Financial Software for Banking, Securities and …...proposition and so will have a typical Private...

THE WEALTH

MANAGEMENT

FIRM OF

2025

Contents

Introduction - 01

Shaping the firm of 2025 - 02

The Workshops:

Front Office - 05

Sales & Marketing - 11

Client Portals & Apps - 16

Back Office - 21

Technology - 27

Firm of 2025 - 32

IntroductionCompeer, working in association with Objectway, hosted a series of six 2-hour workshops acrossSeptember and October 2019 with over 20 Senior Executives from Wealth Managers, with expertise inbusiness strategy, operations, marketing and technology. The intention of the workshops was tounderstand the key issues firms are currently facing, where improvements are required (that could besupported by suppliers to the industry) and how they believe the industry will adapt and evolve overthe next five years, thereby forming an image of the Wealth Management firm of 2025.

The workshops covered all areas of the business, with specialists in each area attending therelevant workshop. The topics covered were:

Workshop Topics

Front OfficeOptimising the costeffectiveness of the FrontOffice

Sales & MarketingMaximising brand awarenessand acquisition of prospects

Client Portals & AppsReducing non-value addinginteraction with clients

Back OfficeMaximising the costeffectiveness of the Back Office

TechnologySupporting the firm of 2025with technology

Firm of 2025Shaping the WealthManagement firm of 2025

AttendeesAcross the six workshops, representatives from the following firms attended to share their views on the topics below:

Brooks Macdonald

Charles Stanley

LGT Vestra

Psigma / Punter Southall

Quilter Cheviot

Ruffer

Sanlam

Waverton Inv Mgt

WH Ireland

1

The Wealth Management Firm of 2025

3,000+

Empty text

EMPLOYEES

£105bn

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INVESTMENT ASSETS

£770m

Empty text

REVENUE (2018)

Financial planning will be a vital service within wealth management and so many firms will bring itin-house, making it the focal point for the client and firm. By then combining these planningservices with the traditional investment management services, it will provide a more holistic,multi-goals advisory service

Bringing financial planning to the forefront

Shaping the firm of 2025Key themes to arise from the workshops

There is an increased tendency to migrate to separating the Investment and RelationshipManagement functions, as they work to the strength of individuals and free up their time to focuson what they do best – some are hunters and so will source new business and are strong in termsof developing a long-lasting bond with clients, whilst others are better at the management ofmoney and investment selection. By working together (and not relying on one individual to do both)it should provide a thorough and complete service to clients, whilst boosting internal productivitymeasures. These will then be supported by Investment Assistants who will relieve theadministrative burden from the higher-earning Front Office Professionals, whilst providing anotherpoint of contact for the end investor (to answer initial or simpler queries).

Separating functions

All services will continue to have a common focus of developing strong relationships with clients –any firm that ignores the value of relationships will do it at their own peril.

Developing relationships

There is a drive for increased automation within processes, with onboarding an area that firms arelooking to improve in the immediate future. Technology will support the move away from manualprocesses but will not entirely replace human contact at the risk of jeopardising the developmentof relationships.

Increasing automation

2


Firms are considering a more standardised approach to investments, with a core, centralinvestment strategy for the majority of clients. This will be more cost-effective to run and wouldmean that the minimum investment threshold for truly bespoke services will continue to increase.

Standardising investment approach

Although firms are open to more digital engagement with clients, there is a reluctance today toembrace digital engagement such as virtual meetings. However, many believe it will be standard by2025 as they agree it will save time for Front Office Professionals in terms of travel. There will,however, continue to be face to face meetings as these are key to building a long term and bindingrelationship with the client.

Engaging via digital

Digital adoption is being spearheaded by sales and marketing where we see more client investororiented mobile apps for investment monitoring and client / advisor collaboration.

Adopting sales & marketing tools

If the firms were to start again the majority would be keen to outsource the back office. However,this is expected to be a slow and gradual journey as significant issues arise when replacing thelarge back offices that are already in place. For smaller firms the transition could be quicker,although when firms reach a adequate scale they will need to analyse if it makes economic senseto then insource.

Outsourcing

3


Provided it remains inexpensive and is entirely secure, firms are very open to using the Cloud.However, data harvesting and Big Data are very low on the agenda of firms, as firms struggle tosee the payback from investing in these services.

Using the Cloud

Technology is to become a front office function with tech-specialists to be accessible to clients toanswer queries relating to the latest digital tools being made available to clients.

Bringing technology in to the front office

If the software is developed and is shown to work, Artificial Intelligence has a place in wealthmanagement. However, it will be used as a support function (possibly through using machinelearning to improve back office processes or by assisting the front office with investmentselections) and should not be thought of as a replacement for humans within the business. Greatvalue is placed on the Investment and Relationship Managers and if you try and replace them withmachines you run the risk of negatively impacting client service and potential client outflows ifthey were to follow the individual in which they are developed a strong relationship with.

Employing Artificial Intelligence

4


5


FrontOffice

Optimising the cost effectiveness ofthe Front Office

Front OfficeThe front office is by far the greatest expense for wealth management firms and so it is vital foroverall performance that it is running in an efficient and cost-effective manner.

