The rise of technology has been one of the most significant step changes in the banking sector since the turn of the millennium.
Online services and smartphone apps have transformed the way institutions interact with their customers and vice versa, providing many benefits to all involved and creating a client expectation for more on-the-go access to their money.
Critically, those that have failed to keep up have lost out.
After years of falling behind, the wealth management and Ifa sectors are now undergoing a similar wave of digitalisation.
Here, we look at why it has never been more important for intermediaries and wealth managers to embrace the modern age and the value that comes with doing so.
Reducing the regulatory burden
The regulatory responsibilities placed on firms have increased dramatically in recent years.
Alongside new money laundering regulations, directives like GDPR and Mifid II have increased security, transparency, and added value for clients.
However, the associated costs for firms, not to mention time commitments, required for custodians, are considerable. These costs can ultimately be passed down to fee-payers.
For example, we estimate that the process of bringing a client on board can cost anywhere from £1,500 to £2,000.
The assessment process involved in onboarding does not stop once the client is signed up and invested, either. Many intermediaries now have to review customer suitability and money laundering paperwork annually.
Crucially, these pressures are a particularly critical issue for firms with a book of smaller portfolios.
We estimate that the cost of onboarding or re-papering a client account of £200,000 costs in the region of £2,000. This creates a high cost/income ratio that has resulted in as many as a quarter of firms having a book of ‘sub-optimal’ clients.
However, thanks to digitalisation, it is no longer necessary to drop such customers to stave off margin pressure.
Outsourcing back-office functions to a quality wealth technology provider can reduce regulatory costs considerably overnight.
Not only does this enable wealth managers to continue servicing clients of all sizes, but it also boosts balance sheets and frees up more time for existing and new customers.
Effective fund management and client suitability
The industry has moved towards centralised managed model portfolios which, by their nature, are standardised.
So how do they show ‘added value’ and offer differentiation?
A few digital offerings enable firms to bridge the divide between model portfolios and bespoke discretionary portfolios, blending a model portfolio with non-model assets like ETFs, funds or individual stocks, while ensuring suitability against centrally set constraints.
The advantages are clear - chief investment officers (CIOs) gain visibility and control by setting constraints based on client needs, compliance officers see consistency and suitability and portfolio managers can exercise discretion and demonstrate the impact of portfolio changes through instant reporting.