Wealth and Asset Management 2021

Discover the latest trends in wealth management, in this Seccl-supported Sunday Times supplement. Download now, or read on below...

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New returns: banks move back into wealth management

Banks are switching their emphasis from investments and high-street operations to wealth management. What are the implications for clients and smaller wealth managers?

As the traditional banks deal with the threat posed by digital disruptors and the bottom-line effects of historically low interest rates, a growing number have been pouring resources into a new opportunity: wealth management.

Many big banks had stopped providing financial advice – except to the wealthiest clients, since they could afford to pay for it – nearly a decade ago after the Retail Distribution Review (RDR) resulted in the banning of commission payments. Their retrenchment encouraged the growth of specialist wealth management businesses such as St James’s Place and Hargreaves Lansdown. But several banks have since come to see the provision of more personalised advice, supported by technology, as a way to differentiate themselves from the so-called roboadvice offerings that cater more for the mass market.

There are financial advantages in this for the banks. Managing wealth avoids many of the cyclical risks and uncertain- ties of corporate and investment banking. Instead, it provides a more predictable earnings pattern, benefiting from a lower capital intensity, and delivers attractive recurring revenue streams.

Lloyds (for which each 0.25 percentage- point cut in interest rates removes almost £150m from its annual net interest income) is a case in point. It has been widely speculated that concerns about Lloyds’ reliance on consumer banking have prompted it to announce the expansion of its wealth management arm under the Scottish Widows brand. Meanwhile, Credit Suisse revealed plans to dial down its investment banking operations and focus more on its wealth management business, where it’s seen as having a strong global franchise. China is expected to be a target region for Credit Suisse’s wealth management roll-out.

“The regulators might want to consider new measures to ensure that there’s adequate competition here”

Earlier this year BlackRock announced that it had had its plan approved to start a wealth management business in China in collaboration with China Construction Bank and Singapore’s state fund, Temasek.

BlackRock is also working with Coutts to expand the bank’s wealth management offering. November saw the creation of six new exclusive funds for the 12.5 million clients it serves across the wider NatWest Group. This arrangement comprises three active funds and three index funds with the objective of further reducing the costs of investing, building efficiencies in how Coutts manages clients’ assets. This is the latest development in Coutts’s ongoing wealth enhancement strategy, enabling it to meet more client needs, at scale, accord- ing to the bank. The product is a part of Coutts’ assets-under-management growth strategy and a key element of NatWest Group’s plans for its wealth businesses.

The success of UBS’s wealth management division – which in October reported a year-on-year increase in its pre-tax profits of 43% – demonstrates the appeal of this activity. The bank has plans to expand its US wealth operations with a digitally scalable advice model.

In the summer, Deutsche Bank poached a team of five wealth man- agers from UBS to develop its Swiss- based private banking business for wealthy British and NorthernEuropean customers.

“We will see M&As in this space, with some smaller wealth managers dis- appearing,” predicts Professor Tapas Mishra, head of banking and finance at Southampton Business School. “So the regulators might want to consider new measures to ensure that there’s adequate competition here.”

For the Personal Investment Management & Financial Advice Association, a body that represents wealth managers of all sizes, the key consideration should be how to preserve competition and the quality of guidance available to consumers.

Largest private wealth management teams in the US in 2021, by client assets

“We need more advice to be available now than ever, especially with developments such as pensions freedoms,” argues the association’s director of government relations and policy, Tim Fassam. “The more players in the market, the better.”

Where does this leave smaller players? “They’re more likely to focus on bespoke offerings and to specialise in their local area – people still want that personal contact and that local connection,” he says.

As this market becomes more crowded, banks are already looking to differentiate their offerings. Michael Morley, CEO of Deutsche Bank UK Bank and head of its wealth management arm in this country, explains the approach his company takes.