Optimising the cost effectiveness of the Front Office

1,6641,771

1,932 1,955 1,988

2,1302,195

Front Office Department CostsWealth Managers (£m)

2012 2013 2014 2015 2016 2017 20181,600

1,800

2,000

2,200

2,400

Over the years the overall front office department costs have been steadily rising, with the industryspending close to £2.2bn on it in 2018. The majority of this is related to staff costs, with InvestmentManagers, Relationship Managers and Financial Planners all among the highest paid individuals. Theaverage cost of Front Office Professionals (FOPs) has increased most years since 2012 with theaverage cost approaching £200k.

Average FOP Staff Cost(£k)

2012 2013 2014 2015 2016 2017 2018100

120

140

160

180

200

Full Service Wealth Managers Investment Managers

Private Banks All Wealth Managers

6

Source: Compeer Annual Benchmarking Survey



Encouragingly this has been matched by a rise in productivity with both assets and managed revenueper FOP also increasing. However, in an ideal world the productivity would be improving at a fasterrate than staff costs, thereby contributing to an improvement in profit margin – something theindustry has seen little change in for the past 5 years. One such reason this is yet to occur is becauseof a lack of correlation between pay and productivity, as well as a huge variance from one firm to thenext.

7

With this in mind, the first workshop was designed to understand how firms intend to alter thestructure of their front office in the next five years, which services will become the drivers behindproductivity improvement, and in what areas within the front office can efficiency gains be achieved.



The resounding view from wealth management firms was that by 2025, the core service will includefinancial planning. Discretionary portfolio management will remain dominant, but many are looking tobring financial planning services in-house (reducing the reliance on the IFA community to introducebusiness) and it is these services that will be the focal point for the initial discussions with clientprospects and most likely form the key relationship with the client. The discretionary services willthen be an ongoing service provided as part of the overall plan. It is felt that, partially as a result of regulation, clients are becoming less interested in the underlyinginvestments within their portfolio and instead are focussing on the end result and meeting theirfinancial goals (i.e. the outputs from a detailed financial plan). Relationships will continue to be fundamental and some believe that trust levels tend to be higherbetween a client and a Financial Planner than a client and an Investment Manager or RelationshipManager. Clients want their worries to be taken away and forming a personal relationship can allowthis to happen. Although, as previously mentioned, by having an in-house financial planning function it will reduce thereliance on IFAs as business introducers, it is by no means suggesting this source of new business willbe cut entirely. Firms will continue to use external IFAs and will have to have a service range to meettheir needs. Some will use Managed Portfolio Services (MPS) and in these cases they will be judged oncost and performance. For those targeting wealthier clients, they will need to prove to the IFA that aconsistently high service level can be provided. Then you have firms that seek to form a partnershipwith the IFA, for example by assisting the IFA with winning new business, which then benefits bothfirms as the IFA will often then refer the ongoing discretionary services to the wealth manager.

8

Financial planning at the forefront

When considering other services, outside of financial planningand discretionary portfolio management, it was unanimouslyagreed that traditional advisory managed services (activelycalling clients and suggesting stocks to invest in, but leaving thefinal decision to the client) will continue to decline in the comingyears as regulation has made it far too expensive to providethese services. These clients will therefore either move todiscretionary or even become an execution only (XO) client. Forfirms with an XO offering, they will capture these clients but willstill look to encourage them to become discretionary clients.


When looking 5 years into the future many expect changes to the typical day for a Front OfficeProfessional (FOP). The approach from an individual FOP will very much depend on their average client size and thenumber of clients that they are managing in total. The majority of the day will be spent on building relationships, which should help with raising referralrates – a major source of new business. Many firms expect to move to a central investmentproposition and so will have a typical Private Banking set-up where there are client facingRelationship Managers and Financial Planners, and then in the background will be InvestmentManagers running the underlying investments and a team of support staff / assistants that willcomplete all administrative tasks.

9

Winning new business and client onboarding

This would be more lucrative for the firm, with higher fees attached to the service, but at the sametime firms are often keen to point out that the client too benefits – some actively compare a client’sperformance in an XO portfolio against what they would have achieved in a discretionary account,with in the majority of cases the discretionary outperforms XO, even after the higher fees have beentaken into account. Finally, firms agreed that they will continue to provide bespoke services where they can. However, inmost cases the firms have had to raise the minimum investment threshold for bespoke services (as itis not cost-effective to provide these to low value clients) and so by 2025 it will likely only be the highnet worth (HNW) or ultra-high net worth (UHNW) that will be able to access these services.

There will be two types ofFOP – hunters (whosefocus is on winning newclients) and farmers (whoprefer to focus on gettingthe most out of the existingclient book). According tofirms, good hunters are thehardest to find, as manyFOPs prefer to spend alarge proportion of theirtime, and in some casesalmost all business growthcan come from a smallproportion (5%) of theworkforce.


