Expert: Jamie Sinclair, BlackRock iShares
BlackRock’s third annual European survey of private banks and wealth mangers shows that regulation, technology and margin pressure are the top three concerns this year. The discussion revolves around which plates are necessary to keep spinning, and which can be a lower priority.
- Large banks cannot offer the bespoke service HNWs need and incur high costs serving the mass affluent
- Smaller firms provide a high focus on the client’s needs and have no burden of large, cumbersome organisations but find challenges in building their infrastructure, branding and reputation
- There is a huge gap between these small boutiques and large players which can be filled in with consolidation of smaller firms or spinoffs of banks into boutiques
- Complying to regulation is important although keeping the business moving forward cannot be forgotten either
- Robo-advice need not just be for low value clients – it can also serve high value clients so firms can focus on those elements that allow them to charge their premium prices
The purpose of the discussion is to determine which proverbial ‘plates’ participants are making extra efforts to keep spinning and which can be dropped for the time being.
A participant who left a large bank to start their own investment firm is familiar with both sides of the story for established incumbents as well as boutique firms.
While larger firms can offer a holistic view, front office staff often find that due to the volume of regulation-related tasks they have less time to fully service their high-net-worth clients. The increasing margin pressures also mean it is increasingly costly to service the mass affluent.
On the other hand, smaller firms have no legacy issues and can deliver a specialist and independent service to their clients but face challenges in building infrastructure, brand and reputation. They also cannot afford to do the frills.
A participant who previously worked at a large global bank mentioned prioritisation was a problem and it was difficult to balance client needs as well as regulatory requirements. A need to centralise the investment proposition and adapting to use technology and risk management systems was suggested. One of the participants revealed they have 70 portfolio models whilst others had approximately 3 and recognise the need to simplify.
It was concluded that there exists a huge gap in the middle which can be filled by consolidation of smaller firms or spinning off divisions of large firms into boutiques.
A key finding from the BlackRock survey addresses these issues by encouraging firms to be very clear in their target market and then aligning their service proposition as they cannot serve everyone on the same amount of resources. Also, if regulation was stricter it would cause an increase in minimum investment across the board – forcing further segmentation of clients. When asked how long before the client base changes, many firms say it has happened already.
The expert also emphasised that MiFID II is unsustainable without technology and advisors need to be armed with tools so they can reduce the amount of time spent on paperwork.
“They always say the UK is ahead of the curve but I’m not sure it’s a curve anyone wants to embark on.”
One concern around MiFID II is that it does not cover market stability and competition. The regulation itself is seen to reduce competition and is difficult to plan for. While complying is important, thinking strategically about how to keep the business moving forward also keeps these key stakeholders awake at night.
The conversation moved on to mergers and acquisitions and subsequently the talent pools at firms. Participants agreed on the need for a balance between staff who are skilled at managing people and those who excel at client management, and that the new blood provided by mergers is useful for this purpose.
When it comes to hiring, employers face the dilemma of choosing between a Relationship Manager and an Investment Manager, and also how many Relationship Managers to hire. Is it better to hire a small group of quality RMs then give them the tools to scale? This may cause an increase in fees which is hard to justify. Or is it better to hire a larger quantity of RMs with mixed skill levels?
This naturally leads to the topic of robo-advice, which was agreed that it need not just be for low value clients. It can also service high value clients while the firm focuses on what allows them to charge their premium prices. On the development of this technology, participants mention that there is a second mover advantage here by letting others invest, develop and make the mistakes first.
There are multiple spinning plates and it is proving difficult for the industry to conclude on which should be dropped and which to prioritise. At the highest level, it is essential to work on complying with regulation while also keeping the business running.