‘One of the key things the industry used to talk about before
the financial crisis was the battle for a greater share of
wallet.
The concept was that once a wealth manager had
a relationship with someone, they could create a one-stop shop and
sell them a number of different products and services.
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That’s something which has been around for a
number of years and was a clear trend. But the situation now is
that clients are increasingly spreading their money around
institutions – our research shows that 50 percent of clients have
done so or plan to do so following the financial crisis.
It’s a clear message that the industry focus
has moved away from this issue of share of wallet for the time
being. Clients have been destabilised – they are spreading their
assets around and moving away from the one-stop shop concept.
Losing share of wallet
Wealth managers that had a high
proportion of their clients’ share of wallet are probably losing
it. Some institutions, particularly those with extremely good
products and services of their own, are actually picking up cash or
investments.
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By GlobalDataA good example of that is Hoare
& Co in the UK. Their 300-plus year history and conservative
advisory model has certainly worked in their favour.
Net net these developments are good news for
the industry in that those that are good at what they do are net
attractors and those that are not particularly committed or expert
about what they do, or have not got a differentiated proposition
will be net losers.
This mobility of client assets has been a
great opportunity for some wealth managers to get over the inertia
among clients when things are going well.
I would argue that this might, at long last,
lead to less fragmentation in the industry as we look forward. A
significant number of players that are not fully committed or
cannot afford to be long-term players in the industry will not be
successful and will as a result merge, be taken over or morph into
other organisations.
I think a number of the niche or sub-scale
players will have a very clear decision to make.
They will have to decide whether they can
afford to provide a full advisory model or restrict their services
and become product providers, or they are going to find themselves
marginalised and ultimately disappear.
In the UK, particularly with the likely costs
of compliance with the requirements of the FSA’s Retail
Distribution Review, [legislation which will make it necessary to
distinguish between independent advice and sales-led advice,
effectively bans commissions and trail fees and requires wealth
managers to invest in greater levels of training for advisers] it
is likely to include requirements for these firms to materially
‘up’ their standards.
I think they will find the systems,
compliance, training and communication requirements too large.
Since a number of wealth managers target
multiple parts of the pyramid, they have relatively unfocused
business models which are going to incur very significant costs.
They probably will not be able to survive in the post-RDR world as
a result of that.
The industry’s sleeping
giants
On the other hand, and at the other
end of the spectrum, many global players have been particularly
hard-hit by the credit crunch and have bigger trust issues than
anyone else.
With some notable exceptions, such as JPMorgan
and HSBC, many are clearly not performing especially well on a
global basis.
However, some remain successful as large
national players in markets where they have expertise and skills,
such as Citi Private Bank in the UK.
This is understandable as from a client’s
perspective, they tend to know the national banks better, they come
across them more often and therefore trust them more.
Clients are still sceptical about the
commitment of some international banks and the tendency of some of
them to dip in and out of markets.
However, this lull will, I believe, be
temporary, and I think international banks will definitely start to
feature more prominently on the international stage when they have
repositioned, consolidated and bedded down their propositions.