When considering how firms will engage with clients going forward, firms believe this will largely bedriven by the client. Face to face meetings will continue to take part in the service, however the frequency of these typesof meetings could be less. The main annual review, and possibly a 6-monthly catch-up will remainface to face, but some firms will consider using virtual meetings with clients for other engagementthroughout the year. This will reduce the travel needs of key FOP staff, allowing them to increase theirclient capacity and develop further relationships. Also, the tech-savviness of the ‘Silver Surfers’ should not be underestimated. Many of theseindividuals have the time to use technology and so technological engagements should not be thoughtof as something for only the next generation of clients.

Client engagement

By 2025, when pitching to a client, it is expected that more FOPs will be using a tablet of some kind,rather than a printed pack that many currently use, and there will be an efficiency requirement that aclient’s portfolio can be pulled up at any time. However, firms expect this transition to be slow as veryfew clients will join a wealth management firm simply because they were impressed with the FOPusing a tablet – it is more of a nice to have feature for a firm rather than a necessity.

Once the client has been convinced, the onboarding process begins – an area that many believesignificant improvements can be made. The key is to make onboarding as easy and pain-free for theclient, which in due course can lead to more referrals. Pressure can be taken off clients with firmsscraping a large proportion of the required data for clients from the web (open banking sources),which will reduce errors that occur if you were to ask clients directly about their spending patterns.

Although there will be self-servicing features (such as giving clients the option to update details suchas address changes), having an entirely self-servicing onboarding would be over the top and someclients would question what they are paying for if they are doing much of the admin themselves.However, if increased automation in the onboarding process can be achieved it will benefit the firmsas it frees the time of the FOP to focus on the key outcome – building a strong relationship with allclients!

By 2025 the core service will include financial planning: set relevant KPI’s and an

actionable plan to reach that goal

Review existing processes and software to improve the building of relationships

Review Onboarding practices to make it evolve towards an easy and pain-free

experience for the client


10

Lessons learnt and next actions

11


Sales &Marketing

Maximising brand awareness andacquisition of prospects

Sales & MarketingFor some wealth management firms as much as 95% of new business comes from referrals. Thereason for this is a combination of firms’ success at achieving referrals and a distinct lack ofmarketing.

Maximising brand awareness and acquisition of prospects



Marketing Department Costs as % Revenue

2012 2013 2014 2015 2016 2017 20181

2

3

4

5

6

%

XO Stockbrokers Full Service Wealth Managers

Investment Managers Private Banks

Across all four firm types, less than 5% of revenue is spent on marketing (combining staff and nonstaff costs), which places the industry far behind the benchmark set by other luxury goods supplierssuch as the high-end car manufacturers that spend well in excess of 10% of revenue on advertisingalone. It is therefore no surprise that brand awareness for most firms is very low. For example, from asurvey of 1,000 investors, when asked about their awareness of the 10 largest firms in the sector, only3 firms had more than 50% of the investors at least heard of the brand name. to make it worse, thisvalue reduces to zero when you then strip out those investors that had heard of the brand but had noidea of the services they offer. Other models have shown that by boosting brand awareness it will most likely have a positive impacton bottom line results and so what are firms looking to do in this area and how will it change over thenext 5 years?

12

As it stands the industry does very little in terms of advertising. Some have invested in nationalnewspaper adverts in the past but saw very little return and so stopped that. Others suggested theywould need three times the budget currently offered for marketing to make a material impact –something they believe will not be feasible in the near future.

The marketing that currently takes places consists of specific adverts in regional lifestyle magazinesand wealth management news feeds and running a series of events and campaigns. These events willbe a mix of wealth management specific events and others that are closer linked to hobbies but arelikely to draw an audience of high net worth investors.

Some firms are working closely with creative branding and PR firms and the majority are open tosome form of sponsorship to boost their brand awareness (e.g. rugby, show garden events, the arts,operas). They select their sponsorship agreements very carefully and will always be targeting areaswhere the exposure will be for prospect clients (for example, one firm now has a large rugby-linkedclient base and so continues to support this sport).

There are also the series of events targeted specifically at the IFA community – a key source of newbusiness. However, you have to be very careful with these events as you cannot be seen to be ”tryingto bribe” IFAs into using your firm by inviting them to lavish events. The content of the events orseminars must be educational, and in the lead up to these firms will use webinars and post videoswith academia. When campaigning to IFAs (almost 100% digitally) the key is to make the IFA looksmarter to their clients by offering them the chance to boost their market knowledge. Some will sharethis knowledge in lunches and learning sessions with the wealth manager’s Chief Investment Officer.Others also provide material for IFAs to use in their own pitches to clients.

Use of advertising and marketing

A focal point of a wealth management firm’s brand will be theirwebsite and other web presence. There is very little done in terms ofsocial media (a few use LinkedIn to share features, market news andrecent award wins, others use Twitter with links to articles on thefirm website) and this will largely be controlled by the marketingteam. However, firms are aware that if you go down the social mediaroute you have to commit a large amount of resource to it as unlessthe content is regularly updated it is more likely to be detrimental tothe firm. The attendees also stated that if you are to post any videosonline (i.e. on social media) you have to ensure the quality isextremely high due to the sheer volume of videos currently availableonline. That means you will have to get third parties involved, whichtends to come at a high cost, absorbing the majority of a firm’smarketing budget.


