Markus Stadlmann, Chief Investment Officer of Lloyds Bank Private Banking, gives his forecasts on private banking trends in 2016
The wealth management industry in the UK continues its theme of constant change with more potential M&A activity being discussed in the press and the explosion of fintech companies seeking to help provide a competitive advantage. Clearly the macro factors such as the economic cycle and volatile market performance are going to impact on the industry as they do every year but in addition there are key trends we should keep a close eye on.
The rise of the ‘disruptive’ Robo Adviser and the extent to which these new players will threaten the traditional wealth management and private banking models is much published. Robo Advice is viewed by many as a solution to the advice gap which has become visible post-RDR. However with clients becoming increasingly more ‘tech-savvy’ it should not be ruled out that Robo Advice could impact more affluent business as well. Headwinds to development include the fact that Compeer research consistently shows that face to face service remains important for clients and recently the three European Services Authorities expressed concern at the differences in rules on this advice and calls for further analysis of the risks of Robo Advice. This regulatory uncertainty and client preference to meet with an adviser where advice is needed are signs that the Robo Advice solution is likely to take time to develop.
But the opportunity is huge – according to PwC’s report Asset Management 2020: A Brave New World between 2010 and 2020, more than one billion more middle-class consumers will emerge globally, representing the largest single decade increase in customers in history. This increasing affluence will fuel the need for financial products for a young and growing constituency who it is generally assumed will be more ‘tech savvy’ and open to solutions such as Robo advice. Digital strategies are expensive to develop but essential, be they Robo Advice or execution-only solutions.
According to a recent study from Ernst & Young, the global fintech industry is booming and London is at the heart of this growth which can only be good news for the private banking industry as we see the digital developments becoming more main stream. Investment in our industry and adoption of innovative technology is essential to keep up with our clients’ expectations as to how we should look after them. Successful businesses will look outside the industry as a barometer of what good service looks like.
MiFID II looms large on all investment firms’ radars. Key elements of the new rules are investor protection and transparency which are broadly welcome, but the work required to meet the requirements in a client friendly way is significant. According to the Wisdom Council’s July 2015 survey of UK investors, 75% welcome European legislation that offered investors complete transparency on all fees and charges but respondents also reminded us they value service and performance equally if not higher. The attitude to value for money, how to measure it and compare it across different providers is still a pretty vague subject – but over time as Generation Next become the largest segment this will be a more central issue in provider selection and loyalty. The FCA already has a focus on ensuring customers in the UK receive value for money and are placed in a position where they are informed and able to shop around. This is a regulatory trend that will continue to develop through MiFID II, PRIIPs and other initiatives, although the challenge will be how to provide this information in a way that all customers are able to engage with and fully understand.
And finally, the latest Compeer Survey highlights the most sought after services that remain on the podium are investment advice, financial planning and banking services. Being able to bring the best of these together secures a client’s relationship and yet there are still few who cover all three well. Building trust with clients by demonstrating value for money and integrity is not a new concept – we’ve just got to keep finding new ways to do it.
Markus Stadlmann, Chief Investment Officer of Lloyds Bank Private Banking