For the past 15 years, we have brought together CEOs and COOs from the largest distributors in the UK every six months to strategise with each other about the key challenges they are facing. Our aim has always been to act as a catalyst for the industry to help drive change forward. As part of that process we carry out substantial research to understand what’s keeping them up at night and we wanted to share some of the latest insights with you – but focusing on the COOs from the wealth managers and private banks.
To be bullish or not to be bullish?
So we find ourselves in a bit of a dichotomy. Across the landscape, C-Suite leaders are the least bullish about the future than they have ever been with COOs scoring 7/10 on our bullish rating. However on the flip side, business growth numbers this year have been fantastic, particularly in terms of AUM, revenue and client numbers. Plus, although costs have risen, they have done at a much slower rate. The only other area where growth has slowed is in their back office numbers and that is probably due to technology and their quest for greater productivity. And looking into next year, those growth numbers show no sign of abating.
How did they fare during COVID-19?
We put together this simple SWOT analysis based on their answers to see how we have fared during the pandemic.
1. Strengths – These can be summarised in one word… resilience! Be that operationally maintaining service and performance without interruption, and coping with the huge increases in trade volumes. The resilience of their clients and their confidence in their processes as a result of strong client relationships. And the resilience of their staff through their agility; strength; and diversity
2. Weaknesses – Many of them have found it difficult to simplify and digitise their internal processes. There is also a perception that it is more difficult to get older clients and advisers online and adapt to these new ways of communicating. Plus it has understandably been difficult to cement new business with the lack of face to face engagement. And this lack of togetherness has had an impact on staff wellness and company culture.
3. Opportunities – Firstly the pandemic has obviously acted as a catalyst to get their staff working remotely and drive the digital transformation through their businesses which they have been trying to kick start for the past three to four years. And the second big opportunity is growth. Whether that is launching new business lines; attracting new clients unhappy with their existing wealth manager; recruiting talent – particularly from a number of private equity owned wealth managers which have become very unsatisfying places to work; and getting a greater share of wallet with existing clients through their proactive engagement.
4. Threats – Beware the threats! It is understandably difficult to maintain staff focus, morale and wellbeing during this period and there is a real concern about key man risk. Also as everyone moves to an increasingly digital world we have to keep an eye out for new digital disrupters entering the market. And whilst the likes of zoom have been great, the inability to meet clients face-to-face does present challenges, and we are hearing a lot of grumbling about third party providers not adapting well.
Thinking further ahead, what’s keeping COOs up at night?
This rather complicated table prioritises the key challenges that COOs and CEOs are facing across the different distribution channels. The COOs from the wealth managers and ARTICLE C-Suite leaders are the least bullish about the future than they have ever been with COOs scoring 7/10 on our bullish rating despite fantastic business growth numbers this year in terms of AUM, revenue and client numbers. “ “ 38 39 TWM Insight Report The UK Wealth Technology Landscape Report | November 2020 private banks are highlighted in blue, and the other columns represent the CEOs from the different distribution channels.
Figure 1: Challenges that COOs and CEOs are facing across the different distribution channels in priority order
Looking at the responses above it is understandable that when we asked COOs to prioritise what was most important to their business when thinking about technology, their top three were achieving operational scalability; being able to innovate while maintaining business as usual; and using technology to source new clients.
Driving down cost income ratios
As you can see highlighted in Table 1, ‘rising cost income ratios’ and ‘driving productivity through the business’ remain key challenges facing across the whole financial services sector – although the asset managers are less concerned about productivity.
So when we asked CEOs from the wealth managers and private banks how they would tackle this, they said that the three most important revenue drivers to drive down cost income ratios were using enhanced client engagement tools and applications; followed by the adoption of an enhanced investment solution; and third but not least recruiting more relationship managers.
We then asked them to indicate what progress they have made in considering or implementing enhancements to boost client engagement and grow revenues. The three key areas they identified were using a systemic advisory process to for example identify the next best idea. Secondly using technology to develop a better client experience. And thirdly to broaden their investment proposition into areas such as ESG and private markets.
Keeping up with innovation and where to focus?
Now to move the cost and productivity dial we are going to need to plug into innovation and technology. For a while now there have been rumblings around the market that wealth management will be the most disrupted sector in financial services in the next three to five years. And as we can see in Figure 10, apart from the wealth managers and private banks, everyone is finding it challenging keeping up with the level of innovation in the market.
Now we know that delivering change is difficult so we asked them to prioritise the areas of technology innovation that would have the greatest potential to drive positive change in their business. And the top five were the use of digital signatures; the use of biometrics and digital identity for online security; greater use of virtual engagement tools such as Teams and Zoom; plugging into the cloud; and adopting deeper cyber security. The list goes on!
Figure 2: The regulatory barometer for wealth management and private banking COOs
Coping with regulation
One final pain point I wanted to touch upon is the rising cost and burden of regulation – an old stalwart that has haunted the value chain for many a year. It is a very sweeping statement to say that regulation is a burden, so we wanted to know which specific regulations are causing and likely to cause them the most pain? So answer that I will refer to our regulatory barometer. Welcome to ‘acronym city’ and as you can see below in Figure 11 it is quite a maelstrom at the moment. We have mapped all the regulations that we believe should be on their radar over the next couple of years – from those that have just been passed to those that are coming up on the horizon next year. We then asked the COOs to score out of five how ready they feel they are to tackle each of these regulations. And what you end up with is a readiness score – and the higher the score the greater your readiness is to tackle that regulation. Then to help filter the list, if more that 50% of them felt that a certain regulation was NOT applicable to their business then we marked it in red, and any regulations where the majority of them felt it WAS APPLICABLE we marked it in green. So this all looks very pretty but what conclusions can we draw? I think there are two actions to take from this slide. The first is that we need to check that any of the regulations indicated in red are definitely not going to surprise us and affect the wealth managers and private banks. And secondly the key regulations they identified that we need to get our heads around over the next 12 months are:
1. The European Market Infrastructure Regulation which is Europe’s response to the G20 commitment to regulate over-thecounter derivatives markets in the aftermath of the financial crisis
2. The Central Securities Depositories Regulation which aims to harmonise timing and standards of conduct in the European securities settlement industry.
3. The Anti-Tax Avoidance Directive and the various National Thematic Reviews.
So that was a whistle-stop tour through some of the highlights from our recent Scene Setter research. We will be bringing the COOs together for our upcoming WealthTech Matters series and the CEOs for our Meeting of Minds series. Here they will strategise about all the challenges I touched upon above (and more) to see how they can effectively drive change through their business.