UK Wealth Management Industry Adapts to Survive in New Regulatory Era

THROUGH THE LOOKING GLASS
An executive perspective of UK wealth management
in a Retail Distribution Review (RDR) world
CREATED IN COLLABORATION WITH
EXPERTCREATIVE
EXPERIENCEDHONEST
PRACTICALINDEPENDENT
ETHICAL
ORGANISED
KNOWLEDGEABLE
RESPONSIBLEPERSONAL
INNOVATIVEUP TO DATE
EFFICIENTSAFE
LOYAL
PROFESSIONALMODERN
INTELLIGENT
SOLID WORLD CLASS
FLEXIBLE
PROACTIVE
HARD WORKING FRIENDLY
ENGAGING
INTIMATE
EMOTIONAL

CONTENTS
In brief—what you need to know in 30 seconds 3
The research process 4
The state of play 5
The health of wealth at the start of 2013 6
Winning new clients: sharpening the value of wealth management from 2013 9
Managing existing clients: renewing the vows in an RDR environment 11
Personnel: it ain’t what you do, it’s the way that you do it from now on 13
Regulation and compliance: switching a foe into a friend 15
Pricing, products and services: determining the future worth of wealth 17
Technology: transitioning the industry into a modern era 19
In conclusion: the future view of UK wealth management 23
What’s on the cover?
Thought Cloud
This thought cloud is based on the following
question in the research programme: In the
future, what words do you want the industry to
be most associated with?
EXPERTCREATIVE
EXPERIENCEDHONEST
ETHICAL
ORGANISED
KNOWLEDGEABLE
RESPONSIBLEPERSONAL
EFFICIENTSAFE
LOYAL
PROFESSIONALMODERN
INTELLIGENT
SOLID WORLD CLASS
FLEXIBLE
PROACTIVE
ENGAGING
INTIMATE
EMOTIONAL

THROUGH THE LOOKING GLASS 3
THE UK WEALTH MANAGEMENT INDUSTRY IS
REDEFINING ITS VALUE TO ENSURE A CONTINUING
VIABLE BUSINESS MODEL. RDR HAS BEEN THE
CATALYST FOR THIS CHANGE. CLIENTS WILL LET THE
INDUSTRY KNOW IF IT IS SUCCEEDING.
IN BRIEF—what you need to know in 30 seconds
The centre of gravity is shifting in the UK
wealth management business model
and Key Performance Indicators (KPIs)
The importance of time-based advice
fees will rise and asset-based charging
will be challenged against value
The industry is being democratised by
a new dawn of consumer activism and
selectivity
A growing expectation of what firms
must do for their fees will have a direct
impact on the business model
There is a change underway to the link
between segmentation, productivity
and profitability
A major cause of this change has been
the regulatory changes implemented
since 2008, not just RDR
The customer value proposition is
being re-written by most operators
Market conditions are forcing a tipping
point on what wealth firms do, and do
not do, best
The relationship model will have
a makeover where the adviser is
augmented, not replaced
Advisers fear their value will be
diminished by technology while clients
consider the value will be enhanced
The impact of technology on the front-
end and back-end business process will
be dramatic
There is recognition that greater scale
and efficiency will be a consequence, but
the question is still how to achieve it
The future wealth management leader
is a knowledge manager at the core
The role of intuitive and interactive CRM
will level the playing field between firms
of all sizes

4 PERSHING THOUGHT LEADERSHIP
THE RESEARCH PROCESS
Just before the dawn of the UK Retail Distribution Review (RDR) coming into reality Pershing
commissioned Scorpio Partnership to carry out a market research programme with senior
professionals in the wealth management industry and prepare an assessment of the findings.
The programme collated the views of 342 professionals operating in the three categories of
wealth management, independent financial advice and investment management (Figure 1).
These three groups in turn were made of nine constituent parts (Figure 2). Three hundred and
twenty-one of these professionals provided their views through a 15 minute highly detailed online
insight survey.This was supported by a further 21 face-to-face interviews with industry leaders at
selected firms.
One quarter of the participating respondents in the quantitative survey were with institutions
that managed in excess of GBP5 billion. Ten percent operated at firms with GBP1-5 billion in
assets under management (AUM). Thirty percent were employed by businesses with GBP100
million to GBP1 billion in AUM while the balance (34%) worked at firms with less than GBP100
million in AUM.
The survey process was anonymous and operated under the standard market research guidelines.
0
50
100
150
200
250
300
350 321
Overall
65
Investment
150
Wealthmanagement
106
Financialadvice
NumberofRespondents
+ 21 decision maker
face-to-face interviews
Figure 1 – Total sample distribution
All participants were employed by businesses that provided
financial services to high net worth individuals (HNW). The
definition of HNW varied considerably between institutions.
In broad terms, the HNW clients represented among the
largest in asset value terms for all businesses and typically
clients would be booking in excess of GBP250,000 with the
respective firm as a minimum. Most firms stated a much
higher public minimum than this figure.
10%
10%
16%
12%
12%
7%
17%
13%
3%
Private client investment
Asset manager
Family office
Wealth management division
in large banking group
Private bank
Wealth manager
Financial planner
Independent Financial Advisor
Stockbroker
INVESTMENT
WEALTH
MANAGEMENT
FINANCIAL
ADVICE
Figure 2 – Breakdown of
distribution by business type
The types of institutions selected
were deliberately varied. The
objective of the assignment was
to obtain a broad perspective on
the current status of the wealth
management industry and its
strategic thinking.

