One of the common problems we see in our wealth manager clients are firms that do not have a settled view of why they exist and what they offer to clients. Often we see firms who do not have a forensic approach to their position in the value chain or do not have defined boundaries within their proposition. As a consequence, daily we see muddled thinking that leads not only to variable client experience and outcomes, but in many cases unnecessary regulatory and operational risks.

Without a clear vision and governance around the proposition, front facing staff will not be able to maximise client opportunities and may incur extra risks onto the firm from unstructured or differing approaches to doing high risk client business. By answering a series of structured questions about your client offering and commercial objectives you can help bring clarity of purpose, efficiency and also reduce your regulatory risk.

But this is not as easy as it sounds.

Most wealth management firms have a history that includes acquisition of other businesses; of books of business; and of advisors or managers steeped in different cultures. On the other side, as it changes over time the firm has struggled to define the boundaries of what they do. Are they asset gatherers for a single investment proposition? Are they the investment proposition? Are they a trusted advisor navigating a range of own and third party solutions? What is the range of solutions? Does the range include protection, lending or neither? What are the commercial limits to the range? Add to this regulatory change from RDR to MIFID 2 and the commercial realities from technology disrupters and many propositions have become confused and confusing. This leads to inefficiency and regulatory risk.

One of the basic, but effective tools we use to help diagnose symptoms in this area in the UK is the public record of regulatory permissions. We can use these permissions as a lens to ask management about their business, and the services and products they are really offering to clients and whether that is in fact what they intend to do. As these conversations continue we often find that what is core becomes clearer and what is satellite defined. The non-core or satellite activities can then be given parameters that help front facing staff maximise opportunities to help clients and reduce the risk of poor client outcomes. For instance many wealth firms do not carry out fully advised protection/insurance business, but firms do still want to assist clients in this area where it makes sense commercially and for the client and so they will introduce that business to a third party. As a result they retain permissions in that field. But because it is non-core, often there is no set revenue or risk above or below which that type of business will be pursued or if there is the process is unknown or not explicitly written. Quite apart from missed opportunities, this lack of direction leads to variable client outcomes and increased regulatory risk.

Through a conversation about what is core and what is not, using some basic tools like the public permissions, firms can gain valuable insights that allow them to perform better. Client centric discussions about products and services and parameters for offering them is not only regulatory expectation, but also good business and this is one of the areas where a commercially focussed regulatory risk discussion can help improve overall business performance. The challenge is then to communicate that vision and proposition coherently and consistently across the firm.

3 Things to take Away

  • Have an intellectually honest client centric conversation about what your firm does, for whom and how
  • Identify core and non-core activities and agree what is in them
  • Make sure that you have settled and agreed parameters in particular for non-core activities to reduce risk and increase opportunity and then communicate consistently to all staff.
Share this