Banks are scrabbling to compete in the wealth advisory market by shifting to a culture of open architecture using third-party asset managers, a report has shown.
The Cerulli Report has said that in the aftermath of the banking crisis and the implementation of RDR, banks are looking at the businesses that will remain at their core.
The 185-page report has shown that many banks have deemed wealth management to be the “growth engines” that can help diversify earnings, as well as be less capital-intensive.
This has meant that banks have shifted from a proprietary products culture to open-architecture asset management products.
In 2011, banks began to pull out of the adviser market with the introduction of the retail distribution review looming, believing that the less wealthy were not financially viable businesses. Banks such as Barclays stopped offering customers financial advice at its branches.
In 2013, Coutts and Royal Bank of Scotland followed suit, announcing a restricted approach.
In the summer of 2012, there were believed to be 6,655 bank or building society advisers authorised by the then FSA.
According to data as at January 2013, the FCA data suggested that there had been a further drop in the number of wealth advisers working at banks and building societies, which fell from 4,604 to 3,556 (close to 23 per cent) between July 2012 and January 2013.
According to reports at the time, the banks struggled with the new rules. But the Cerulli report suggested that they now seek to compete by outsourcing to third-party asset managers, as much as some IFAs have outsourced their investment management to multi-managers, multi-asset funds or discretionary fund managers.
The report revealed that the number of banks that have employed third-party asset managers has increased in the past few years.
The report stated: “Currently, two per cent of banks consider their firms to be completely open, while 11 per cent are closed. This means that half of all banks are mixed or selectively open.”
Around 42 per cent of asset managers believe their share of bank trust will rise substantially, while 47 per cent expect to see something of an increase.
Bank trust departments have seen renewed focus from asset managers, as banks shift from a proprietary product legacy to open-architecture asset management products in an attempt to better compete in the wealth management industry.
Donnie Ethier, associate director at Cerulli, said: “This provides great opportunities for asset managers, especially those with strong equity strategies, as the appetite for domestic equity continues to grow.”
The opportunities for asset managers within banks are not just limited to the trust department, but also to other platforms.
Neil Walkling, consultant at London-based financial services regulatory consultancy Bovill, said: “From a fair treatment of clients perspective, the FCA would see a potential conflict of interest if a firm offers a discretionary portfolio management service which includes in-house funds.
“There is a risk that the firm’s fund selection process might not live up to the way it describes its investment management proposition to clients. For example, can the firm evidence that any in-house funds are selected for the client’s benefit, rather than for its own benefit?”