THE STATE OF PLAY
Without a doubt, on 1 January 2013 the UK wealth management industry entered a new era.
As the day dawned, the market place commenced operating under the RDR regime. Exactly
how this is going to affect the conduct of business for private client investors is still a topic
of debate.
The process of preparation ahead of this day was complex and cluttered with changes. While
regulation such as RDR has forced an adjustment in the conduct of business what is clear is
that for some time the industry’s operators have been reflecting on their future business.
Thus, as the dawn approached, we asked the wealth management industry what was going
through their strategic thoughts. Essentially, we wanted to identify what they were planning
to do next.
> The results were blunt.
> The predictions were frank.
Put simply, the UK wealth management industry is brutally aware that it must adapt or perish.
At the top of the agenda in 2013 there is a priority over deciding what the essence of their
respective business model is. What, essentially, is going to generate revenue?
Coupled to this, business leaders recognise they need to improve the positioning of their model
to their target audience in order to justify the value of their products and services. Once again,
the respondents were aware their future rests in their ability as a business to survive. This
depends on clients being convinced to come to them and, ultimately, stay with them.
The refreshing news from this research was that the vast majority of the respondents
know what is ahead of them. Equally, they are embracing new ideas, new processes, new
technologies and new solutions to upgrade their chances of surviving and thriving. Moreover,
there is openness to accepting that while the old ways of wealth management have been
outstandingly successful to get the industry to where it is today, the past is not a guarantee
for future performance.
Overall, the results of the research process indicate a growing sense of enterprise and
optimism among the community. Clients are pushing for more. The industry is not afraid both
to adapt to this demand but also to ask along the way if the change is worth it. If not, then it is
time to pull out.
The evidence in the results here shows already that the biggest success stories before 2020
will be the firms that totally embrace a modernisation of their approach from the back-office
through the front-line solutions and beyond. Technology alone is not the key to this success but
coupled to partnership and innovation it will go a long way.

THE HEALTH OF WEALTH AT THE START OF 2013
Based on the research findings, the UK wealth management industry needs a
confidence boost.
Client sentiment is at a low point but there are signs it could go lower. Regulatory intervention
is at a high point but there are signs it could go higher. This is, potentially, a perfect storm. The
grey clouds of change have been around for some time.
The reality is wealth managers have experienced a period of transition that some say stretches
back a decade. With this in mind, senior operators in the market are cautious about how much
they want to stretch in the coming years. That is not to state they are not prepared to stretch—
they know they must. But when they stretch it will be within their means.
When asked in this research program what their priorities were in the RDR world, the industry-
wide focus is on ensuring there are still clients to manage. According to the respondents,
top of the list (at 46% critically important) is keeping hold of the ones that they already have.
Although, not far behind, is the need to win the clients they do not yet have (Figure 3).
The respondents note, however, the challenge is that clients are not just questioning the merits
of the wealth model. They are actively choosing either to look elsewhere or act independently.
Nestled cosily in between the client focus priorities and client activism remains the overriding
issue of managing regulation and compliance. Notably, among the face-to-face interview
responses digging deeper into this issue, it is clear that a mindset shift is underway. Essentially,
the heads of businesses recognise they must convert the challenges presented by regulation
into a positive element for growth.
> For some,cracking this riddle is a tough challenge.
> But the alternatives are tougher.
Figure 3 – The most important
priorities for the UK wealth
managers today
Achieving significant progress in
any of the six business priorities
illustrated in Figure 3 is not a
simple task. The respondents are
fully aware that to survive and
thrive they will need to achieve an
impact in as many of these areas
as possible. Fast.
27%
32%
34%
39%
39%
46%
29%
32%
28%
27%
25%
25%
23%
18%
18%
15%
19%
12%
18%
15%
18%
16%
13%
14%
3%
3%
2%
3%
4%
3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Systems and
technology
Product and
service capability
Personnel
and skills
Winning
new clients
Regulations and
compliance
Managing existing
client relationships
Critically important Important Neutral Somewhat important Not important

