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Wealth boom: where DFMs must improve by 2021

Wealth boom: where DFMs must improve by 2021

The wealth management industry is expected to grow to over £1.4 trillion by 2021, but can companies manage the process of scaling up to cope with this, without allowing service levels to slip?

According to a recent report by Compeer, which surveyed firms that in total manage over £130 billion on behalf of private clients, companies have targeted an ambitious average of 55% growth in assets under management (AUM) over the next three years, combining both organic growth and acquisitions.

But 82% of respondents believe that they will need to change their systems and processes to achieve their growth plans.

This resonates with Graham Coxell, executive chairman of Rowan Dartington.

‘As we scale up, the need for good IT becomes more and more prevalent,’ he said. ‘I think flexibility in terms of where people can work [is important], and with the required systems around Mifid II, being able to work without people being tied to a specific location.

‘I think that IT is also critical from a managing the portfolios perspective. We operate on a centralised investment approach as well as a localised approach, managing that money in a consistent way can be only achieved through good IT systems. A key aspect is having the systems, but also maintaining the right controls and oversight of a distributed front office.’

The respondents to Compeer’s survey have also pointed out that a number of processes currently undertaken by their front offices will either disappear or become automated. These include client onboarding, performance tracking, suitability and manual data checks. 

Coxell points out that achieving scalability is not just about expanding the firm’s front office, however. For him, there has been more and more demand for a middle office as the business gets bigger and bigger – now with AUM of £1.94 billion, which is up 34% over the year to December 2017.

He says that the middle office is all about owning the customer experience. ‘Back office is about efficiencies and handling a large number of transactions. Middle office is the bit that sits in between, making sure the customer experience sits across from pre-sales to business as usual.

‘If you look at where we strengthen the business to scale up, it has been in the front office and developing the middle office part, which is technical support, not IT.’ 

The structure of the front office is also an important factor in achieving scalability, according to the Compeer report. Some 55% said that they combine the roles of investment and relationship management, with only 18% opting to separate the roles.

Although the majority of firms combine the two roles, Compeer says this might not be the optimal approach, highlighting that those firms only had a 31% chance of achieving scalability in any given year. Those that separate the roles had a 50% chance, but the most successful were those firms that have no dominant approach, some 27%, which achieved scalability two-thirds of the time.

How to build a scalable business was also on the minds of the founders of Lockhart Capital Management when they set up the business less than a year ago.

The firm has already grown to have over £200 million in assets, and is looking to expand as and when it finds the right people. Chief executive Jon Bowes is adamant that the founding team is wary of growing too big too quickly.

‘We have some excellent clients and we have to make sure they are our absolute priority,’ he said. ‘We won’t grow for the sake of it, however we will find pretty soon that the advisers we have, especially the founding partners, have a limited capacity of clients they will take on, because if you go too far from that you are risking the client service.’

That is why, as a new and relatively small firm, backed by network Best Practice, Lockhart is at an advantage, Bowes believes.

Systems and processes, as well as the compliance function are all outsourced,
which allows the team to focus on the client-facing functions.

‘We do not have an infrastructure for the business, which is very client-friendly and really does allow us to expand if we want to. But because we don’t have the same overheads of larger businesses, we won’t expand unless it’s absolutely right and doesn’t impact existing clients at all.’  

What developments have firms been implementing?

Technological changes:

  • Moved onto new portal or CRM system
  • Improved performance tracking
  • Gamification of app

Changes in market conditions

  • Doubled in size
  • Increased balance sheet strength

Diversifying of service offering

  • Wealth planning
  • Model portfolios

Source: Compeer

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