While existing well-known institutions can still serve the purpose of providing highly regulated legacy services (such as custody, brokerage, and lending), RMs can end up feeling constrained and unable to fulfil their full potential. That's the argument from an author at a new UK wealth management business.

The following article examining what it means to be an independent wealth manager comes from Keith Willey, a strategic advisor at the firm  WELREX, the digital wealth management platform that launched in October. (The firm recently commented on lessons that can be learned from the collapse of crypto exchange FTX.)

The editors of this news service are pleased to share these views; the usual editorial disclaimers apply. Jump into the conversation! Email tom.burroughes@wealthbriefing.com

Over recent years, the business world has seen a sea change in how professionals view big companies: the implicit employment contract has changed, technology has impacted how people add value, and the expectation of a life in service to a company has almost disappeared. Entrepreneurship has emerged not just as a lifestyle choice but as a viable alternative route to achievement, reward, and recognition. Industry-by-industry the forces that bind an employee to a company have loosened.  

Some professions, though, have been late to adapt. In the world of wealth management, the consolidation of smaller players into bigger ones can give the false impression that the safest place is in that big glass head office. In this industry, we are at last seeing the emergence of the entrepreneurial alternative, especially for those in relationship management. 

Breaking out of the corporate career has become natural and even expected for, say, the computer science professional for whom it’s accepted that they may dip in and out of a salaried job in large companies, entrepreneurial companies, or working freelance. For a relationship manager, though, it might seem a bit scarier – unlike the coder you cannot ‘create’ a product on your laptop. However, a closer inspection of what being an RM involves shows that there is indeed a viable alternative to the traditional, established players.

The drivers for this are: 
-- Industry consolidation; and  
-- Technology enablement.
-- Changing demands of the newer generation of client 

Consolidation amongst traditional players has turned them into “factories” where scale in wealth management is key. They scale and reduce costs by standardising everything and adding volume to fixed systems. In this scenario how do we interpret the role of the RM?  

The job is to just represent the “factory,” present the product range and smooth the customer’s interface with the system. From the corporate viewpoint, this is exactly what you want and entrepreneurial behaviour from an RM is threatening to scalability. It is compounded by the fact that clients with less than $5 to $10 million as an entry ticket – especially from emerging markets – often find that firms are uninterested in their business, despite them being important potential clients that deserve corresponding treatment. So long as this scaling strategy is pursued, the RM’s job will be to compromise their own interpretation of client needs and frequently their own sense of autonomy.

Some RMs see the bank or multi-family office brand on their business card as a sign of safety and are content to serve the corporate strategy. Other RMs, however, see their priority as being the best advisor to their client and regularly consider what life would be like just to focus on that relationship and not simply distribute the corporate product. Industrialisation always leads to disaffection for independently minded individuals. 

The technology advances that we are now seeing are a direct result of the commoditisation of the wealth management industry. The industry needs volume, has built scalability into the investment management processes and so naturally it is opening access to outside distribution routes. Most large firms have been running projects to build their own technology platform or app to address the customer-facing aspects and administration tasks. Technology enables this so that now an investment portfolio can be assembled quite easily – investment management has become “plug and play.” Those wonderful investment options that your company claims are exclusive to its customers? Not usually exclusive anymore but, if they are, there are equally effective alternatives that can easily be accessed.  

Technology is key to the disintermediation of wealth management. An RM wondering whether they can continue to provide excellent investing solutions to clients from the position of being an independent can be confident that this is possible. The advance of technology makes assembling and managing such a portfolio relatively easy.    

Meanwhile the market is in flux: wealthy individuals are increasingly receptive to technology and alternative approaches, their children, and successors more so. Many HNW clients even made their money in their own tech businesses – so they are believers in innovation of all sorts. The cosy restaurant chat with the well-dressed advisor is still nice but rather old school. It’s like no other relationship they have and feels so out of date.  

Relationship managers are best positioned to understand what their clients really want. They probably share investment thoughts with clients over WhatsApp and similar already, but the drag of corporate systems weighs heavily on their ability to follow up and delight their client. Furthermore, with big wealth management institutions making periodic sweeping changes to the profile of client they can or wish to serve, an RM is always in danger of having to divorce their client on the firm’s behalf. 

So, technology-led change is already happening both within established wealth management institutions and led by the new market entrants. A key point of pivot is in the still-essential position of relationship manager – the role that interprets and anticipates client needs. It’s the most important aspect of wealth management and can at last be freed from the compromised offering of a single firm.  

Whilst existing well-known institutions can still serve the purpose of providing highly regulated legacy services (such as custody, brokerage, and lending), RMs can still end up feeling constrained and unable to fulfil their full potential. In the API economy, it has become relatively easy to manage your clients through other brands and serve as a smart layer connecting client demand with market supply, providing unbiased value-adding services in addition to a traditional offering. Furthermore, the legal and regulatory context has never been more conducive to an RM becoming independent.

Note: Information on workplace trends sourced from (amongst others) The 100-year life: living and working in an age of longevity, by Lynda Gratton and Andrew Scott, London, Oxford, New York, New Delhi, Sydney, Bloomsbury, 2017, 407 pp., ISBN 978-1-4729-4732-1