“When we are targeting ultra-high-net- worth clients, we focus on our core strengths in lending and investments. These include bespoke risk management strategies; access to alternative investment routes such as venture capital and sophisticated investment solutions for professional clients; high-end real estate; complex lending collateral solutions; and leadership on sustainability issues.”

But there are challenges to deal with. Where, for instance, will these banks find enough advisers with the requisite skills? Many lost their jobs when the RDR promp- ted the largest banks to move away from advice, so talent will be in short supply.

Christian Scarafia, MD and head of northern Europe bank ratings at Fitch Ratings, offers some other words of warning, noting that wealth management tends to have a relatively high cost base, because it’s labour- intensive and requires a lot of investment in compliance and control frameworks.

“Although wealth management revenues are generally seen as relatively stable, they are linked to conditions in financial markets,” Scarafia adds. “A correction in asset prices would result in a reduction in assets under management and in fees linked to these volumes. Lower investor appetite for riskier assets (which tend to generate higher income) or for financial transactions (which can generate extra revenue for banks) would affect the profitability of wealth management activities, which means that the profitability of this business is not insulated.”

But the banks are generally sanguine about their prospects. “The overall long- term trend for wealth management growth remains incredibly strong as new wealth is created and the overall number of wealthy individuals increases,” Morley says. “How these clients are served and advised will be a fascinating area to watch, as the increased use of digital channels drives innovation in service models.”

Infographic: managing wealth amid ups and downs

Wealth managers are always looking for better ways to balance risk and returns for their clients. With fixed income increasingly playing a secondary role in private wealth portfolios, managers are seeking investments that mitigate the impact of inflation while also maintaining strong returns through equity. If you invested £1m in December 2020, how would it have performed throughout 2021?

ESG portfolios offer principled profits, yet greenwashing concerns persist

There is clear evidence to show that ethical investing can improve returns. But some firms may be claiming to be more virtuous than they really are

Ethical investing has become a driving force in the world of finance, with clients demanding high performance from their investments against environmental, social and corporate governance (ESG) standards. Despite this, the market is still relatively immature, with a lack of consensus on how ESG should be defined and measured.

Every year, more and more money flows into funds that claim to be ESG-focused. The value of all ESG assets under management (AUM) worldwide surpassed $35tn (£26tn) in 2020. That was a third of total AUM and up from $22.8tn in 2016, according to the Global Sustainable Investment Alliance.

At one time, the received wisdom was that profits and principles didn’t mix. But a grow- ing body of evidence suggests that firms with good ESG practices tend to outperform their less ethical peers. When S&P Global Market Intelligence tracked 27 US-based ESG funds between December 2020 and May this year, it found that 16 of them outperformed the S&P 500 index. The funds –which each featured more than $250m in AUM – rose between 11% and 29.3% during that period, versus 10.8% for the benchmark.

“We are finding a need for constant innovation in processes, data and systems”

It’s clear that investors expect companies to take a stand on issues such as climate change and workers’ rights – a trend that’s been strengthened by the pandemic. Nearly a third (32%) of UK investors polled this year by ethical bank Triodos said the Covid crisis had motivated them to explore investing in an ethical fund. In 2020, the figure was 22%.

Stuart Kirk is global head of responsible investments and research at HSBC Asset Management, which has $621bn of AUM. Its data, which covers the past 10 years, shows that in the US, Europe and Asia (excluding Japan), a long-only portfolio of the top 30% of companies ranked by ESG score, equally weighted and rebalanced monthly, produced excess risk-adjusted returns, he says.

“Over time, as this story becomes better known, we believe that ESG strategies will comprise a growing proportion of outstanding assets,” Kirk adds. Despite the promise of ESG-linked invest- ing, there are caveats. It’s hard to measure the real impact of such investments, while there’s also a lack of widely agreed definitions of ESG. This allows some firms to present themselves as more ethical than they are by engaging in so-called greenwashing.

Listed companies are still permitted to decide how much information they disclose about their ESG performance to the market. Many report selectively, critics say. Ratings agencies offer independent assessments, but they must work with the information available to them and can therefore be imprecise.

