The wealth management industry has been greatly affected by the deluge of new regulation that has hit the financial sector since the crisis. Smaller firms in particular have felt the increased burden of compliance as a host of new rules have been implemented such as the Retail Distribution Review.
The regulatory changes have encouraged a number of developments in the market for wealth management which is likely to foster a very different competitive environment going forward. This will affect both the firms providing services and their clients who range from mass affluent (£100k to £1m investable assets) to high net worth and ultra high net worth investors.
One of the big questions is where this will leave the majority of those clients in terms of their options for wealth management and the wealth management advice available to them.
A New Landscape is Emerging in Wealth Management
In addition to the regulatory developments that wealth management firms have had to incorporate into their business models, there are also other factors at work. The financial crisis has shaken the confidence of all participants in the capital markets including individual investors.
Access to online execution only discount brokers and user-friendly portfolio management tools has created competition at the lower end of the market as more individuals have pursued a DIY strategy to managing their wealth. Meanwhile wealthy individuals that do still engage with professional advisers have become more demanding in respect of fees, the level of service they require and the robustness of the institutions they invest with.
Tougher capital requirements for banks, greater regulatory scrutiny, increasing compliance costs and more demanding clients has made the wealth management less attractive for some firms while offering better opportunities for others. This has led to institutions such as Barclays and Morgan Stanley exiting certain markets while there have been numerous mergers among boutique firms.
What Will this Mean for Investor Clients Requiring Wealth Management Services?
It appears that the market is dividing into two primary strands with one strand focusing on the mass affluent demographic which has higher volumes but lower margins and the other on high net worth individuals and ultra high net worth individuals which has lower volumes and higher margins.
The service levels for the higher margin end of the market will inevitably be higher than those at the volume end of the market. Potentially this might mean that those with assets falling below the high net worth threshold of around £1m may find it more difficult to get bespoke investment advice in future.
It that is the case, it seems likely that new online platforms and innovative businesses models may well emerge to fill the void.
For more information please contact our expert, Simon Speller