But the map for success is not clear. Each firm is likely to adopt a slightly different route.
Lifting the bonnet on these priorities uncovers a whole new set of building blocks that require
attention in the post-RDR landscape. Here, there is a divergence of opinion on what is and is
not working depending on the size of the business (Figure 4).
If size is measured purely by number of employees, the results suggest senior executives at the
bigger operators believe their scale is not working to their advantage. They are conscious they
can reach more clients but they may not be able to capitalise on the opportunity. They
expect more but their sense is their model may either be failing them or at the very least not
achieving potential.
For instance, on the topic of information technology (IT) this is most pronounced relative to the
boutique players. However, reporting and portfolio modelling are also seen as sources of acute
frustration, relative to the professionals at smaller firms. Respondents note that both areas are
critical to future growth objectives.
Amid this change in the landscape rules, the competitive focus is turning to how to win clients.
> The jury is out on whether one model
will excel over the other.
Intriguingly, the dawn of RDR has resulted in the weapons of versatility and scalability
becoming increasingly interchangeable among all sizes of wealth management business.
Distinguishing firms purely on size or capabilities is increasingly difficult.
The reality based on the performance of the past several decades is that both win some of
the time and none wins all of the time. Critically, the respondents were aware now that in this
market it is the clients that decide.
Figure 4 – The major obstacles for
the UK wealth managers today based
on size of business
In this context, what is clear in the
RDR environment is the playing field
is being levelled somewhat. Crucially,
that does not just bring the big firms on
to the same level as the small firms. It
works the other way around. This is a
fundamental change in the industry
rule book and the respondents here
are aware they need to adjust the way
they operate.
39%
26%
31%
34% 27% 27%
25%
29%
24% 27%
39%
46%
41%
38% 39%
37%
38%
31%
34%
28%
0%
10%
20%
30%
40%
50%
Compliance
ITsupportand
development
Breadthofproducts
andservices
Clientrelationship
managementinformation
Investmentand
marketinformation
Accounting
Reporting
Transactionprocessing
Portfoliomodelling
Custodyand
administration
%ofrespondentsagreeing
Fewer than 50 employees 50 or more employees

This then leads to the heart of the matter. Essentially, what will make wealth management
attractive for future HNW clients?
If the businesses, of all sizes, are relatively indistinguishable in terms of clear differences
around their investments, the conclusion of the leadership interviewed for this research is that
the focus needs to shift clearly on the client proposition and ultimately the client experience.
In the words of one chief executive: “As the industry moves from a commission-based
environment to a wealth management model, the number one priority is the client proposition.
Advisers must be clear about what they are doing for their fee.”
The challenge is to determine what the principal factors are that contribute to the proposition
and the value of the model in the future?
Figure 5 – The core business variables of
UK wealth management future success
With this in mind, the following six
sections focus on the business variables
that contribute distinctly to this. Each
business will place a different level
of effort on each of the variables.
Ultimately, it is the individual ﬁrm’s
combination of these variables that
will underscore their unique service
proposition. According to respondents,
2013 must be the year when ﬁrms get
the combination right.
Todays
business
variables
Winning new
client
Managing
existing clients
Regulation and
compliance
Personnel
Systems and
technology
Product and
services
Pricing

WINNING NEW CLIENTS: SHARPENING THE VALUE
OF WEALTH MANAGEMENT FROM 2013
The first focal point in the RDR world is around the process of generating business. One
of the two major sources for this is through winning new clients;the other working with
existing clients.
The tough news is that over the past several years, the industry has had a mixed record in
its capacity to win new customers. The majority of respondents note that the combination
of increased competitive forces, confused positioning of many firms, and ageneral lack of
differentiation between all have led to a polluted market.
With this in mind, more visionary operators recognise that with RDR there is now an opportunity
to redefine their approach to the market. This opportunity to adapt is a rare one and those that
do not adjust now will suffer.
This redefinition essentially will boil down to a restatement of the values of the individual
business model. This, in turn, will lead to an articulation of a value proposition.
In essence—what exactly does the firm believe and what does it do? These two points
are critical grid references for new clients and even existing clients, according to survey
respondents (Figure 6).
In the words of one chief executive of a boutique wealth manager: “The single most important
thing right now is being able to demonstrate your value. It is about being able to explain clearly
what clients are paying for.”
Unfortunately, the value proposition is only part of the way forward for the UK wealth
management industry in 2013. When pressed about business priorities, senior decision makers
interviewed note they also need to get their focus clear on what types of clients would be the
most commercially viable for their business model. Once again, it is a frank admission but the
reality appears to be many operations in the UK (both large and small) are struggling to find
their optimal profitability level.
Figure 6 – The strategies for
winning new business in 2013
Essentially,therefore,the results
show most firms are now frantically
redrafting their customer value
proposition with a belief that this
will re-boot the client acquisition
process.Arguably,many should
have done this sooner,but for
whatever reason the reality is they
have not done so.
12%
16%
21%
27%
22%
49%
50%
51%
50%
61%
39%
35%
28%
23%
17%
0% 20% 40% 60% 80% 100%
Internal and external
introductions
Regional or international
expansion
Marketing, advertising and PR
Clearly defining what we do and
how it is different from others
Segmenting clients and
understanding their needs
% of respondents
This is also important This is low priorityThis is most important

