UK wealth managers have been slow to digitize their operations and customer experience.
However, with the imminent loss of distribution in Europe and loss of scale following Brexit, wealth managers may have to implement technological changes sooner than they would have otherwise liked.
Until now, there have been several persistent drivers for technological change in the industry.
(due to passives and heightened regulation) and subsequent lower margins, means that operational efficiency is essential to maintain returns.
This will drive M&A in wealth and asset management because companies need scale to be able to operate profitably. Brexit could fuel this trend, and in turn, M&A could provide the best opportunity for reviewing systems and digital transformation.
The rise of quant
More asset managers are also turning to algorithmic or quantitative solutions (they tend to offer relatively good risk adjusted performance for the cost); this in turn requires technology investment.
As millennials demand an enhanced digital experience, a relentless focus on agile application development and user experience can help speed up go-to-market, which will further lower the cost to serve customers.
4) Elements of advice are likely to become automated because the high cost of advice intrinsically excludes the rest of the population.
Now that Brexit is on the horizon, there is immense pressure for change and for firms to move to a lean and fluid business model.
When Brexit increases the cost of doing business, wealth managers can reduce these costs through automation – not to pass them on to the client – and instead focus their efforts on strategic, value-adding tasks.
However, as we have seen in the banking sector, changes in the back-office are necessary to support this drive to digitisation.
It’s difficult to support a fantastic front-end user experience without making the requisite changes to the operating model.
Digitising core business processes not only drives cost-effective speed of delivery, but also enhances security and improves accuracy by reducing human error.
Ultimately, all these business ‘tweaks’ offer the client a range of more innovative products and a superior service experience.
Wealth managers must now realise that a ‘wait and see’ approach to Brexit is no longer an option.
As well as realizing the vast benefits of digitisation, they should consider a number of other potential business effects that could arise – and prepare accordingly in the knowledge that they are strengthening their businesses for the longer term.
Uncertainty around the long-term impact of Brexit is creating increased volatility in the assets managed by wealth managers.
Clients are naturally concerned and are looking for their wealth managers to scrutinize the investment risks and opportunities on their behalf.
The shrewdest wealth managers are diversifying their clients’ assets across different instruments, geographies and currencies.
They are interacting with clients through both traditional and multiple digital channels in order to influence them to take a longer-term view, while also investing in state-of-the-art risk systems and preparing for potential downside risks.
For wealth managers with funds domiciled and distributed across the UK and EU, opinion remains divided on how to best protect fund structures and business models, given the inevitable changes to fund distribution agreements.
However, no matter the outcome of Brexit, wealth managers must ensure they are ready.
Modelling for various fund domicile and investment scenarios is key, as is using judgement to redistribute capital to funds less likely to require changes post-Brexit.
Establishing European operations, talent retention and increasing costs for regulatory compliance continue to be challenges for wealth managers.
As they contend with this ever-evolving landscape, they must also prepare for the largest inter-generational wealth transfer in history.
All of these can have a significant business impact, so firms must be prepared for a range of alternatives given they may have multiple client locations, booking centres, and back office operations across the EU.
Astute executives will also capitalise on Brexit as an opportunity to continue to drive employee satisfaction, protecting their workforce against potentially lucrative offers from continental fund managers as they look to pick-up any business post-Brexit.
While the full effects of Brexit remain to be seen, it is clear that those who use the Brexit challenge to drive business change will be best positioned to adapt to future industry developments and keep the client at the heart of their business model.
Niral Parekh (pictured) is head of retail asset and wealth management at Capco