13

It is common for firms to have forms on the services pages of their website where clients can providea small level of detail (name, location, investible assets) and receive a call back from an advisor. To beincluded in any marketing campaigns the requirement is even less for the client as only a name andemail address is required.

Chat-bots are being considered by some as an additional way to communicate with prospects, but thisis very much in the trial period and is only being used for a sample of clients (e.g. just XO clients)where the relationship is minimal – it would be a huge shift for the firms to introduce chat-bots to therelationship-driven services such as discretionary and planning services.

When considering the collection of data on prospects, firms admitted that tracking website data iscurrently very basic and limited (e.g. using Google Analytics). This is an area that firms would be keento do a lot more but feel there is no software available to provide the information they need (e.g.knowledge of the actual individual searching a page, and not restricted to the firm that they work for).

Some firms will actively purchase lists and track the conversion rate, but there are concerns arounddata quality and return on investments from buying these lists. Therefore, again it falls back to relyingon referrals as the main source of new business. Some firms have been known to provide incentivieschemes for client referrals (i.e. hampers) and for those that have a CRM system will keep track of thebest source of referrals.

It is encouraging to see that most firms now have some form of CRM system in place although insome cases it has only recently been purchased and so is yet to be fully integrated. Also, some of thenew features are still in the trial phase with Investment Managers. In an ideal world, when the CRMsystem is fully functional the firms would be keen for it to be accessible (in a secure manner) fromwherever the Investment Managers is based, and so not being restricted to their desktops at theoffice.

Client interaction and collection of data


14

By 2025 firms are expecting significant changes in terms of sales and marketing. It will be far more digital asthe average age of the client reduces, with a wider range of online interactions (although continuing withhuman interaction rather than all robot-based). This should allow for a more scalable set-up of a firm,provided more automation can be achieved. There will be more access to mobile apps, allowing clients to access more information at greater speed.Some also expect communication tools (similar to WhatsApp) to be used, provided they are secure and fullyregulatory complaint. Ideally, everything will be seamlessly integrated, data will be clean and cost-effective to analyse, and theissues of integrating multiple systems and client data when you grow through acquisitions will be far lessthan they currently are.

Future changes


Investigate and act to improve brand awareness; enhance social

media presence

Know more about customers, get up to speed with data collection

Increase CRM integration and use, make it a true client management

hub

15


16


Client Portals& Apps

Reducing non-value addinginteraction with clients

Client Portals & AppsThere are many ways in which a firm can interact with a client, but not all will be cost-effective or addvalue to the firm. Also, in many interaction areas, the quality is currently lacking and so clients areseeking significant improvements and could leave / switch providers if their requirements are not metin the near future.

Reducing non-value adding interaction with clients


Source: Compeer Clients’ View Research, December 2018, 1,040 respondents

% suggesting significant% suggesting significant

or very significantor very significant

improvements areimprovements are

requiredrequired

Of those suggestingOf those suggesting

significant improvements aresignificant improvements are

required, % that are likely torequired, % that are likely to

look for another provider iflook for another provider if

improvements are not madeimprovements are not made

Client portal / website 32% 54%

Mobile applications 31% 58%

Client reporting 33% 60%

Client education (i.e. seminars) 32% 58%

Client events / networking opportunities 30% 59%

Formal surveys of clients' opinions 33% 50%

Offer more time with my relationship manager 32% 59%

Also, few firms are using technological interactions and reporting as a differentiator, suggesting if afirm was to succeed in this area it could prove to be extremely beneficial to them.

17

Close to half of the firms we spoke to have a mobile app, with the remainder having mobile friendlyversions of their web portal. In most cases these are essentially read-only, with only one firmsuggesting their app provides a two-way process where it can also be used to collect data fromclients. The apps currently contain valuation data, Investment / Relationship Manager contact details,risk mandates, contract notes and transaction and cash statements. In the future they could be usedfor secure messaging and communications, while providing instructions (i.e. withdrawal instructions,agreeing to buy or sell a stock). Firms however remain apprehensive regarding future developments in this area as client surveyshave suggested there is only a small appetite for mobile apps to be used in wealth management. Thatbeing said, the firms have seen pressure from IFAs for them to have access to an app with all theinformation they need, rather than having to rely on an Investment Manager to get back to them(which can be time consuming). There are also concerns regarding the costs of developing and implementing mobile apps, although ifthe likes of Google or Amazon were to enter the industry, they may have to make this investmentsimply to keep up. Other concerns include a track record of not investing in new technology, lack ofclean data on older systems and the fear that you make a sizeable investment now and then in a fewyears, when other new technologies are made available, this investment is made redundant and youhave to invest large sums again.

Use of apps


Source: Compeer Clients’ View Research, December 2018, 1,040 respondents

The third workshop therefore took a deeper dive into the current use of portals and mobile apps, tosee where improvements could be made, as well as client reporting in general.

