UK wealth managers forced to re-evaluate their value proposition – Pershing study

The UK wealth management industry is being forced to re-examine its value proposition in light of the implementation of the Retail Distribution Review (RDR) at the beginning of the year, according to a study commissioned by Pershing, a BNY Mellon company.

The report reveals a lack of confidence in the existing business model, with over 39% of advisers feeling the primary value delivered by the firm to clients was through the personal relationship they offer, while only 17% felt their knowledge and qualifications was of greatest value.

The effect of the introduction of RDR in the UK is being closely watched by product providers, advisers and regulators in Europe and worldwide.

The Pershing study found 46% of advisers consider managing existing client relationships to be critically important to the future of their business, but despite this two thirds of respondents did not feel wealth management was currently a premium service. They felt that wealth management needed to compete with other parts of the financial services industry.

These views have led to a renewed industry focus on providing and demonstrating value to clients. Some 83% of respondents consider segmenting clients and better understanding their needs as ‘most important’ or ‘important’ to future business, while clearly defining their offering and how it is different from competitors follows with 77%.

Respondents cite segmentation, improving client communications and improving customer relationship management (CRM) systems as the key to managing existing clients.

While increasing attention is paid to the value proposition, firms are also recognising the need to manage costs. Managing compliance costs and headcount in support functions were identified as the most significant priorities, with 36% and 32% respectively considering these most important. Despite the need to communicate value, 31% of firms are focused on reducing marketing costs.

Kevin Bonar, CEO of Pershing Limited, said the UK wealth management industry “is working through some of the most dramatic regulatory challenges in a generation and is addressing its need to adapt”.

“Right now, for many firms just surviving is key; longer term it’s understandable that firms are concerned with developing the most effective value proposition they can offer clients. We are encouraged to see that despite clear and seemingly persistent challenges, the industry is demonstrating its willingness to modernise and provide true value to clients, with the adviser augmented and not replaced by technology.”

The survey provided segmented responses, which divided respondents along sector and size lines.

While the vast majority of financial advice firms (91%) considered ensuring competitive pricing a necessity, this was the least important measure identified by investment companies (57%).

Smaller firms (employing fewer than 50 staff) are notably less frustrated by process in general, and by their IT support and development than larger firms, for whom it was the most highly rated concern. Sixty-five percent of those polled said client-facing staff must be supported by technology rather than replaced by it.
Respondents view the highest value delivered to clients from advisers themselves as the personal relationship (39%) followed by getting things done (22%) and knowledge and qualifications (17%). Respondents view the highest value delivered from the firm as investment management (39%), followed by business model and brand (27%) and wealth planning capability (20%).

Sixty-nine percent believe that fee transparency makes good client management much easier. Overall 51% of firms surveyed had no minimum investment level, rising to 64% for smaller firms. The most significant wealth threshold was from investment firms, 14% of which had a minimum of £1m.

Eighty-eight percent of wealth managers consider improving client communications was very or critically important to managing existing business but only 49% thought the same about enhancing reporting capabilities.

 

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