The UK’s wealth management sector will continue to grapple with a number of issues in 2017, although clear opportunities exist for firms willing and able to seize them, a major investment bank has said.
Cantor Fitzgerald, which serves around 7,000 institutional clients in over 35 countries, highlighted seven key issues for the industry moving forward.
Assets under management
Wealth managers have succeeded in achieving positive net client inflows through a mixture of new money from existing clients, new clients, and acquisition.
“On the one hand there are the positive factors: pension provision is generally inadequate, there is a range of attractive tax efficient savings vehicles such as SIPPS [self-invested personal pensions] and ISAs [individual savings accounts], and the death of the occupational pension coupled with new freedoms to manage financial affairs,” the firm said.
“On the other hand, there is arguably a demographic time bomb in terms of the baby boomer generation, as well as a low wealth generation outlook in the UK.”
Integration
It is increasingly important to offer clients a holistic service, which includes financial planning. The pension freedoms have increased the need for professional advice and financial planning among UK consumers, but banks and insurers have largely departed from the advice sphere. Cantor Fitzgerald said this is a fertile environment for wealth managers to penetrate.
Competition
An integrated offering, coupled with consistent returns net of fees, will be crucial for retaining and gaining clients. However, despite this highly competitive environment, the firm does not foresee any material fall in fees or commissions for wealth managers.
Regulation
The firm assumes the bulk of increased regulation has already been introduced, and the current model (client portfolio management backed by a centralised investment process) is sustainable.
Nonetheless, conflicts of interest are undoubtedly in the regulatory firing line, and the traditional half-commission model now seems “anachronistic”. On the other hand, the increased regulatory burden has raised entry barriers for the industry, as many firms are unable to spread higher costs over a sufficient asset base.
Online
While retail investors can now use the internet to source information and investment themselves, the firm considers the web a new delivery mechanism for wealth managers, rather than a disruptive force.
“Provided wealth managers invest in developing online access, we do not assume robo-advice and the like will be a threat in the near-term.”
Rates
Low rates, which have cut into wealth managers’ margins since the financial crisis, appear to persist for the foreseeable future.
“With the disappearance of the interest turn, it has placed more importance on fee earning via discretionary asset management.”
Consolidation
As the sector remains fragmented, Cantor Fitzgerald said there are significant opportunities for firms to grow via acquisition of new teams and whole firms.
“One current theme is vertical integration involving buying IFA firms as a way of acquiring new clients and strengthening distribution,” the firm said.
©2016 funds europe