18

Virtual meetings are thought by some industries to be a given development for the future. The uptakeso far within Wealth Management has been low, although a large group believe they could be astandard feature by 2025. However, based on the views of some Investment Managers who are lesskeen on these, it will take a cultural shift for wealth management firms to use these more frequently,although the potential payback from reducing travel time and therefore increasing front officecapacity may encourage some firms to take this step. Firms then need the assurance that if a client isto be sent a link for a meeting, the link must always work as if it fails, even once, some clients may notgive a firm a second chance.

Reporting and client presentations


Challenger banks have set the precedence in terms of the use of mobile apps, allowing clients to openaccounts in a few minutes. Although this will not be possible for wealth management clients, due tothe vast amount of information required in order to be compliant, firms acknowledged that appscertainly could speed up the onboarding process. It would also remove the old-fashioned feeling oflogging on with a username and password (apps could, for example, use thumb print authorisation).Also, with clients seeing this from the banks some have become frustrated with the lack of a similaroffering from their wealth manager. What was clear from firms was that if mobile apps are to be provided by all in the industry, theyshould not entirely replace the initial face to face meeting as these are often the best opportunity tostart to build a relationship with a client. It may be best to introduce the apps in stages. For example,firms liked the idea of a financial planning app, that provides a picture of a client’s entire finances(similar to the open banking initiative).

When discussing presentations to prospects in greater detail,firms suggested they would like an interactive presentationtool to be available to Investment Managers. However, again,they were concerned with how more senior InvestmentManagers would react to changing their routines and the needto attend training courses to use the new tools.

An interesting take from firms as to why they would alsoencourage the use of these tools, is if you can move away frompaper reporting it will give the impression of good corporateresponsibility by reducing the use (and wastage) of paper,thereby helping to sustain the planet – which can only bepositive given responsible investing being a major topic inwealth management today, especially among the nextgeneration of clients.

19


Firms are aware that client reporting impacts the view of the client and so are looking for thesuppliers with expertise in this area. However, the main concerns regarding reporting were thrustupon them as a result of new regulations. For example, the requirement for 10% drop letters is asignificant pain for the industry and has already caused major issues, especially in the build up toChristmas, when staff levels are lower than other times of the year and so resources were stretchedwhen the reports had to be distributed in a short time frame following a collapse in the market.

Firms have therefore set up plans to make the 10% drop letters as automated a possible (centrallyoperated), with Investment Managers given a strict timeframe to make any bespoke adjustments toletters before they are distributed.


Empty textEmpty text

Empty textEmpty textMake mobile apps more interactive

Gradually introduce financial planning apps

Support advisors with interactive presentation tools

20

21


BackOffice

Maximising the cost effectiveness ofthe Back Office

Back OfficeA clear sign that firms are struggling to achieve scalability is the ever-increasing back office costs asthe business grows. This is evident in wealth management with back office costs increasing by almost£300m between 2013 and 2018.

Maximising the cost effectiveness of the Back Office


412,195 414,459

323,580 417,105

185,043228,44088,730

127,963169,603

209,119464,810

605,921

Back Office Department CostsWealth Managers (£k)

2013 20180

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Market Dealing

Operations

IT

Compliance

Finance

Human Resources

Marketing

All Other Corporate


A reason behind these rising costs is the continual need to recruit additional staff, and pay them moreon average, to cope with the additional business as currently the firms are lacking back officeefficiencies, with items such as legacy systems creating significant drag.

22

When asked about the current back office systems in place at wealth management firms the mostcommonly used were CRM systems, trading systems, financial planning systems, transfers systemsand core back office systems with workflow tools bolted on. The exception to this was the one firmthat has opted to entirely outsource their back office. However, these systems are far from perfect and many would like significant developments in them.For example, despite the current systems in place, firms continue to use a significant number of Excelspreadsheets throughout the business, which cannot continue in a world of surging compliancerequirements and costs. Some also cited issues with the level of management information (MI) available from their currentsystems. This is significantly lacking for many firms, making it very difficult to monitor businessperformance and source areas of the business that are underachieving and so need adjustments orfurther support. The demand is to have one system than can meet all of their back office requirements, without theneed for a large number of bolt-ons that are costly and sometimes unreliable. Few are aware ofsuppliers that can meet these needs today. However, some technology firms are investing in new backoffices, with focus on automation and workflow and exceptions management, and so by 2025 it willbe in place.

