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Reporting Capabilities – The Next Battleground for IFA Assets? Chapter 4

Wendy Spires, Head of Research , 7 November 2018


This is the fourth chapter taken from a major new report by this news service on how wealth managers handle client reporting.

A more sophisticated and cost-conscious IFA segment is driving wealth managers to revamp their reporting systems as competition for Discretionary Fund Manager (DFM) business heats up, senior executives say.

This feature forms part of WealthBriefing’s new research report, “Client Reporting – Regulatory Burden or Client Engagement Tool?”, produced in partnership with Computershare Communication Services. (See the previous chapter here.)

Wealth management institutions have been scrambling to up their digital game in numerous ways in recent years, as the pressures of compliance, costs and client demands have ratcheted up. And, while client reporting might have previously languished towards the bottom of their to-do lists, MiFID II has brought the need for improvements into sharp focus – particularly, executives say, for those firms targeting the hotly-costed and rapidly-evolving independent financial advisor market.  

The UK’s IFA sector has gone through great change in recent years. Regulatory reforms have prompted waves of consolidation and dramatic business model overhauls for those remaining that have hugely benefited larger wealth management institutions. Various pieces of research have found that the majority of IFAs now outsource all or part of their investment management work to discretionary fund managers to reduce costs and business risks, and allow greater focus on providing holistic financial advice. Indeed, intermediated business is said to account for the bulk of several UK wealth managers’ private client assets under management today.

However, competition is fierce and becoming ever more so as IFAs look to reduce their cost bases while simultaneously enhancing the service they provide to end-clients; pure-play investment managers, full-service wealth managers and platforms all vie for their business. So, while keen pricing and robust investment performance are key to making it onto an IFA’s panel of preferred providers, wealth managers can fully expect scrutiny of all the finer details of their offerings. As such, senior industry executives agree that firms’ reporting capabilities are far from a side issue today.

Demonstrating value
According to Richard Charnock, CEO of Standard Life Wealth, value for money is a key driver of IFAs’ growing focus on DFMs’ reporting capabilities. This, of course, has been increasingly at the top of the UK regulator’s agenda and that of clients themselves amid today’s “comparison culture” (not to mention the proliferation of low-cost and technologically impressive DIY investment platforms). 

“The regulator is saying the UK fund management industry and retail advice space needs to demonstrate that it can deliver performance, governance, financial probity and offer true value for money for the end-investor; the same applies to a discretionary fund manager,” Charnock said. “It’s vital that everything we do for the client is upgraded to make the fee justified and show that we are offering value.”  

IFAs in turn are having to be very much more proactive in proving the value they add as introducers to investment management services, as well as providers of financial planning advice – something that will become even more of a priority when the first round of MiFID II reporting for existing clients begins in just a few months.

“Intermediaries are getting far more specific in their reporting requirements as they want to present the client with as much richness as they possibly can,” Charnock said. “They need complete transparency around what the DFM does, so that they can explain the value that that client is getting for the fee that they pay and stand by who they’ve introduced the client to.” 

As Charnock observes, the IFA is essentially “fronting” what the DFM does but can only do so effectively if they are provided with granular reporting. “IFAs are the ones sitting in front of clients,” he said. “They need to be able to explain what’s happened in portfolios and respond well to any questions that might come.” 

Higher professional standards are another key driver. As likely intended, the Retail Distribution Review has resulted in far fewer, but far more sophisticated advisors remaining. The reporting bar is therefore being raised yet further by the fact that today’s IFAs are likely to be very well placed to assess the investment performance a DFM is delivering.

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