This enhanced level of segmentation will be crucial to the next stage of their business.
Here, there appears to be a greater willingness to be revisionist in the segmentation approach.
By the end of 2012, many operators were aware that an “anybody, anytime” approach to
targeting wealthier customers may yield results in the short run but it has been a poor recipe
for long term endurance. Equally, going “upstream” to pursue clients with larger wallets is not
necessarily a route of success for many.
Fundamentally, the industry is seeking ways forward to reach suitable clients and to ensure
they know them as well as they can in order to provide the right solutions. Critically, the
research findings indicate that the segmentation for new clients will now be focused more on
life stages rather than wealth status.
Meanwhile, segmentation among existing clients will adopt a much colder review of which
clients are going to have the most consistent requirement of the solutions on offer. Ultimately,
based on the comments from the respondents, it appears businesses now are looking more
intelligently to identify which clients will represent the most sustainable revenue and,
ultimately, profit.
This concept is not new—it is often the first stated objective for most chief executives. But as
RDR dawned the importance of getting this right this time is very evident in the results. With
rising costs and falling revenues being experienced among an alarming number of operators
business leaders realise they cannot wait for results to happen.
> Firms have to seize the initiative and act.
> Otherwise they will soon be operating
on vapours.

MANAGING EXISTING CLIENTS: RENEWING THE VOWS
IN AN RDR ENVIRONMENT
While there is a natural impulse to win new clients among UK wealth management operators,
what is equally important is consolidating the relationships with existing business. Indeed,
the vast majority of the 342 participants consider maintaining—and hopefully deepening—
existing relationships to be at the heart of future survival.
Curiously, it appears that while many were willing to state it as a priority of action they appear
anxious about actually acting in the first half of 2013. The findings indicate that with existing
clients many advisers are nervous of the reaction to the outcome of explaining the new regime
in relation to fees and services.
This hesitation by some may present opportunity for others in the market. Some of the more
visionary operators, however counter-intuitive it may seem for many, are looking at ways to
harness regulation and compliance as an ally for new business creation. In fact, they are actively
seeking to use the situation to renew their commercial vows with their wealthy customers.
To that end, when asked about what they will do with existing clients after segmenting them
properly the next priority is to enhance their level of interaction. In fact, these operators are
expecting to go on the front foot during 2013 in a charm offensive to cement business with
current clients (Figure 7).
This was particularly notable among the wealth management business models, relative to
the independent financial advisers and investment managers. A first scan of the research
results might suggest this conclusion is incorrect. Yet, when one considers that the wealth
management firms were slightly late in their recognition they would need to adapt to the RDR
regime, this result makes more sense.
After these two 2013 calls for action around segmentation and communication, the top
priorities cluster very quickly around technology and process. In essence, the industry is
trending toward a better sytematisation of approach to how it prepares its capabilities and
then delivers them.
Figure 7 – The leading factors for managing
existing clients from 2013 (all models)
Respondents expect to use the situation in
these early months of 2013 to re-examine
the relationship with their clients and plan a
future that would be both beneficial for the
client and also for the service provider.
80%
70%
77%
70%
73%
73% 63%73%
88%
78%
76%
68%
63%
49%
86%
81%
81%
78%
72%
75%
56%
40%
60%
80%
100%
Segmentingclientsand
understandingtheirneeds
Improvingclient
communications
Improvingclientrelationship
managementsystems
Improvingservice
andadvicelevels
Fine-tuningproducts
andservices
Enhancingrisk
profilingprocesses
Enhancingreporting
capabilities
%ofrespondentsstating
very/criticalimportance
Wealth Management Financial adviceInvestment

The reality is that at the dawn of RDR there has been a convergence between the demand and
supply of improved usability and functionality of technology to support wealth management
business processes. This is alongside a heightened commercial need for these services based
on both consumer and competitive pressures.
In the past, many businesses have shied away from the big “Tech” question. The principal
reasoning has been an expectation of huge implementation costs. Many also believed, often
wrongly, that their more manual approach to winning and maintaining business would be
sufficiently effective. To an extent they were not wrong. At the time…
However, the changing dynamics of the market—not least led by the requirements of
compliance and regulation—have meant firms can no longer defer the modernisation topic.
The responses by business leaders to this research program, as reflected in Figure 7, point
at this conclusion. According to survey respondents, wealth business must reconfigure its
relationship model so that it can be delivered in a consistent and commercial manner to as
many clients as its business model can profitably support.
In reality, the respondents’ results state the industry is trending fast towards an upgrade in
its infrastructure. This is not solely because it needs the back office to be better organised. In
fact, it is mostly because there is a recognition that the upgrade will enable the front office—
essentially the “point of sale” in retail parlance—to become a more effective component of the
business model.
> This finding was a crucial element of the entire
research process.
Looking to the future, it is apparent that wealth managers, investment managers and advisers
alike recognise that the relationship management process must be fast, efficient and accurate.
Human error, as the saying goes, is not an easy option to manage but human effectiveness is.