Systems in use


2018 Staff2018 Staff 2013 Staff2013 Staff 2018 Average Staff2018 Average StaffCostCost

2013 Average Staff2013 Average StaffCostCost

Market Dealing 410 489 £82k £64k

Operations 4,211 4,199 £52k £49k

IT 4,092 4,048 £78k £57k

Compliance 1,322 1,131 £97k £82k

Finance 1,100 813 £90k £83k

Human Resources 475 336 £87k £91k

Marketing 1,086 691 £75k £77k

All Other Corporate 2,041 1,786 £179k £167k

TOTAL BACK OFFICE 14,737 13,493 £87k £75k


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There is an overwhelming demand for increased automation, with the regulator also pushing forimprovements. Increased automation will not only have its cost benefits but will also encourageclients to invest more. For example, in payment systems, automation may encourage more standingorders and direct debits, creating ongoing investments as well as the initial lump sum investment. In terms of payments systems there have been improvements, but issues still arise, particularlyaround transferring large payments, where in some cases clients are forced into sending largecheques that are often not referenced and so cause more delays in terms of processing (plus this isfar from secure!). Or alternatively, clients are being forced to do multiple smaller value fasterpayments, which is time consuming and frustrating for them. It is a common view that the currentsystems cannot cope with multiple payments for different client types as often they have just onesetting that needs to be replicated across all clients. A manual process that is expected to be more automated is Corporate Actions. In most cases theclients (and Investment Managers) simply want them to happen automatically and so all of themanual requirements in terms of capturing elections are a burden and a needless task in their eyes. Another area where many systems struggle is Capital Gains Tax (CGT), with issues surroundingcalculation of CGT for clients with multiple accounts and "what-if" scenarios as to the CGTimplications. Other issues continue to arise with very little integration between new CRM systems and existing(outdated) back office systems. For many firms, information is having to be keyed in at least twice,creating more chance of errors occurring and wasting time. Then there is the problem of expense,where small firms cannot even access a CRM system as they do not have the budget and so cannotwarrant the cost of one (would need to be less than £100k to even be considered).

Processes, payments and system issues


The problems with legacy systems are vast and they cannot cope with thenew technologies. Therefore, firms are having to essentially start fromscratch and make a large leap to purchasing a whole new system –something that will take a long period to decide on and many firms woulddread having to make this change. As it stands there is no system availablethat firms would be confident of it meeting all of their needs and thereforewarranting this substantial change and investment. Finally, in terms of accounting processes (such as MI reporting), financialservices in general is far behind other industries such a retail. Firms find italmost impossible analysing profitability by team or branch, with allocatingcentral costs being the main issue. Therefore, in most cases they areunaware if they are making money / profit on certain clients and so have tocontinue to service them in the same manner, in the hope that it is to thebenefit of the firm. Not helping the accounting process is the large numberof rate cards and tariffs that exist within a single firm, making it very hard totrack the expected revenue of an existing client.

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Whilst the industry continues to achieve healthy margins, these issues are less of a concern. However,in the event of a significant (and longer-term) downturn in the market, it is highly likely the need forbetter internal reporting would become high on the agenda, as firms cannot simply rely on therevenue boost from good market performance.


Outsourcing back office functions

Less than 10% of the wealth management industry’s costs are linked to outsourcing agreements. It isperceived that outsourcing is only suitable for smaller firms (up to £2bn of assets) as, when chargesare linked to Assets under Management, it can prove to be very expensive for larger firms. Also, for thelarger firms they already have a substantial back office in place and so cannot always see the benefitof outsourcing as it is viewed as replacing their current back office with another one, at little changein costs. Then you have the HR issues of having to make a large group of employees redundant. There are more benefits for smaller firms though, with some citing that by outsourcing it mitigatescompliance risk and also gives firms access to much larger research and development teams,providing technologies they would be unable to develop and build in-house. Looking to the future, it is expected to continue in this manner with few firms outsourcing, with theprocess of finding a provider very time-consuming and greater agility and control achievable whenkept in-house. However, it is believed that the direction of travel for the industry should be to consider outsourcingmore, provided the outsourcing suppliers are up to the task – something that is lacking in wealthmanagement currently, and suppliers should look at the asset management world as an example ofwhat can be achieved (with almost all firms outsourcing in some way, irrespective of their size). Interestingly, the majority of firms in the workshop agreed that if they were to start a firm fromscratch today, they would immediately outsource the back office. It shows there is a strong appetitefor this but with many hurdles to get over first.

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New trends and when to migrate

Artificial Intelligence (AI) is an area that wealth managers are starting to investigate but currentlythey remain unsure as to exactly where it will be used and how it will work. As it stands, the closestthe industry comes to using it is through relatively simple AI tools / software that can scan reports tocheck for anomalies and changes compared to previous versions.

More commonly, firms are using Robotic Process Automation (RPA), thereby providing automation ofrepetitive tasks and improving efficiency as a result. There have been discussions regarding the impact of open banking in wealth management and mostbelieve there are few direct benefits of it to firms. If it was to come into fruition, the collection of thedata would have to be automated (scraping from online sources) as you cannot rely on the client tohave and provide all financial details – a central source of this data is not currently available. To finish this workshop, the attendees were asked when the best or most likely time is to considermigrating to a new provider or system. It received mixed responses with some viewing even theconcept of migration with utter fear. However, for those less fearful the migration is most likely tooccur when:

There is a job requirement that the current system cannot handleThe firm has been fined by the regulator and needs to reactThere is a change in CEO who wants the lay their marker with a new system


Automate more: look at the potential of Robotic Process

Automation

To increase overall effectiveness, integrate the Back Office with

the CRM

Look at outsourcing part or all processes; learn from experience in

Asset Management

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Technology

Supporting the firm of 2025 withtechnology

TechnologyAs we move into a digital era it is expected by most to see a continued rise in the expenditure ontechnology in wealth management.