This has led to some striking anomalies. For example, oil companies have appeared in the holdings of ESG investment funds because they’ve invested heavily in renewables and so have high clean energy scores. The fast-fashion retailer Boohoo was also popular with ESG funds until it was caught up in a worker exploitation scandal in 2020. The company, which said at the time that it was unaware of the alleged abuses in its sup- ply chain, had been rated highly by agencies for its treatment of workers.

Cathrine De Coninck-Lopez is global head of ESG at Invesco, an investment management firm with $1.5tn in AUM. She says that the ESG market “suffers from lack of com- mon definitions, interpretations and education”, while reliable information is hard to come by. “In addition, it is a fast-moving area that’s trying to match issues such as climate change, biodiversity, diversity and human rights to a more traditional and, in some ways, arms-length financial services industry. We are finding a need for constant innovation in processes, data and systems.”

Well aware of these problems, regulators are seeking to change the rules on reporting, with the EU’s Sustainable Finance Disclosure Regulation and the UK’s Sustainability Disclosure Requirements. De Coninck-Lopez hopes that “a common baseline” will help to set a minimum standard for the sector.

But many newcomers to ESG find the myriad approaches taken by funds bewildering. There’s an alphabet soup of ESG strategies on offer, ranging from negative screening and socially responsible investing to impact and sustainable investing.

The most popular approach is known as ESG integration, whereby ESG criteria are incorporated into investment decisions to help enhance risk-adjusted returns, regard- less of whether a strategy has a sustainable mandate or not. This is more of a light- touch approach than, say, impact investing, which measures environmental and societal outcomes against specific key performance indicators but may not generate such reliable excess returns.

Integration chimes with what many investors want, research suggests. About 90% of HSBC Asset Management’s ESG assets are treated this way, according to Kirk.

For someone looking to invest in ESG, it’s crucial to understand whether they’re investing in such factors primarily because they believe the approach generates excess returns or whether they’re doing it solely with responsible objectives in mind, he says. “These are two very different ideas about ESG – and they are not always aligned.”

For now, investors must do their own research on whether an ESG investment is right for them. Scepticism is growing about how virtuous investments really are, which could limit the sector’s growth potential. According to Triodos’s research, 26% of consumers who say they would not currently invest in an ethical fund also question how ethical many ESG investments truly are – up from 17% in 2020.

Yet, while concerns about greenwashing may be valid, the very fact that some firms feel they must pretend to be ethical shows just how much attitudes have changed. With every passing year, listed companies face growing pressure to act more responsibly.

Those who shirk such obligations pose a growing risk to their investors, according to Ainslie McLennan, head of UK balanced funds at Nuveen, a fund manager with $1.2tn AUM. For example, as we shift towards a low-carbon economy, investments in fossil-fuel-intensive assets will lose value at some point, she observes.

“It’s hard to identify exactly when that will happen, but there’s an obvious danger,” McLennan says. “Conversely, assets with a clear pathway to net-zero carbon present the greatest potential for long-term value growth. Ethical investment therefore seems to present better risk-adjusted returns.”

How to manage the risk of lasting inflation

The Bank of England believes that the recent burst of inflation will be short-lived. Even so, it makes sense to prepare for more than a temporary spike

Is the UK’s sudden bout of inflation a temporary condition or some- thing more serious? Either way, investors and wealth managers should prepare themselves for difficult times.

Inflation is expected to hit 5% next spring. The Bank of England thinks that it will start falling thereafter, returning to near the target of 2% in two years’ time. Even so, the annualised rate of inflation for 2022 will probably be higher than it’s been since 1992 – the year of Black Wednesday, when the UK was forced to withdraw from the European exchange-rate mechanism.

Inflation can be catastrophic, so it’s welcome news that independent economists seem to concur that the Bank is about right. This isn’t a permanent shift, they believe, although risks remain.

