The Tribune

Regulatory changes are the greatest challenge for private wealth management firms, a report by Capgemini and RBC Wealth Management has found.

The World Wealth Report 2013 (WWR), released yesterday, said the volume and pace of regulatory change was creating issues of complexity, lack of regulatory uniformity, and increasing costs associated with both compliance and non-compliance. This ultimately resulted in disruptions to client experience.

The Report found that while many firms were making tactical investments to meet regulatory requirements, more strategic decisions will be required to facilite business transformation and future growth, while minimising negative impact on clients.

“The financial crisis spurred regulators to take additional steps to ensure clients are well-served, and that wealth management firms comply with regulations and enhance market integrity,” said M. George Lewis, group head for RBC Wealth Management & RBC Insurance.

“At the same time, the volume of regulatory change challenges firms to keep pace and limit disruption to clients, who have come to prefer and expect a seamless and integrated approach to managing their wealth.

“Looking ahead, firms should aim to minimise the regulatory impact on service levels through hiring and retaining top talent, investing strategically in areas including training and technology, and through embedding a culture of compliance within all levels of the organisation.”

Regional variation in regulation presents a challenge for global firms, impacting their ability to provide a consistent experience and standard of client service across jurisdictions.

The Report found some firms may choose to exit certain markets due to the cost or complexity of compliance, while small and mid-size providers will struggle due to lack of scale. The report notes that large firms, especially market leaders with strong reputations, will be able to better minimise regulatory impacts on clients and derive greater value from regulatory investments, while continuing to invest in other strategic areas.

The long-term impact of new regulation will require wealth management firms to invest in compliance for years to come, resulting in continued impact on already high cost-to-income (C/I) ratios and constrained profitability.

Compliance costs are driven by investments in legal/regulatory expertise and technology infrastructure, while firms also feel the cost of lost revenues due to lower advisor productivity.

In addition, failure to meet regulatory requirements creates a range of costs for firms through fines, legal fees and reputational costs.

The World Wealth Report proposes that wealth management firms use technology as a lever to help reduce costs of service, particularly as clients are increasingly seeking access to digital channels and self-management tools.

The Report added that regulation is impacting the overall client experience, forcing firms to ask for an increasing amount of client information and documentation, particularly when they are taken on.

This is also imposing significant pressures on the time wealth managers have available to serve their clients. The World Wealth Report found it will be particularly important for firms to minimise client burdens in the areas of on-boarding and advisory services.

“One alternative to counter the high costs of compliance, while driving value for clients, is for firms to analyse and segment portfolios and customer preferences, and re-align offerings based on complexity and level of HNWI servicing needs,” said Jean Lassignardie, chief sales and marketing officer at Capgemini Global Financial Services.

“For instance, clients in some wealth bands and geographies may be well served by more standardised services, while face-to-face advice may be predominantly limited for clients with larger, more complex portfolios.

“Firms that realign their operations to incorporate regulatory change on a strategic level stand to gain the most, both in efficiencies and improving their ability to meet or exceed client needs.

“In particular, strategic technology-related investments offer opportunities to separate best in class players from others in the industry, and have the potential to drive additional value for both firms and clients.”