Does the merger of Rathbones and Smith & Williamson mark the beginning of a consolidation phase for wealth managers?
Probably; because there are a number of common challenges that they share with asset managers, advice firms and platforms which are already experiencing a spate of M&A. It’s a crowded market place with an increasing regulatory burden. MiFID II is making them sweat and, as we’ve seen among the platforms, the requirement to upgrade tech may lead to a smaller number of scale players.
This is driving strong growth at SEI, an institutional platform provider, with new business from traditional wealth managers, like WH Ireland, and newer entrants, like Netwealth and Munnypot.
We do think the very term ‘wealth manager’ is a particularly fuzzy one.
To some it’s the oak panelled private clients outfits but for many it’s a straight forward financial advisers or even execution-only services with their select lists and guidance tools. The robo advisers are undoubtedly digital wealth managers regardless of whether they offer ‘advice’ or not.
This theme was picked up by Hargreaves Lansdown’s new boss talking about his strategy this week. Chris Hill thinks his addressable investment market is £1,100bn consisting of private banks, independent wealth managers, vertically integrated firms, IFAs and DIY investing services.
The demarcation, historically, was in terms of wealth and service levels, but increasingly these are converging. The claim that ‘exceptional service’ is the differentiator is a dangerous one because while good service is hugely important, it is expected from every type of service including the low cost automated ones. Claiming to offer exceptional personal service with a second rate digital proposition won’t wash for much longer… even for older wealth clients.
We see discretionaries looking to offer more standardised services for lower value clients. Investec Click & Invest, launched this summer, is a DFM service with a lower entry level and price point, offered digitally. They see their brand and investment credibility as key differentiaters from the new breed of robos. Offering 24/7 customer service from their contact centre in Johannesburg is a good example of not compromising on service.
Financial advisers are increasingly thinking about how they can offer top quality investment management either in-house or via outsourcing. Vertically integrated advice companies already have investment management divisions. We expect there to be two-way movement of investment management capability to financial advice/planning firms and vice versa.
And execution-only and simplified advice outfits find that the appeal of their technology and guidance is not just for those of limited wealth.
This month’s FCA’s occasional paper on ‘best buy’ lists gives further hints that this is not an area that it will look to disrupt. People find the lists useful and the FCA research shows that the performance of the funds stacks up well against others.
So the traditional private clients firms may get thrown into a less exclusive melting pot of wealth managers, but they bring their crown jewels with them – exclusive brands and investment management credibility. These will be critical success factors for anyone looking to compete in the future… much more than the Savile Row suits and champagne receptions of the old days.