the opportunity it presents to capture assets from a broader range of portfolios, and to deepen existing relationships with clients and intermediary partners.
In 2024, we expect vertical integration to remain a key driver for consolidation, as firms look to capture the entire investment lifecycle from initial client engagement through to provision of investment products and assets administration. Such tie ups allow firms to cement relationships with end investor clients (and their intermediaries) from initial assets accumulation through to more sophisticated bespoke portfolio management and decumulation solutions.
See also: Have interest rates impacted M&A deals in the advice market?
Consolidatory trends should be understood as responses to the need to achieve greater scale efficiencies in a competitive market. With underlying industry influences – such as fee compression and client demand for more sophisticated products – not fading, we can expect the pace of consolidation to persistent in kind.
For firms not pursuing consolidation for scale, partnerships with third party providers that can combine scale, technological dexterity and access to a wide set of investment products may have similar influence on industry activity in the coming year.
Other key imperatives will be access to data-driven insights and analytics into portfolio performance, plus the availability of client dealing, assets administration and custody.
Easing the burden
We’ve seen how volatile market conditions give rise to equally complex client demands and consolidation. This also translates into greater appetite to offload certain operational functions to external providers.
Outsourcing is not a new concept, but some of the practicalities have become more nuanced in an increasingly data and tech-enabled industry.
Data and insights into investment activity and fund flows have become central to firms’ competitiveness. Outsourcing these requirements to a single strategic partner means firms can effectively leverage the more technical elements of client servicing while focusing on delivering best-in-class advice.
See also: The shoehorning ghost that could haunt consolidators
In 2023, we began to see indications of firms embracing such outsourcing more proactively and we expect this to accelerate in 2024, as providers’ ability to harness data becomes more advanced. Firms that integrate white-labelled tech interfaces into client portals, to generate data-led functionalities and enhance end-clients’ experience, will see this become an important differentiator in their efforts to retain clients. In turn, firms themselves can benefit from the enhanced insights into financial performance, improved transparency and better reporting that outsourcing can deliver.
Throughout 2023 we have seen demand from clients who are looking to work with a single, strategic partner in outsourcing value-generative investment lifecycle functions, as they seek to unlock even greater efficiencies for their end customers.
Appetite to evolve
Clients continue to prioritise performance, coupled with service differentiation, and are clear in their expectations of their advisers when it comes to catering to these interests.
This is exemplified through a concerted shift in client appetite for private market assets – something which has been supported by the FCA’s recent authorisation of the first UK LTAF. With clients focused on diversifying their portfolios to provide protection in the face of economic volatility, demand for alternatives will only strengthen.
The second, relating to the adherence of UK-based funds and assets to stricter ESG guidelines, is set to be driven by regulatory change in the form of SDR. Products marketed as “sustainable” must do as intended, be appropriate for end clients and ultimately generate returns to mitigate the risk of greenwashing while also ticking certain boxes relating to Consumer Duty.
In both instances, it is clear that advisers and their platforms will need to remain agile and able to innovate rapidly to meet changing market demands that are now receiving local UK regulatory support. Bringing together previous themes where the twin demands placed by regulatory and technological evolution coalesce, another eye-catching development in 2023 was the announcement of the UK Treasury and FCA’s support for UK fund providers to offer tokenised fund vehicles.
We don’t anticipate this market evolution to slow in 2024 and as such, firms’ ability to provide access to new investment products while also offering more insightful data analytics vis a vis relative market performance and ESG impacts will be key to attracting and retaining new clients throughout their investment lifecycle.
This article was written for PA Adviser by Tom Wooders, UK country head of Allfunds