“In the sense that the forces which are initially causing this inflation are temporary, I think that’s a fair point,” says Rory MacQueen, principal economist at the National Institute of Economic and Social Research. The institute expects that inflation (measured by the consumer prices index) will hit 4.4% next year and 3.4% in 2023 before falling back below tar- get in 2024, conditional on base-rate rises in 2022 and 2023. It forecasts annualised GDP growth of 4.7% next year.

Paul Dales, chief UK economist at Capital Economics, agrees that inflation is a temporary concern. Interest rates will top out at about 0.5% at the end of next year, he believes, while “fairly soft” economic activity will help inflation to fall to about 2% at the end of 2022.

“Moderately higher interest rates are unlikely to derail the economic recovery,” Dales predicts.

So far, so good, although MacQueen points to a possible wage-price spiral as cause for concern: “If we see everyone pricing expectations of inflation into their plans, there might be self-fulfilling inflation, in which temporary factors lead to permanently higher inflation.”

But he adds that this isn’t the most likely scenario. “We do think that the Bank will take enough action to bring inflation towards target, although more slowly than some would like, perhaps.”

Not everyone is so optimistic. Ruth Lea, an economist and economic adviser at Arbuthnot Banking Group, is critical of the Bank’s failure to increase the base rate in November and worries that it may have fallen behind the curve. It needs to “start signalling that it’s going to hold back on some of the wilder excesses of demand to get to grips with what could become embedded inflation”, she argues. “If inflationary expectations do get embedded, the governor might have to put rates up by more. And, in the meantime, don’t forget that fiscal policy is still pretty generous.”

But how much freedom does the Bank really have? Russ Mould, investment director at AJ Bell, says it’s behaving as though it has “more of a US Federal Reserve dual mandate”, where unemployment is a joint priority along with inflation.

“I suspect the Bank is also aware that the debt position in the UK is far higher than it was 18 months ago, so the economy is relatively more sensitive to minor changes in interest rates,” he adds.

How should investors and wealth managers respond? Mould is clear: “There is no alter- native if you assume that central banks will keep real rates negative for the time being. If you’re getting a negative real return on bonds and a negative real return on cash, you’re left looking at equities.”

“There is a sense that real assets will do better than paper assets in a genuinely inflationary episode”

Mould favours stocks that command pricing power, rather than those that can be pushed about by competitors and customers. “You need companies with pricing power, because your margins would get crushed otherwise,” he warns.

This is a contrast from the prevailing approach in recent years, where investors ploughed into tech and growth stocks promising profits in the medium term.

“They’re the very companies that you just don’t want to own in an inflationary environment, because their costs will go up and they’ll get involved in dogfights for market share,” Mould warns.

Instead, investors should be backing value stocks and cyclicals such as banks, airlines and car manufacturers. Mould reckons that we could see “a degree of violence in the stock markets and market leadership changing”. And then there is gold, which did well during the 1970s when inflation was rampant, although he notes that it started from $35 per ounce back then, rather than $1,800.

“There is also a sense that real assets will do better than paper assets in a genuinely inflationary episode because central banks can print money but they can’t print gold, oil and property,” Mould says, adding that some investors will find a place for cryptocurrencies as a hedge.

His advice is echoed by Robert Sears, chief investment officer of private wealth manager CapGen, which has £3bn in assets under management.

“There is no single pure hedge for inflation,” says Sears, who has been building CapGen’s hedging positions.

“You want a range of assets that do well in different types of inflation.”

In a low-growth inflationary period, he recommends inflation-linked bonds. If real rates go up, he backs commodities, liquid exposure to commodity futures and gold. For “somewhere in between, where inflation is high but you still have decent growth”, he favours real estate, equities with pricing power and value stocks.