Supporting the firm of 2025 with technology



Over the past five years the total amount spent on IT in wealth management has steadily risen to£779m (in 2018). Therefore, if we were to witness another surge by 2025 the figure could surpass£1bn.

We therefore investigated the current infrastructures in place and which areas could be supportedmore by technology in the next five years.

651 618 675 684 750 779

Total IT Costs(£k)

2013 2014 2015 2016 2017 2018600

650

700

750

800

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When discussing current infrastructures, some firms suggested that they have a hybrid model, bestof both approach with a mixture of onsite servers and using the external cloud. This is often thechosen approach as it is the most cost-effective set-up. It is also common to use an external datacentre (by renting a rack somewhere). Security is absolutely key, especially where in some cases firms are laptop only businesses and sowork can be carried out from any location. Specialist software is therefore required to ensure eachlaptop has its own secure identity which is used prior to logging on to the centralised systems. Thecontrast to this is firms using local PCs or even outsourcing a large proportion of their IT. In the case ofthose outsourcing, the firm is placing the full reliance on the outsourcing provider and it is they thathave to come up with all future developments (which firms will only consider if it is proven to workand is not overly expensive – some do not have large budgets). This means there is no need for an internal Chief Technology Officer (CTO) and instead the wealthmanagement firm only needs an IT support team for desktop maintenance. In terms of hosting, the firms were very open to using the Public Cloud, provided they have thecapability to make it 100% secure and all data is encrypted. However, one area that is not suitable forthe Cloud are servers, as by hosting servers in this manner it becomes extremely expensive. Whenusing the Cloud it is advised that you keep everything app-based to keep costs down.

Technological infrastructure and use of the Cloud


Today, firms have received no pushback from clientsregarding their use of the Cloud – in many cases theclient will not be aware of this as they never bring itup in conversations. The only time some issues havearisen is when auditors have got involved, although inmany cases the problems only arise when they areauditing areas that they should not be and so it wouldbe better off if they left this to the experts within theindustry.

The key when setting up an infrastructure is byappreciating when other firms (such as Microsoft)have a significantly larger budgets for developmentand so firms should source these and utilise whatthey have to offer – trying to make all developmentsin-house would be very expensive and most will nothave the resource to do this.

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Not only can wealth management firms utilise the services of major providers, they can also learnfrom other industries that are new and growing first.

Challenger banks are one such example, where they have no legacy systems (a benefit of beingrelatively new), have all of the licences they need and so can release new features very quickly. Thishas caused some of the legacy banks to buy the technology from the challenger banks as the bankingsector moves into the digital world.

Then you can learn from entirely mobile-based banks, such as Starling, who are rapidly growing andgaining market share. These firms are looking to be the main provider of all financial information forclients (e.g. mortgages, insurance, pensions etc all from one portal) and are in high demand from thenext generation.

The wealth management industry should therefore take note of this and expand their digital offeringto capture the business of future clients – that is provided the suppliers can keep pace and have theservice range to support such features.

Learning from other industries


Big Data and data harvesting

There is currently little demand for Big Data within wealth management, with some citing the issuesrelating to regulations, such as GDPR, and not having a budget to develop the technology required forBig Data in-house. There may be some use of Big Data in terms of building a trading profile, but itwould have to be purchased as an extra service and this is low on firms’ priorities.

The responses were very similar when addressing the topic of data harvesting. The firms struggled tosee how it can make money in wealth management and, in many cases, they are keen for onboardingto be a lengthier experience. The initial meetings give firms the chance to truly understand the needsof the clients and consider all requirements, which is vital for a wealth management service given thesubstantial amounts being invested. Also preventing data harvesting is the current lack of an open APIinitiative to access all of the required information.

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In previous sections we touched upon AI as a new trend but once again when it was raised there wasno clear view as to how it could be leveraged in wealth management. Some have considered using it to assist with investment decisions (via machine learning), but theBoards are unwilling to invest large sums on AI for a small improvement in investment performance –largely because they do not believe performance to be a USP and as such will not drive a largeincrease in new clients to cover the cost of the AI investment. There may be more demand fromInvestment Managers (provided the AI is not designed to replace them), to assist them with managingthe money, but they do not have the sign-off power for such investments. Where it could be used is when linking AI to improved front office productivity. The software would bepopular if it allowed Investment Managers to manage more clients, rather than trying to replace theInvestment Managers, who could take clients with them (due to developing strong relationships). AI could also help in the back office by, for example, proactively correcting errors in pricing. Although firms are open to using software such as Alexa to compliment their services, such asproviding portfolio values and delivering messages to clients, they are against the use of AI toinstantly record client interviews – clients will be more open if they are not under the impression ofbeing recorded and AI will not be able to monitor the instant reactions from clients (they will berestricted to recording facts and so will not capture the full requirements of the individual).

Artificial Intelligence (AI)



Moving to the Cloud has many advantages but first look at security

Not all applications are suitable to the cloud; for legacy it might even

be counterproductive

Learn from other industries such as Challenger banks, become

aggregators for services and cater to all client needs

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Firm of2025

Shaping the Wealth Managementfirm of 2025

Firm of 2025By 2025 an ideal scenario for the wealth management industry will be a series of scalable firms, withmargins increasing and efficiency gains across the front and back offices. However, based on currentfindings this will require significant changes for a large proportion of firms and so may take more than5 years to achieve.

