Matt Lonsdale, Relationship Manager at Pershing, discusses three trends shaping the future of the back office and what this means for wealth managers.
Wealth management C-suite experience tends to have been developed in the front office, which has served well to improve propositions and grow a wider pool of clients. However, new regulatory requirements have thrown many back office areas such as operational resilience and cybersecurity into the spotlight, and senior experience of these specialised functions is often difficult to find. For instance, the Senior Managers and Certification Regime (SMCR), implemented from 9 December 2019, requires named individuals in firms to take personal responsibility for specific business functions, with penalties for failure.
CEOs are having to evaluate the skillset of their exec teams and broader capabilities. To allow them to focus on growing their client base and business, they need to be able to operate a back office which is resilient, regulatory compliant and efficient. The right resource yesterday is not necessarily the right resource for tomorrow.
Better connectivity and the widespread use of digital products such as smartphones, is one of the major changes in society over the past 10-15 years. For wealth managers, this has led to higher client expectations when it comes to digital capabilities. Instant access to portfolios and documents, improved customer service and sleek platforms are increasingly becoming the norm, as the world gets used to accessing everything elsewhere at the click of a button.
However, wealth managers need to think carefully about their digital strategy before jumping straight in. The investment required, data cleansing and client communications programmes are just some of the considerations, and there is a potentially large cost to getting digital implementation wrong. In addition, digitalisation needs to include the whole front to back process, not just client interactions for maximum efficiency.
Price competition is yet to hit the sector in full force. Until recently, there had been a lack of transparency on costs and charges. However, this changed in 2019 with the MiFID II requirement for more transparency on cost, with wealth managers having to provide an annual breakdown of costs and charges for their clients.
Investors are now in a position to compare total charges across managers, broken down by a range of areas such as advice, investment management, or custody. This transparency may lead to downward pressure on price, while at the same time the costs of implementing regulation and investing in technology are an increasing cost to firms. The result will be squeezed profit margins, and wealth managers will need to find ways to improve efficiency to maintain existing margins.
Pershing provides a broad range of financial business solutions to investment banks, broker-dealers, wealth managers, financial planners and advisers across EMEA. We provide sophisticated front-end technology and flexible middle office capabilities with execution, settlement and custody services. These are supported by a robust regulatory and compliance framework with dedicated client asset experience and expertise.