Sears is particularly keen on inflation swaps today, mainly because they fit with his assessment of the inflationary cycle. “The focus next year is inflation,” he says. “But what’s really interesting is that the markets expect it to come back pretty quickly in line with the experience of the past 30 years.” But Sears disagrees with this view, seeing a lot of potential inflation risk in the medium 4% term, partly because of last- ing changes arising from the Covid crisis, such as on- shoring. Against this view, inflation swaps for the medium-term outlook do seem underpriced by the market, he believes.

“There is not much downside”, Sears says, “yet you’d make lots of money if inflation were at the levels it hit in the 1970s.” As always, a challenge also offers opportunities.

ESG turns social as a new breed of investor takes up the reins

Global warming is far from the only ethical matter of concern to millennial investors. The industry has a demanding, resolute and persuasive set of younger clients on its hands

Wealthy investors of all ages are interested in sustainability, but social justice is also an increasing priority for the younger generation, for whom actions speak louder than words.

Environmental, social and governance (ESG) criteria have become central concerns for all wealth management clients, but investors in different age groups are prioritising them in dissimilar ways. Building a healthier planet for the grand- children is likely to be the main aim among many older clients, but achieving net zero is a given for under-40s. Having observed the many socioeconomic inequalities that the pandemic has thrown into sharp relief, many of them are looking beyond environ- mental issues and towards tackling other concerns, such as labour exploitation.

In their efforts to reframe their families’ investments along such lines, they are proving to be highly demanding clients, according to Leslie Gent, MD and head of responsible investing at Coutts.

“Younger people can be very impatient for change,” she reports. “Although many portfolios have already been cleansed significantly as a direct result of their influence, the conversations that we have with them can become emotive. While the debate about ESG inevitably starts off with their stated intention to make particular exclusions from a given portfolio, it’s our job to explain to all members of the family that there will be impacts on your returns if you limit your investable universe.”

“Younger people can be very impatient for change. The conversations that we have with them
can become emotive”

Aside from the intergenerational differences in approach to investment, there’s also a marked gender split. Female clients – particularly younger ones – are more vocal than men about social inequality.

Younger women are “far more prepared than their male counterparts to start discussing these tricky issues. Going on the anecdotal evidence I have, I’d say that women also have a greater understanding of them,” says Alexandra Loydon, director for partner engagement and consultancy at St James’s Place.
While under-40s in general tend to be better educated than their parents about social and governance elements, younger men are “probably more interested in the returns”, she adds.

The social side of ESG has tended to attract less publicity and investment than the environmental component. But younger clients have a wide range of concerns, which extend far beyond avoiding the traditional ‘sin stocks’ linked to alcohol, gambling and the arms trade.

“They want to know more about the effects that their investments will have on issues such as the marketing of tobacco to developing nations, unethical working practices and the number of women in leadership roles,” Loydon says. “Whatever the topic, their questions can be direct.”

Transparency about the potential effects (positive and negative) of investments is becoming increasingly important to these clients, notes Andrew Lee, MD and global head of sustainable and impact investing at UBS Global Wealth Management.

“This is about aligning their role with a purpose, so that they can maximise the impact they can create,” he says.

The future of fossil fuels often comes up in family investment meetings. For many younger clients, removing major carbon emitters from portfolios is an obvious first step towards a low-carbon future. But for many fund managers, divesting problem stock rather than engaging with the companies concerned – all of which have vital expertise to share – is a case of throwing the baby out with the bathwater.

“Coal is a no-go for us because there’s no place for it in a net-zero world,” Gent says. “But, when it comes to the oil and gas sector, we have to avoid starving the big players of cash. If that were to happen, they would go into private hands and we’d have no further influence over them.”

After about 25 years of dialogue with the industry, it is starting to change its ways, but significant progress “can’t necessarily be achieved in anything like the next 12 months,” she stresses. “This is something that our younger clients don’t always want to hear.”

Younger, ‘dark green’ investors are committed to responsible investing and want as much as possible of their portfolio invested according to their personal values. Individual investments are coming under closer scrutiny from such clients, who will one day take control of big family portfolios. The values of wealth manage- ment houses are also in their sights.

