The CEO of Pershing - part of BNY Mellon - recently shared his thoughts about the evolving shape of the UK wealth management industry with this publication.

The UK’s wealth management industry might feel a bit unloved at times and under cost and regulatory pressures, but new business models continue to spring up in what remains one of the world’s liveliest markets, the chief executive of Pershing, part of BNY Mellon, told this publication recently.

A mass of regulatory activity, rising cost burdens and continued worries about the state of the world economy (such as what happens when the monetary taps run dry) provide plenty of reasons for a sombre mood. And it is true that wealth management in the UK has its challenges, but there are also positives, argues Kevin Bonar.

The UK has recently witnessed “disruptive” business models, such as from firms challenging existing fee structures and embracing new distribution channels available from technology, Bonar told this publication in a recent interview.

One stand-out feature of the UK and European wealth management industry has been a period of merger and acquisitions that arguably is the busiest in volume and number terms for up to two decades, he said. This is driven by a need for efficiencies and critical mass in certain markets, with some firms deciding to quit sectors where they haven’t achieved scale, he said. In the last 12 months alone, he said, about £50 billion of assets under management have changed hands.

“If you add up all the AuM involved in this, which is about more than £50 billion, that is more than the AuM of Britain’s biggest wealth manager (Barclays),” Bonar continued.

According to one measure, he said, there have been 22 M&A deals of varying size in the past two years.

Position

Pershing is the kind of business that has a good overview of the kind of changes sweeping the industry. As for Bonar, he brings 20 years of experience within the industry to the role. Most recently, he was head of Citi's Investor Middle Office and Wealth Management businesses of Securities Fund Services groups for EMEA. From 2000 to 2008, Bonar held a number of other senior management positions at Citigroup; before joining that US bank, he spent 10 years at J Henry Schroder & Co.

Having been in the industry for two decades, one thing Bonar is sure of is that nothing stands still for long. And this has its positive side.

Bonar pointed to some of the new business models that have arisen in recent years. An example is Nutmeg, which opened last year and it lets investors open an account for as little as £1,000 ($1,556). Another innovator he mentioned is Parmenion, the UK-based investment systems and advisor support services firm. Bonar also gave examples of firms seeking advantage of the issue of clients “orphaned” by the rising regulatory and cost tide. (As discussed recently in these pages, firms such as UK financial advisor BestInvest have sought to do this, while Hargreaves Lansdown, for example,  has a large execution-only platform as part of a range of different offerings designed to meet different types of client.)

Such innovation is actually made easier, Bonar said, by the existence of large banks and financial groups with the scale and economic muscle to provide much of the “plumbing” that boutiques and smaller firms find too expensive to perform in-house.

He expects the range of investment platform solutions to expand. Where there is a need for scale, such as custody and like, this will continue to play to the benefit of the biggest firms with economies of scale.

“The handful of big financial services providers enable boutiques and smaller firms to exist,” he said.

Earlier this year, Pershing issued a report - produced by Scorpio Partnership, the consultants - which founda lack of confidence by UK financial advisors in their existing business models. The research, Through the Looking Glass: An Executive Perspective of UK Wealth Management in an RDR World, showed that over 39 per cent of advisors felt the primary value delivered by the firm to clients was through the personal relationship they offer, while only 17 per cent felt their knowledge and qualifications was of greatest value.

Managing existing client relationships was considered as “critically important” to the future of their business by 46 per cent of advisors, the report said.

Pershing regularly issues reports looking at wealth industry trends. For example, in March, it examined the role of women in wealth management. (To see that study, click here.)