PERSONNEL: IT AIN’T WHAT YOU DO, IT’S THE WAY
THAT YOU DO IT FROM NOW ON
There is a broad acceptance among UK wealth managers of the need to upgrade systems and
processes to meet the post-RDR world. What is equally clear is the wealth business still, at its
core, relies on the effectiveness of its people.The decision around the allocation of the human
resource within the business model is a vital variable in the future success of the wealth
management company.
> Simply said,but when it comes to people matters
nothing is ever that simple.
To an extent, this is unsurprising given the different motivators and impulses of the executives
depending on their areas of responsibility.The differences, however, do also tell us a great
deal about the state of the corporate mind in UK wealth management.They also hint at the
development road map of the industry for the next 12-36 months.
Focusing on the views of strategic management—typically the office of the CEO—the priorities
of action are centred on keeping staff and essentially raising their productivity.The CEOs are
evidently not focused on adding more staff.To achieve their goal of getting more out of the current
resource, the CEOs are expecting to need to be more creative about how they do this as they can
no longer just increase the wages—most likely because their resources do not permit this option.
What is interesting on this point is there is a growing school of thought that the non-financial
benefits are generating a higher level of business productivity. But the popularity of this
concept may not be shared by all. Notably, the business development professionals that took
part in this research take a diametrically opposed view. To an extent, this is not surprising as
they are effectively hardwired to generate revenues and the profile of business developers is
attuned to a more instant form of financial reward.
Figure 8 – Different perspectives on the
way forward from within the model
The survey results reflect this complexity
of the human factor. When different
decision-makers were pressed about the
prioritisation issues in their business to
ensure they had the right mix of people
and skills to achieve their strategic
objectives, the results identified a
breadth of opinion.
71%
76%
69%
59%
65%
60%
88%
76% 71%
68%
38%
47%
81%
71%
55%
67%
76%
41%
78%
78%
89%
56%
56%
33%
20%
40%
60%
80%
100%
Improvingcommunicationbetween
divisionswithintheorganisations
Offeringmoreproduct
andservicetraining
Enhancingstaffretention
throughnon-financialbenefits
Increasingbonusincentives
forclientmanagementactivity
Reducingproduct-
relatedbonusincentives
Recruitingmorestaff
Client facing Operations Business development Strategic management

However, the business development group of the UK wealth management community is also
acutely aware that such an approach can impact on behaviour.This might, they acknowledge, at
times be damaging. In fact, it is notable the business development officers are strongly in favour
of reducing the product-related bonus incentives that are felt still to be prevalent in the industry.
When considering the client facing professional viewpoint on this topic, it appears they do not
disagree hugely with the view of the business developers on either point. However, it is worth
noting that non-financial benefit option is in fact their third highest priority for the future. In
fact, when looking at the results in relative terms, it is only a few pips away from being the
second most important priority for the future.
It could well be, therefore, that the CEO and strategic management are on to something and it
may also suggest that business development executives may need to up their game to justify
their position and economics—particularly when many of them have arguably struggled in
recent years.
While these results do not suggest we are in a “mend and make do” environment, it is clear the
heads of this industry are conscious they will not be able to solve problems purely but throwing
more people into the mix. This does not mean, equally, that they are in financial spending
lockdown as most leaders openly recognise they must improve other areas of the business to
keep competitive.
Figure 9 – Headcount expectations
over the next five years
Ultimately,the results do point toward a strong desire
to enhance the productivity levels of the existing
resources in the business.Indeed,the plan for future
growth is essentially being plotted against a relatively
moderate increase in headcount with 58% of executives
anticipating a slight rise over five years.
17%
58%
12%
11%
2%
Increase a lot
Increase a little
Stay the same
Decrease a little
Decrease a lot

REGULATION AND COMPLIANCE: SWITCHING
A FOE INTO A FRIEND
With a recognised pressure to increase revenue and a much reduced budget for growth, the
challenges of the wealth decision-maker are hard enough before the ingredient of compliance
is added. For the vast majority of participants, the financial burden imposed by regulation
remains a major factor, in their mind, for their challenges in terms of business effectiveness
and profit margin.
The past 24 months indicate, however, that the pace of regulatory adjustment is unlikely to
decrease. In the words of one chief executive of a large private bank: “The cost of regulation is
putting pressure on the business to focus on its existing processes.”
> This issue of focus is an interesting one.
Solving the financial drag of compliance on business performance remains a riddle to most in
the industry it seems. For some it appears to be the focal point of paramount frustration with
the only solution being cutting costs to keep the business ticking over.
Naturally, some of this cutting is reasonable but as 2013 began it appears a growing sense
of trepidation is emerging that reductions in headcount will have a much greater impact on
the capacity for the business to continue to be effective. Some even now wonder whether the
reductions may make the business even more exposed to non-compliance in the future.
In the words of one head of investment management at a mid-tier wealth manager: “If we get
regulation wrong then it is game over.”
Interestingly, based on this point, there is a rising tendency to re-focus on the core practices of
the business and who is going to be required to do the roles. This is resulting in a refreshed and
potentially less protective debate around outsourcing.
In this context, senior decision maker interviewees express a willingness to consider every
aspect of the business process as potentially up for review. As long as the ends can justify the
means, then there is likely to be little argument against this in the post-RDR environment.
Figure 10 – The top areas where the effective cost management will be applied
As a result of the requirements imposed by compliance the management knives typically slash out at people costs
and usually this is in the middle and back office. Although notably there are now almost as much favour towards
more adjustments being made in the front line than many would assume.
36%
Managing
compliance
costs
32%
Managing
headcount in
support functions
31%
Reducing
marketing
costs
30%
Managing
front office
headcount
28%
Outsourcing
back office
functions
% of
respondents