“Greenwashing is a big problem in our industry,” Gent says. “It requires us, as asset managers, to draw on the knowledge of many different disciplines, so that cli- ents can receive the guidance they need to help make informed choices. If you’re going to hold other companies to account, you have to start with your own business. For us, this is about being transparent and offering detailed disclosures on our web- site for clients to examine.”

Faced with a huge array of ‘Paris-aligned’ investment opportunities and ‘responsible investing’ hubs to choose from, investors without a PhD in environmental science could be forgiven for feeling out of their depth. This is why wealth managers who can sift through the claims and counter-claims of ESG investing are becoming ever more vital. That’s the view of Tim Fassam, director of government relations and pol- icy at the Personal Investment Management & Financial Advice Association.

“Their ability to cut through the jargon and give bespoke advice based on their cli- ent’s highly personal ethical approach – something that may have involved lengthy deliberations by the entire family – makes managers a crucial conduit between differ- ent generations and a trusted adviser for all age groups,” he says.

Many wealthy investors are only too aware of their highly privileged position. They’re keen to use their money to not only create a legacy for their descendants but also leave the world better off. With a growing range of ESG opportunities available to these clients, their age-old tussle between making money for the family and benefiting wider society may be losing its releance, according to Fassam, who adds: “Investing for sustainability and investing for performance are no longer poles apart – and that’s good news for all of us.”

‘How can we best facilitate a digital transformation in the wealth management and advice industry?’

Liz Field – Chief Executive, PIMFA

The way in which wealth management and financial advice firms interact with wealth holders is changing. As a longstanding profession, the wealth management and advice industry can be seen by some as very traditional and somewhat slower at adapting to technological innovation. In fact, the use of technology within the sector was largely limited to back-office operations for a long time. But the Covid pandemic has brought about a raft of changes on a scale that few would have foreseen two years ago. This has led many firms that traditionally relied on face-to- face meetings to rapidly change the way they think about and use technology. Clients’ demands and expectations are changing rapidly too. As a result, the amount of data firms must hold to serve their customers and meet regulatory requirements makes the wider integration of technology solutions inevitable.

The challenges of operating in this increasingly digitised environment mean that all firms - large and small - recognise the need to enhance their proposition through the faster adoption and innovative use of technology.

Two years ago the Department for International Trade’s UK Fintech State of the Nation report found that 56% of traditional financial institutions were already putting digital innovation at the heart of their strategy. It also showed that more than eight in 10 (82%) established financial services firms, including wealth management and advice companies, expected to increase fintech partnerships in the next three to five years.

More recently, a 2021 study by ThoughtLab found that 75% of wealth executives expect digital interaction with clients will be the norm in the next couple of years. Recent research from LexisNexis also suggests a shift to digital: more than 40% of wealth management clients are prioritising digital access and 89% of clients say their pre- ferred communications channel will be through mobile apps.

Fortunately for wealth manage- ment and advice firms, the UK has one of the world’s leading fintech industries. The UK tech startup and scale- up ecosystem is valued at £442bn ($585bn) - 120% more than in 2017 - and more than double the next most valuable ecosystem, Germany, at £217bn ($291bn). Current estimates suggest there are over 2,500 fintech firms based in the UK alone and that number is estimated to more than double by 2030.

The question remains: How can we best facilitate a digital transformation in the wealth management and advice industry? Many wealth management firms don’t necessarily know where to start and struggle to understand which technology solutions to prioritise in a congested marketplace. On the flip side, until very recently, fintech firms often found it difficult to access a traditional market that is still finding its way in a new technological era.

For these very reasons, PIMFA is launching its own wealth-tech plat- form, with the support of Morningstar, in the first quarter of 2022. PIMFA WealthTech will enable fintech firms and wealth managers to access and collaborate on digital solutions that will enable wealth managers and advice firms to digitise their operations and enhance customer service. The platform will be supported by specialist industry providers and explore developments in 20 specific market segments including blockchain technology, robo-advice, digital wallets and much more.

