Suitability has become a major challenge for the UK wealth management industry mainly due to the fact that majority of firms do not understand the requirements, according to a survey by business performance benchmarking and research specialist Compeer and fintech firm JHC.
Nearly 44% of respondents said that their compliance costs increased due to conducting ongoing suitability testing. However, one in four firms said that they manage suitability manually, and 76% revealed that they leverage both technology and manpower.
JHC head of wealth solutions Amir Hakim said: “We can see that a huge chunk of the industry still isn’t utilising technology, but when it comes to suitability, technology can be light touch, quick to implement and a relatively inexpensive solution.”
The study further revealed that compliance now involves the entire firm and not just the compliance department. Some firms also recorded a rise in time spent on regulatory tasks across all departments, with 58% of senior management spending up to 40% of their time on regulation.
However, 58% of firms forecast annual AUM growth of between 6% and 10%, in spite of having compliance concerns.
Most of the firms have also been found to be unprepared for new financial regulation, with 41% of firms citing that it will be hard to meet all MiFID II requirements and 31% of firms found to not even have looked at GDPR requirements.
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The study also unveiled that Brexit is not yet a major concern for the industry.
Compeer senior research analyst Nik Lysiuk said: “Compliance is something that is often viewed as a burden, but this report reveals that it is equally an opportunity.
“Regulation-driven IT spend shouldn’t be viewed as a necessary evil, but instead technology can be utilised to lower costs and enhance service, allowing client-facing staff to focus on managing their client relationships while the technology takes care of identifying and highlighting any regulatory issues.
“Plus, compliance can offer an opportunity to gain competitive advantage, especially when you consider that parts of the industry are seriously unprepared when it comes to MiFID II, GDPR and beyond.”