We sat down with Ian Ewart, previous Head of Products, Services & Marketing at Coutts, to discuss his current view of the wealth management industry and some of the trends that may pave the way in establishing its future outlook.
From our chat with Ian, there were 5 key themes that emerged: The fragmentation of the industry; the increasing impact of regulation and it’s impact on investor suitability; the fluctuating levels of industry trust through generational changes; the ever-growing role of technology & consolidation; Brexit impacts; and predictions from Ian on the future outlook of the industry.
Having experienced the industry’s past and its transformations in recent years, Ian noted “what’s happened is that there has been certain outliers, certain firms and individuals that have been increasingly innovative; they’ve moved on and either produced boutiques, focused firms dedicated to asset gathering or innovated in certain ways and, from being a fragmented market it has become a hugely fragmented industry now.”
What is interesting is the polarisation and fragmentation have played to produce ever larger firms at the global or country level, focused on scale and asset gathering, and niche players with specific and limited capabilities, focused on profitability. No one dominant model for success has emerged. With increased technology deployment the mosaic that is the Wealth Management industry is set to get yet more democratised and further fragmented.
The generalised loss of trust from 2008 has left nearly all areas of the financial services industry with a deficit that they have struggled to fill. The Wealth Management industry has a patchy record, but is clearly best placed where an advisor has a trust-based relationship. As Ian asserts, “With the democratisation of wealth and the difficulty of managing within compressed operating margins the need to deploy technology based solutions, CRM-derived, with high levels off transparency and excellent transparency, for example, of fees and charges, will become paramount”.
Impact of Regulation on Investor Suitability
What is clear is the the Regulators in all the major, developed financial centres are determined to see ‘Suitability’ widely adopted and understood as a guiding principle and as an enforced requirement. This allows for, and requires, client-specific outcomes, built around the clients’ needs. The opportunity to deploy technology that reinforces the observable behaviour of clients and the deployment of artificial intelligence to better capture the true risk appetite of clients.
Rise of Technology & the Millennial Generation
With the rise of Generations X and Y, and their demand for a digital way of life, there’s no surprise that incumbent firms in the wealth management industry are looking to adapt their traditional ways to keep a level-pegging with the robo-advisors entering the space. “If we are not capturing the industry changes, the regulatory changes, the societal changes – what’s the whole new generation of people coming through going to do?” “The need for advise has never been more important”, Ian points to the increased propensity for governments, as evidenced in UK, to place the onus on the individual for their planning and retirement provisions as the State everywhere realises the impossibility of maintaining the “post WWII pact”…
Millennials are faced with an even starker set of wealth management needs; of course, first many of them will have to make their wealth, or inherit. “However, there is already a clear theme that they are focused on financial education and the need to develop new trust networks, ones that will be key to the firms they engage with and where they go for advice…” Ian affirms.
However, as technology has become ingrained into our daily lives, this ‘fragmented’ wealth management industry still has a long way to go, lagging in the deployment of technology. What has become clear is that for the wealthy investor, or those with complex needs, or partial or imperfect knowledge, the mix of analogue, that is to say humans, must be combined with digital deployment.
Ian again recognised this in that he’s, “absolutely convinced that the answer is a mix of ‘analogue’ and ‘digital’. The winners will be those that can bring the ‘analogue’ that is, the human and the ‘digital’ together in a way that is accessible and reasonably priced for the clients.”
Industry Consolidation for Survival
Ultimately, the role of survival for the ‘traditional’ wealth management industry is at the forefront of their strategy. It seems the recognition of these firms to both capitalise on their domineering experience, as well as ensure they retain relevant in their adoption of new technologies is key. Though regulatory changes and the ‘rise of the robo’ will no doubt continue to disrupt the industry, and pose a threat to those firms failing to adopt this new technology. Ian seems reticent that those who invest the time in ensuring a smooth transition of these changes into the workplace will ultimately be those who survive these wealth management industry changes, and move alongside, rather than fight against, the changing times.