The Covid pandemic has forced us to learn to adapt to significant changes in our day-to-day lives. In particular, the use of technology in our daily interactions has become more common. The impact of these changes is felt differently in every industry. Today’s wealth holders want greater access to markets, more flexibility in how and when they have contact with their wealth manager or adviser, and more convenient forms of communication. For the wealth management and advice industry, effecting digital transformation is key to its future success in helping people build their financial futures.

The future of wealth: fast moving, hypercustomised and deeply embedded

Sam Handfield-Jones, co-CEO of Seccl, the Octopus-owned custodian and investment technology provider, shares insights from a client base spanning the entire retail wealth spectrum, from established investment managers to household-name fintechs. He explores the future direction of the industry to show how firms can ensure they’re on the right side of change

What key trends are you seeing emerge within wealth management?

The first thing I’d say is there has never been a better or more exciting time to be working in fintech, particularly in the UK. In the first half of 2021, the UK saw nearly £19bn invested into the sector. To put it into perspective, that’s more than £1 of every £4 invested globally flowing into the UK. It’s an astonishing number that’s rocket fuel for the entire sector.

There are some exciting trends beginning to emerge within the arena of financial advice and investments. Take hyper-customisation. We’ve seen a real surge in the number of narrowly focused customer propositions in retail banking over the last few years, such as banking services catering uniquely for the LGBTQ+ community. And now we’re beginning to see the same in wealth management.

At one level, we see it in the development of financial planning tools catering exclusively to certain segments of the population, for example the self-employed. But at a deeper level, this customisation extends to the very construction of investment portfolios.

Increasingly, clients or their investment managers can easily build fully bespoke models that align not only with their investment objectives, but with their personal values and world views. We’re talking total, client-level investment customisation, not the stuff you can run on a spreadsheet. And it’s now possible at the touch of a button.

We’re also seeing a trend towards the embedding of investment propositions within existing services. Over the next few years, we’ll almost certainly see the large and well-known neobanks launch long-term investment propositions that are nested within their existing apps, with characteristically simple and seamless user experience.

And I think we’ll see non-financial services brands get in on the act too, not with white label propositions outside the core customer experience, but with properly embedded experiences that cater for customers right at the coal face. Think Amazon Investments.

What’s driving this change?

Put simply, technology. In particular, the proliferation of APIs (application programming interfaces), which allow firms to rapidly and affordably integrate third-party software, and so avoid wasting time rebuilding from scratch software that already exists.

Over the last few years, firms have begun to rebuild the investment infrastructure using APIs, making it easier than ever for firms of all sizes to focus on the customer experience and leave the plumbing to someone else.

In the same way that businesses can just use Amazon for cloud storage, firms can increasingly plug into an investment infrastructure – trading, tax wrappers, portfolio management, you name it – that’s powered by APIs. It’s transformational.

What does it mean for wealth managers?

Customer expectations are changing. As consumers, we’ve become used to fast, convenient and mobile-first experiences. Clients will increasingly demand the same level of speed and sophistication from their investment platform or wealth manager as they would any other service.

At the same time, the technological advancements that have ramped up consumer expectations have also lowered the barriers to innovation, so much so any firm, new or old, big or small, can capitalise on the changes afoot. With a modern technology infrastructure to work on, businesses can, and should, aim to achieve operational efficiencies that could only have been dreamt of just five years ago.

How can firms futureproof themselves?

I don’t think it’s an exaggeration to say that the margin between success and failure in this market, as in most others, will be defined by technology. And yet most businesses in this space continue to rely on platforms that are held together with sticking plaster and a whole heap of manual intervention.

The single biggest step a firm could make is to take back control of their tech stack. Instead of relying on old third-party platform software, it’s easier and more essential than ever for them to rebuild their backend on cutting-edge, API-first tech. Only then can they hope to offer the level of frontend flexibility and customisation their clients will come to expect.

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