In reality, the historical arguments against outsourcing solutions were sharpened by the past
24 months which have helped many in the industry recognise what they consider to be core to
their business. As a result, in the next 2-5 years there will be a clear recalibration in the comfort
levels of management around what is internal and external to the business model.
Alongside the cost management theme of the decision makers in wealth management there is,
notably, a rising sentiment around how compliance aligned to outsourcing might in the long-run
be seen as an ally to the revival of the industry.
While it is not a widely popular theme given the daily processes of conducting business now,
there is grudging acceptance that the regulatory requirements in some areas of business are
forcing an upgrade in the levels of connection with the customer base. The manual processes
are not efﬁcient in resolving this nor are they as accurate, it seems.
In essence, the focus on strengthening the client engagement processes cannot be seen,
ultimately, as a bad thing for the individual business or for the reputation of the ﬁnancial
services industry as a whole.
In the words of one chief executive of a major private bank: “One of the key challenges is going
to be coming to terms with the new regulatory framework but I feel a lot more positive about
how this is going to shape the industry than with the old regulatory regime.”
The transition of enemy to ally will not be sudden and may ultimately never be fully embraced.
However, the necessity of the market will impel wealth managers to work out how to operate on
commercial terms within the regulatory guidelines.
The early grumblings during 2011-2012 that RDR would be the death knell of parts of the wealth
management industry have been replaced by a more muted tolerance of the situation coupled to a
more outspoken effort to help shape future regulatory initiatives so that the industry can continue.

PRICING, PRODUCTS AND SERVICES: DETERMINING
THE FUTURE WORTH OF WEALTH
The burdens of costs have a direct impact on the decisions made around pricing. At the heart
of this factor for UK wealth managers is how to ensure they can demonstrate the value of their
capabilities to clients that is at a fee level on which they can operate commercially.
The challenge faced by all operators is the assumption that, overall, the fees that they can
charge to private clients will continue to be reduced. The concern is no-one ultimately knows
how far these reductions will go. Based on historical evidence, the area where the greatest
decline in fees will be experienced is in the sale of investment products.
This explains why most operators now position themselves a “non-product pushers” and much
more oriented to “solutions”. Setting aside any component of their “solution” which actually
involves intellectual skills, this terminology, they feel, either enables them to justify retaining
higher fees as competitors reduce their fees or puts a brake on the downward fee trend. Or
both. Neither is that sophisticated and both fail to grasp that renaming a product a solution
does not change it from being a product.
Whatever the terminology, the industry must recalibrate its economics in 2013. As a ﬁrst step,
the response of business leaders surveyed is, as a priority, to re-evaluate the commercial
terms on which they operate with external platforms. However, while this is inevitably felt to
be a sensible move by most CEOs in the industry, it is worth noting the other areas of focus to
ensure the business remains competitive when it comes to products and services. (Figure 11)
Figure 11 –The top areas to
maintain a competitive product
and service in 2013
For instance,when considering
the three core different models of
the industry,the slight variances in
approach to competitiveness are
noteworthy.Both the investment
management and ﬁnancial advice
models adjudge the review of
platform arrangements are a central
plank of their competitiveness for
the near term.This represents a
key plank of their strategy in 2013.
Meanwhile,wealth managers are
unconvinced on this matter the
expectation of many respondents is
this will change during 2013.
86%
57%
71%
64%
79%
64%
64%
79%
74%
69% 66%
58%
84%
91%
75%
74%
63%
35%
20%
40%
60%
80%
100%
Assessingplatform
providerarrangements
Ensuringcompetitive
pricing
Increasingtherangeof
productsandservices
offered
Developingsolutions
internallyfromwithin
ourgroup
Outsourcingtoa
discretionaryfund
manager
Decreasingtherange
ofproductsand
servicesoffered

Equally, while maintaining competitive pricing is a priority for wealth managers and financial
advisers the investment managers are less focused here. In this area the focus of most wealth
managers and financial advisers is to identify a common pricing standard that is universally
accepted. This is so they can be compared fairly between each other when it comes to the
client making the choice. They are acutely concerned about the pricing model for their
intellectual skills such as financial planning and wealth structuring. This is currently why many
define these skills as part of a solution.
However, as several investment managers wryly note, once a common pricing standard is
arrived at, the next phase of pricing evolution commences as there is downward fee pressure
imposed by market forces. They have, as many commented, seen it all before.
Meanwhile, alongside these two points it is interesting to note the tendency among all models
to believe that in the immediate future value and pricing will be augmented by increasing the
product and service range on offer. This is coupled, in our view to an equal desire to create more
internal capabilities for products or services or both. The purpose of this is to ensure a greater
margin is secured in the revenue relative to what may need to be paid away to third parties.
Figure 12 – The top areas to maintain a
competitive product and service by 2018
This latter point is critical when one
considers what the industry believes
will be important for their commercial
value by 2018. By then, the debate over
outsourcing will be resolved, it appears.
In fact, the main priority will be to
enhance the capabilities of the business
to generate internal products.
77%
77%
62%
77% 77%
69%
71%
69%
69%
52%
47% 48%
81%
68%
75%
72%
53%
34%
20%
40%
60%
80%
100% Developingsolutions
internallyfromwithin
Increasingtherangeofproducts
andservicesoffered
Ensuringcompetitivepricing
Assessingplatformprovider
Decreasingtherangeof
productsandserviceoffered
Outsourcingtoadiscretionary
fundmanager
%ofrespondents

