Wealth managers will need to outsource and make acquisitions if they want to survive, according to a report by SEI based on interviews with C-suite executives at wealth firms.
The study, called UK Wealth Management at a Crossroads, draws on interviews with execs at 12 of the 50 biggest UK wealth management firms, which combined have over £500 billion in assets under management (AUM).
The report found that firms are struggling to stand out as competition intensifies with legislation leading to complex client needs.
It warned that failing to invest in technology will pose a major threat to wealth managers in a ‘robo-advice world’.
The report concluded that wealth managers are facing mounting pressure to provide a distinct proposition as they all vie for the same pot of money.
Speaking to Wealth Manager, SEI Wealth Platform managing director Brett Williams (pictured) said wealth firms will need to have a digital offering, as well as face-to-face service, if they want to differentiate themselves and survive in the current market.
He said: ‘We have conversations with [wealth managers] all the time about how to tap into digital. It’s an ongoing debate we have with clients.
‘There’s a reticence from some wealth managers towards robo-advice, who say their clients don’t want technology or any digital offering.
‘But there are clients who do want that, and if you have technological and face-to-face services, that’s how wealth managers can be relevant to different clients.’
Williams added that the cost of operational functions, and regulation, means that for some firms to survive, so-called ‘regtech’ could be the answer.
He added: ‘We have that conversation with wealth managers every time we have a meeting. Even the biggest players in the market are [struggling with the cost of regulation], because of the challenges with scale. If your costs are going up with scale, you’re treading water.’
Asked if firms were ready for Mifid II in particular, Williams said: ‘No. There’s a definite feeling of uncertainty whether they are ready or not. But part of that is also the feeling that the rules are a bit unclear… It creates a huge amount of uncertainty.
‘If you outsource, you take that away, and that’s across all levels, because the bigger guys just have bigger problems.’
The SEI report also pointed out that in order to tackle the headwinds facing the sector, firms are looking to leverage economies of scale with mergers and acquisitions (M&A) playing a part in their growth strategies.
It added that many firms also see M&A as playing a ‘necessary role’ in improving the outlook for the sector and bringing it into the 21st century.
Williams said: ‘If you are small or niche, you need to have something different that clients are willing to pay more for.
‘Otherwise, if you can get the costs under control, you can leverage with scale. But if you haven’t got control of operations or regulation, getting bigger isn’t going to help you.’