Anticipating future industry challenges is vital for wealth management firms

While 2015 was an arduous year for wealth management, the importance of providing clients with value that goes beyond the optimal allocation of liquid assets has never been more apt than now


The new year is already upon us and it seems as though 2015 was a fast moving train that carried some surprises and valuable lessons for investment managers worldwide. As we head into 2016, it is critical to reflect on what we have learned from previous years and to anticipate the challenges and opportunities that lie ahead. Last year, investors faced a period of diverging central bank policies on a large-scale; plummeting oil prices; Middle-Eastern political turmoil; and the eventual shake-up from the uncertainty surrounding China. Finding the bright spots to invest in proved to be a daunting task.

The right balance
The key condition that should and must be satisfied today is that advisors must understand their clients. They must understand their needs and be able to adapt their value proposition to changing times and circumstances. It always holds true that clients seek trust and transparency when selecting an advisor, but they also want to justify the fees they’re paying for the advisor’s services. On one front, advances in technology – as evidenced by the proliferation of robo-advisors and do-it-yourself trading platforms – have given investors lower-cost alternatives to working with professionals. On another front, the recent volatility has spooked many potential investors who have difficulty seeing the value in working with wealth managers.

These are a couple of the issues we are facing in this day and age and to overcome them, we must bring more value to the table. We can do so by providing the client with superior service by offering attractive alternative investments ideas that differ from traditional asset classes. Robo-advisors cannot source and provide attractive real estate or private equity deals, nor can they conduct the due diligence necessary for such deals.

The same goes for hedge funds and other alternative investments. Advisors can add more value through the relationships forged with hedge fund managers, and gain access to high-performing investments for their clients that are not typically accessible to the general public, due to certain restrictions or minimum requirements imposed by the manager. If we cannot offer that to our clients then we are no different from the robots that may be major game-changers in our industry as we move forward into the future. The need for tailored and specific investment advice is gaining more and more prominence. The more sophisticated clients we are working with today require an advisor who can tailor advice to their individual needs and who understands their needs at various stages of their lives. They are also looking for an advisor who can look at the entire picture and offer a holistic wealth management approach with solutions that extend beyond just portfolio management.

Investors are more tech savvy than ever before, and most firms have adapted their models to the digital age

For example, we have found that an often over-looked need in the MENA region is the ability to transfer wealth from generation to generation in the most efficient way through estate planning. In reality, more than 90 percent of the businesses in the MENA region are owned by families and are now just about to enter the phase where the second or third generation have to take over.

Statistics show that family businesses do not survive beyond the third generation unless properly structured through efficient family governance processes and where the interaction between the family and the business is well understood and accepted by all family members. We believe that estate planning is an essential solution that every wealth manager dealing with high net worth individuals and families should be able to offer. In that respect, experience and expertise are of essence, together with a deep knowledge of the local customs and laws.

Utilising the simplest communication
Another important factor for clients is ease of doing business with the advisor. Investors are more tech savvy than ever before, and most firms have adapted their models to the digital age. Recent surveys show that the majority of clients prefer to conduct most business matters by email and want ease of access to information. Their busy lives call for fewer face-to-face meetings and more accessibility through digitalisation. The challenge facing this type of innovation is cyber security. Therefore the proper systems and protocols must be in place to guard against cyber-attacks and the potential leak of sensitive client information.

Superior client service is another major added value in our industry and according to recent studies, it holds one of the top spots on the strategic agenda for most wealth management firms in the years to come. In order to attract new clients, and more importantly, retain existing clients, we must strive to deliver services that exceed client expectations. Clear communication, full transparency and accountability are vital for a good client/advisor relationship. Managing client expectations is just as important as meeting or exceeding expectations. The most successful advisors are realistic when it comes to their capabilities, and never agree to a certain hurdle that they are not likely to achieve.

Finally, and probably more importantly, wealth managers and banks in general are facing constant regulatory changes, and have to adapt to an ever-changing world where compliance and risk management are considered major components, if not the most important ones. Nowadays, the world has become more transparent from which traditional banking secrecy has almost disappeared. This is justified by more stringent exchange of information regulations where tax evasion has become a predicate offence underlying money laundering. Wealth managers, even if acting through limited power of administration over assets held in custodian banks, have to abide by the same KYC and due diligence procedures as those banks are bound by.

SFB boxout 2

The challenges that all wealth managers know they will be facing more and more include the threat of new entrants and competition, sector consolidation, cost control and pricing pressures. These challenges serve as further attestation of the need to re-evaluate a wealth manager’s value propositions and adopt a dynamic business model.

One of our greatest convictions is that reputation and the perception of your brand are huge differentiators among peers in our industry. While this view may seem intuitive to most of us, it is too often that we are seeing even the leading names in the industry penalised for misconduct or fraud. Building and protecting a good reputation is essential for survival and it involves careful management of our relationships with clients, regulatory bodies and all other affiliations of the firm.

Any employee is a representative of the firm and must be mindful of that when engaging the public in person or through social media channels. In addition, any marketing campaigns or advertising for the firm should be cautiously managed because once in the public eye, there is no taking back or deleting something that could potentially backfire on the firm and harm its image as it would be already imprinted in the minds of the viewers. Just as human beings have evolved and adapted to a rapidly changing world, wealth managers will evolve and adapt to the rapidly changing investment landscape. Regardless of the headwinds that continue to blow through the industry, there is always added value to be found for both clients and advisors alike that can withstand the wind.