The Retail Distribution Review of 2013 forced many financial service providers to either abandon their advice businesses or to focus solely on them, creating a defined split in the wealth management world. In the near-decade since then, the landscape has changed and many firms want - indeed need - to be much closer to their clients.
If enough of your clients want services that you don’t currently provide, it makes sense to start to provide them. From a provider perspective, in a market measured on price and performance, if you can add further value through advice or product it can make you a far more attractive proposition for clients. Providing a vertically integrated, end-to-end service offering is often seen as a way to help firms expand their proposition and gain a greater share of clients.
Over the last year or so, this trend has broadened with big-name investment management firms moving into the advice space. Vanguard announced last year that it intends to branch out into advice in the UK, Lloyds and Schroders have combined to launch Schroders Personal Wealth and Standard Life launched 1825.
If enough of your clients want services that you don’t currently provide, it makes sense to start to provide them.
Customer centricity is crucial
Consumers have fully embraced a digital life and wealth management is - or should be - no exception. We no longer operate in a 9 to 5, Monday to Friday world. Globalisation and the current pandemic mean that customers are spread far and wide across time zones, often unable to travel and unwilling to wait for information. They are demanding 24/7 support from their providers with requests for remote advice via video calls and more self-service options for simple tasks, like checking a portfolio in real-time or conducting pension reviews. It’s therefore essential that any integrated business be able to satisfy these demands as well as any potential future ones.
While some firms will create the desired offering from scratch, many will choose the acquisition or partnership route. Both options are equally valid but the overriding concern must be to create a better client experience. This is best enabled by achieving a single view of the client across the whole business. Vertically integrated should not mean siloed. Indeed, systems should not only present one view of the customer to the business, but also one view of the business to the customer.
The outsource vs insource debate
One of the discussions which will continue to play out in the market is the value that an outsourced back-office could provide to the advice firm or DFM when integrating the different parts of their value chain. Often the determining factor is whether managing these functions internally is supported as part of the core strategy of the business, or whether an outsourced solution would be more appropriate for certain processes, allowing the firm to focus on front office capability and client relationships to drive both growth and margin. Vertical integration is certainly just as feasible where firms outsource their back office and continue to build out their capability ‘up the chain’ as it is in an insourced model.
We have seen both models work, but the key to success for both depends on how well the back office is integrated into the front end, enabling data to flow around the business. Without good integrations across the technology stack, time-consuming manual processes will continue to cover up the operational cracks and reduce the ability of the firm to scale. Instead of offering a single view of the business, the client experience will be made up of phone calls and letters from different areas of the business, just as the financial world is starting to embrace a more digital era.
The one-stop-shop is open
Looking to the future, being ‘open’ will be key. Organisations will continue to leverage open architecture and open APIs to make integrations easier, bringing added value to their customers by opening up their services. Open finance is already making itself felt across financial services and is one to watch for firms looking to vertically integrate. It promises to bring the benefits of a one-stop-shop without the operational and technical challenges posed by a buy-or-build approach.
The flexibility provided by the API-driven model that open finance is based on means that firms will be able to adjust the focus of the business as market conditions change. There is no longer any need to be locked into partnerships when shifting the makeup of a portfolio of partnerships is relatively straightforward. This future is not that far off. We’re already seeing such operating models in the banking space (for example Starling Bank) and it’s only a matter of time before this model transitions to wealth and investment management.
Needless to say, outside of client funds, data will continue to be the lifeblood of financial services and, alongside technology, it is what has underpinned the success of open finance. It enables better customer understanding, better investment decisions, and better business decisions. However, if data is held in silos rather than being accessible across the business then putting it to work will be a monumental task.
Whilst vertical integration may not be for every business, we have seen that firms that banish bad data, remove silos and improve the flow of information across their businesses find it easier to scale up whilst flexibly catering for their client's needs. This ultimately leads to them attracting a larger share of clients and generating better margins. Indeed if firms are to remain agile, flexible and competitive, it’s imperative that the approach to technology is as integrated and flexible as their business model.
