Everything is changing for the UK wealth management market; not only are they facing new regulations in the shape of the retail distribution review, but the markets are down or at best volatile, and in the face of this the typical wealth investor is also changing.
Firms must now attract and retain a next generation of younger investor who wants a different service model. Many of these next generation investors will not be the offspring of existing clients, but a generation whose families have never needed the services of a wealth manager. So what challenges does this present? For a start the engagement and servicing model will need to change. If there is currently no relationship with the investor then how is the relationship to be built? How will wealth managers market and differentiate themselves? The next generation will be far more used to interacting over the internet and prior to engaging a wealth manager will have undoubtedly used the current retail platforms for self-managing their investments. To survive, the Wealth Managers will need to have a slick website offering, something which will be new to many firms. But an internet presence is not just a marketing shop window, it is also the door to all of the services the manager provides requiring new or enhanced technology across the firm, technology that is able to provide real time access to investor portfolios and valuations and more sophisticated client reporting. The next generation investors will also look for the additional services or value that can be derived from the relationship. During their business lives they will have become sophisticated networkers building beneficial relationships from social networking sites such as Linkedin, or more informal environments. They will look to the Wealth Manager for these benefits and increased opportunities to further their own careers. Finally the long standing model of commission and fees is under threat. This is not a result of regulations but a questioning of why a wealth manager is rewarded regardless of any relationship to their performance against benchmarks. It is true that the manager’s fees reduce as stock markets fall, but in the same way institutional investors have moved to performance based fees when dealing with Hedge Funds and other boutique managers, so the next generation will see this as a fair model of compensation for the wealth manager.
Rising to these challenges will see many managers fall by the wayside and those that survive will have to balance their current service with a much newer model that is tuned to the needs and demands of the next generation.