TECHNOLOGY:TRANSITIONING THE INDUSTRY
TO A MODERN ERA
As the debates rage around how many people to employ,where they should be working and what
types of product and service they should seek to sell, there has been a steady undercurrent
around the question of the role of technology in the future wealth management model.
For most respondents in this research, technology remains a thorny topic. Historically, it
was often approached with about as much enthusiasm as when firms talk about the role of
branding and marketing.
Ironically, all three topics (branding, marketing and technology) are cited in independent
research surveys of client interests as the major features which private clients consider as
central factors in both why they chose a wealth management and why they continue with them.
Notwithstanding the client perspective, what is notable now is that many more of the market
leaders recognise technology can be a positive agent of change. For many, it is enabling firms
of different scales and propositions to compete on a relatively level playing field. Indeed, if
the technology had not been in place, many of the smaller players would have little chance of
maintaining a stake in the private client wealth management race.
Thus, there is a groundswell of opinion that technology developments in the context of the
wealth management model have initiated a democratisation of the industry.
In the words of one managing director of a mid-sized wealth manager: “Technology—that is
where the big opportunity lies to get greater leverage from your infrastructure.”
Figure 13 – The top areas of business capabilities frustration in 2013
Indeed,when it comes to infrastructure it is worth noting where the major pain points are in the current models.While
compliance has been addressed earlier in this report,over half of the remaining top issues of pain in the business models
have a technology element to them in terms of solutions to alleviate constraints.
45%
43%
37%
35%
38%
35%
37% 38% 38%
31%
35% 33% 33%
35%
27% 27%
25%
28%
23%
25%
35%
26%
32%
31%
29% 28% 27%
22%
21%
20%
30%
40%
50%
Compliance
ITsupportand
development
Clientrelationship
management
information
Breadthofproducts
andservices
Investmentand
marketinformation
Accounting
Reporting
Transaction
processing
Portfoliomodelling
Custodyand
administration
%ofrespondentsagreeing
22%
Areas where technology increasingly plays an additive role

In one particular area there is a growing attention among wealth managers around what
technology can do. This is in client relationship management (CRM) systems. The majority
of operators now openly acknowledge that they currently possess CRM systems that are
either not fit for purpose or are not effectively linked to the rest of the business and client
relationship process. All accept this is not a sustainable mode of conduct for the future.
As a result, CRM development is widely accepted now as the key to the future success of the
wealth management model (Figure 14). The face-to-face interviewees consistently remark that
a centralised resource on all elements of client knowledge and activity is an obvious benefit.
Many more claim it is a necessity. But, more important to many is the idea of a centralised
information management resource that will be able to efficiently stimulate the relationship
model into activity with a commercial focus.
In the words of one chief executive of a smaller private client investment manager: “Most firms
have not understood that managing data is vital—getting the systems in line is going to make
a big difference going forward.” In his view, CRM was at the heart of this development.
For those that did have CRM solutions linked into the business process, they frankly admit that
they had not yet adapted to the new solutions. In their defence, for many it is typically a recent
introduction so the processes are still being embedded into the relationship model.
For those that have fully adapted to their solutions, they are also now reaping an additional
benefit which is business data on productivity levels of their advisers. At a management level
this type of data will increasingly become a cornerstone of evaluation on the future of their
business strategy, according to respondents.
Essentially, the data is going to enable businesses to plot which types of clients are doing the
right type of business while, equally, they will be able to determine which advisers are the most
valuable to the model and why.
Figure 14 – The top areas where firms are prioritising
systems and technology enhancements
Therefore, the survey results are hinting that the age of
the rolodex banker may at last be coming to a close.
94%
89%
72%
87%
81% 74%
90%
87% 80%
60%
80%
100%
Improvingclient
relationship
managementsystems
Improvingaccessto
productand
marketinformation
Improvingcustody,
administrationand
reportingcapability

