For wealth managers in Europe, the past five years have been challenging as they struggle to meet regulatory and tax transparency requirements and deal with the erosion of client trust. In future, many will continue to struggle to achieve responsible revenue growth and margins.

The challenge is that client advisors’ demands are already high and will increase. This will be driven by more regulation, tax transparency and, through changing client demographics, expectations. PwC’s latest private banking survey showed that in a typical month, the approximate proportion of time spent on client facing activities, as opposed to administration and compliance, in the UK has dropped from 55 per cent in 2011 to just 40 per cent in 2013.

The survey also identified the industry lags behind client expectations on digital but wants to catch up fast. Respondents plan to invest more in online and digital communication with clients, through the use of mobile and tablet support. This is in conjunction with the advisors and, through greater use of social networks, client reporting can be enhanced. While respondents expect to catch up in the next two years, they recognise significant internal capability gaps will need to be addressed such as assuring client privacy, information and cyber security.

Players expect digital to not only help address the low levels of advisor client interactions but to additionally address identified advisor skills deficits in evidencing compliance to new regulations and tax integrity requirements and in this way help to meet the tougher conduct risk requirements and protect reputational risk.

Digital will also address traditional commercial weaknesses such as low intergenerational transfer as client demographics shift and wealthy baby boomers start to pass down trillions of inheritances to the next generation which are more mobile, tablet and social media oriented. It will further help meet the challenges of technology enabled disruptive competitor business models which are now emerging.

A much more connected advisory approach is required, with clients, advisors, staff, third parties, in house and external business partners being better linked through technology to provide solutions, rather than products. This will be one of the most immediate and strategic challenges facing European wealth managers in the 21st century.

Europe lags behind other countries on the journey to digital. A US PwC wealth advisor study has shown emerging good practice is now moving rapidly in respect of adopting these newer connected advisor models.

The challenge is to move from the current state to future state connected advisor models. Experience from the US suggests making a series of sequenced, incremental moves aligned across the client experience, compensation lifecycles, provision of advice, relationship and practice management.

While the future is hard to predict, it’s not impossible to prepare for the coming challenges. The speed at which players can anticipate and adapt to the change, rather than simply reacting, will be a key differentiator in the coming competitive disruption.

 

Ian Woodhouse is director of private banking and wealth management practice at PwC