Therefore we asked firms how they expect to shape up in 5 years time, therefore outlining where themajor changes will occur.

Shaping the Wealth Management firm of 2025


Balance of Investment Managers, Relationship Managers and Investment Assistants

With financial planning coming to the forefront of wealth management services many expect firms toadopt models similar to what we currently see in private banking. This model will be a FinancialPlanner or Relationship Manager at the front and having the main relationship with end investor. Thenthere will be separate investment management teams that will run the management of the money,and so will have limited contact with the client (unless the client is of sufficient value and hasrequested direct contact). This is a significant move from the model most are currently using, where an Investment Manager isresponsible for both the relationship and managing the money. They are therefore expecting this to bea slow journey to change and appreciate it will be very difficult getting the Investment Managers toshare or hand over clients to newly recruited Financial Planners and Relationship Managers. Those that have started the move have foundthe Relationship Managers are now achievingmuch higher inflows, and often at higheraverage client sizes, as they are increasinglyfocussed on winning new business (withoutthe distractions of also having to makeinvestment selections) – a task that is verytime consuming. It also saves them the taskof having to find individuals that are good atboth finding new clients and managing money– these individuals are thought to be a rarebreed and are therefore very expensive whenfound.

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By splitting the functions there will also be extra responsibilities placed on the Relationship andInvestment Managers. For example, they will be expected to be involved in other areas of thebusiness, such as taking part in strategic meetings. Investment Assistants will also continue to have their part to play. Coming at a far cheaper rate thanFront Office Professionals, they can add great value to a firm as they not only provide administrativesupport but also can be used to develop client service. They will likely be a first line of support forclients, answering simpler queries, which will help to develop a wider relationship with the client –the more contacts the client has, the more they will feel they have a relationship with the firm, and theless likely they will follow an advisor to a competitor firm.


Technology to be a front office function

As a further change, some firms are very keen for technology to have its position in the front officeand no longer be viewed as a purely back office, behind the scenes, function.

The industry will become more tech-savvy and so technology professionals will need to be accessibleto clients to cover their more complex needs. They could form part of the dealing desks and workalongside the Relationship Managers to provide a comprehensive support framework for clients.

It is optimistic to think this will be industry-wide by 2025, as the industry is far from this currently.However, there will be firms moving in this direction, acting as trend setters, and given the move todigital in most areas of life it is understandable why wealth managers would follow suit anincorporate technology within the front office.

Increased propensity to outsource the back office

With the front office being the driver of building relationships, it will remain for the long-term futureand firms will keep it as an in-house function – the service it provides, after all, to clients is the mainselling point for a wealth management firm.

However, this is not the case for the back office and so firms have suggested there will be anincreased propensity of outsource back office functions. This is provided the outsourcing providers are up toscratch with knowledge of the specific requirementsof wealth management firms, have a cost-effectiveproposal and are managed accordingly from withinthe wealth management firms (most likely thoughProject Managers) – without this management firmsbelieve it is almost certain that things will go wrong!

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Investment priorities and modelling the firm of 2025

When modelling the firm of 2025, technology will allow there to be gar greater automation, there will

be more digital engagement with clients, but the great value placed on developing relationships and

keeping the human interaction will remain.

Machines may be there to assist investment management decisions, but the power will reside with

the Investment Manager, who can overrule and investment decisions. Also, technology should not be

viewed as a cost saving solution. However, it will ensure client service levels continue to improve and

will help to provide consistency with fewer errors – this should then lead to reduced client

withdrawals and asset outflows.

We expect to see the size of back offices to reduce, with the front office having a greater capacity to

boost productivity and therefore raise the level of assets and number of clients they can manage

(helping the firm to achieve scale).

Firms will be increasingly more demanding on external suppliers and should be the drivers of change.

The systems should cover front to back solutions and allow for better information to be accessed and

analysed (MI is a clear area for improvement).

Then when considering investment priorities for wealth managers there were three key areas that

they see an immediate need for change. Many of these will be solved by digitilisation, which could

have a profound effect on business models:

Lessons learnt and next actionsStreamline client onboarding, a big opportunity yet to be fully exploited

Work to increase efficiency of securities processing, mainly by replacing legacy systems;

outsourcing is not always the best choice, it is expensive and needs to be managed

Invest in Reg Tech and digitisation to increase adherence to compliance while keeping a

sustainable business model

Consider a more standardised approach to investments, with a core, central investment strategy

for the majority of clients

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The onboarding process – needs to be slick and more automated, packaged together seamlessly, and be

entirely secure from any threat from hackers, given the sensitivity of the information provided.

Replace legacy systems – Many systems are far from efficient and are approaching end of life and so it is

time for wealth management firms to consider taking the significant leap and replacing the legacy systems.

Focus on regulatory adherence – With a continued focus on regulation it will mean technology firms will

provide a greater amount of automation in regulation and monitoring to reduce this overall burden.

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