What’s Next for the UK Wealth Industry Beyond Robo-Advisors?

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From M&A to bankruptcy to the entry of new robo-advisors entry, the UK wealth management industry has seen a reasonable amount of action in the last couple of months. To give you a flavor, here are some headlines of interest.

Tilney Bestinvest to buy Towry in £600M deal

Nutmeg chief steps down in shake-up at online wealth manager

Wealth firm collapses into administration

Brown Shipley swoops on advice firm

Find out more here.

Wealth managers reveal their biggest fund selection concerns… but play down Brexit threat

A ‘robo-advisor’ startup founded by a team of ex-Goldman Sachs employees is coming to the UK to take on Nutmeg

UK wealth managers back in focus for overseas buyers

Up to 220 staff could be replaced with ‘robo-advisors’ at Royal Bank of Scotland

FCA proposes reforms to close ‘advice gap’

The sector has been brewing change for some time now. The change was driven as a result of the 2008 crisis, the low-interest rates and retail distribution review (RDR) that slowly abolished the trailer fees. The hot and cold behind all of the changes led to a development in thinking around back- and middle-office automation and the use of technology to automate manual in-house processes.

Automation is easier said than done. Outsourcing the wealth operations became the Holy Grail with technology playing a critical role. FNZ, SEI, Multrees, Pershing, IRESS, Praemium are just some of the players offering technology solutions. These solutions are designed to automate but come at a price which eventually puts pressure on the cost base.

The real challenge aside from losing the trailer fees has been managing costs and delivering performance, which has, in turn, put pressure on client acquisition. Part of the argument for lack of asset growth is the advent of robo-advisors. When you look at the robo assets, the needle seemingly hasn’t moved there either.

In August last year, Gregor Logan (sits on Nutmeg’s investment advisory group) wrote a piece on the UK wealth management space undergoing a quiet revolution and that it may be facing a terminal decline on the back of online evolution. But has the online or “robo,” as it is known, caught on? In early 2015, FT discussed a consolidation surge in UK wealth management and in March 2016, the coverage continues.

The cost and price pressures, interest rates and regulation have prompted consolidation and search for avenues to save costs for the wealth segment but the lack of technology, transparency has also propelled the robo-advisors to the front.

The UK wealth sector had close to 700 billion in assets at the end of Q4 2015. On the other hand, robo-advisor assets are close to one billion and growing, albeit slowly. There are the entire P2P lending, P2P investing and crowdfunding segments that have yet to tap into the mainstream wealth and IFA businesses.

Banks are not far behind in bridging the advice gap by launching apps to fulfill the digital and robo demands. The trend with the banks has been to avoid “advice” to customers with less than 50k to invest, which seems to be changing now as the traditional retail banks come under cost and service pressure.

So, what is going on in the UK wealth management sector?

Continue reading here.

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