Alongside CRM, the improvement of access to product and market information as well as
improving custody, administration and reporting capabilities all rank high on the business
critical agenda. What is relevant is that across all three business types the sense of importance
is constant.
Finally, what is clear from the responses given is that the industry is seeking constructive
ways in which to improve not just its impression of what it does for clients, it also seeking to
transform the reality of what it does for clients.
What is crucial about the above statements and technology is that with technology the
business can act more consistently and the business management can also regain a level of
control on how their business develops.
The commentary from face-to-face interviews for this research shows a greater awareness
of this in the UK than in the past. Historically, the senior management have often found
themselves hostage to the dictates of their client advisers and with limited line of sight of the
end client or their true needs. In fair weather and positive markets this is manageable, but in
foul weather and negative market circumstances this is no longer a viable option.
The perfect storm leading up to the dawn of RDR underscored the sense of foul weather which
is prompting leadership to re-equip their business models for the future.
As a result, it is becoming more widely accepted that technology is a better ally in the process of
delivering the relationship model than previously considered. In the past, it has been seen as a
challenger (or worse) to the fabric of the model—relationship management delivered by a person.
Figure 15 – Primary descriptors which the industry wants to be associated with in the future
The ambition of how the business wants to be perceived is relevant in this context (Figure 15).It becomes more difﬁcult
to underscore this reputation if the relationship model breaks due to poor content management,poor reporting and
administration,poor connectivity levels and so on.Indeed,these factors are widely recognised as of equal,if not greater,
importance to the client relative to the investment performance of the underlying funds managed by the advisers.
EXPERTCREATIVE
EXPERIENCEDHONEST
ETHICAL
ORGANISED
KNOWLEDGEABLE
RESPONSIBLEPERSONAL
EFFICIENTSAFE
LOYAL
PROFESSIONALMODERN
INTELLIGENT
SOLID WORLD CLASS
FLEXIBLE
PROACTIVE
ENGAGING
INTIMATE
EMOTIONAL

The research insight indicates that increasingly the decision makers are becoming aware that
technology is not able to replace this model and nor should that be the objective. In reality,
technology should make that model more effective and more commercial.
> It should also make it more delightful to the client
and this is,ultimately,what they will pay for.

IN CONCLUSION:THE FUTURE VIEW
OF UK WEALTH MANAGEMENT
The findings of this research program reveal that UK wealth management is conscious of the
obstacles and opportunities it faces. RDR has been a watershed moment for many operators in
realising what they should, and should not, prioritise to maintain their commercial viability.
The conclusions drawn by participants are not,by any means,universally consistent.This suggests
that most are still trying to find their footing in the new world order of wealth management in the UK.
Some still believe their essence of success will be the absolute emphasis on personal touch while
others believe they will get ahead of the pack through an improved systematisation of their business.
All accept they need more business and that the sources of this are going to be a combination
of new and existing clients. Crucially, all realise the clients they are targeting are more able now
than ever to vote with their feet and are more conscious than ever that they should consider the
economics of the relationships they have with financial providers.
Figure 16 – The primary drivers of change in the wealth management models of tomorrow
69% of respondents believe that
fee transparency makes good client
management much easier
65% believe that client facing
staff must be supported by
technology rather than replaced
by technology eg. good CRM
capabilities
59% of respondents
believe that the business needs of
the firm are best met by working
with external specialists that focus
on technology systems
58% believe that
it is the service that
differentiates a
wealth manager
65% believe that good
people are more important
than good systems and
technology in a wealth
management business
66% think that wealth
management needs to be
competitive with other parts
of the financial services
industry and do not view it
as a premium service
A
B
C

RDR is driving that mindset. Indeed, regulation more broadly may have forced this issue of
value and fees onto the table of discussion faster than many firms would have liked. But that
discussion was bound to arise and in reality it has been occurring for some time now in the UK.
One reality of all of these views is there is obviously no universally accepted answer to the
right way forward. Another reality for the industry is that the future is not going to become less
competitive or less demanding.
In fact, the expectations on the wealth management business model—whichever strategic
paths the respective decision-makers choose to take—is that the future processes are going to
need to be faster, more efficient and more accurate in order to win market share.
The optimism reflected by many that participated in the research programme is clear. There is
a sense that the growth rate of the wealth management sector is sufficiently robust such that
they can thrive. Equally, they all felt the mistakes would be made by others.
This optimistic conviction is a necessary part of the business world.Although not everyone will be right!
With that in mind we would encourage paying close attention to the results and comments reflected in
this report.In doing that there is less of a chance of falling on the wrong side of the success equation.

ABOUT SCORPIO PARTNERSHIP
SCORPIO PARTNERSHIP IS THE LEADING INSIGHT AND BUSINESS
CONSULTANCY TO THE GLOBAL WEALTH INDUSTRY.
The firm specialises in understanding the wealthy and the financial
institutions they interact with. We have developed four transformational
disciplines—SEEK, THINK, SHAPE and CREATE—each designed to enable
business leaders to strategically assess, plan and drive growth.The solutions
Scorpio Partnership develops regularly win awards for its institutional clients
and help them financially profit.
Scorpio Partnership has conducted more than 300 global assignments
across wealth for institutions in the banking, fund management, regulation,
IT and technology, insurance and charity sectors.
Scorpio Partnership has been voted best global consultancy to the wealth
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up for Agency of the Year two years in succession*.The firm is independent
and owned by management.
For more information go to www.scorpiopartnership.com
For further information please contact
Scorpio Partnership
+44 (0)20 7811 0120
office@scorpiopartnership.com
*Wealth Briefing, Financial Services Forum
© 2013 Scorpio Partnership. All rights reserved
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UK Wealth Management Industry Adapts to Survive in New Regulatory Era

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