The full impact of MiFID II on client behaviour is yet to be seen, but wealth management firms need to invest in efficiencies now in case it leads to revenue pressure, Martin Andrew, chief executive of Close Brothers Asset Management told thewealthnet.
Along with MiFID II the sector needs to keep watch on what the outcome, and the ensuing impact, of FCA Asset Management Market Study and other changes, he said.
One potential impact is fee compression, Mr Andrew said. To this end, the firm has a long term IT strategy designed to make the business more efficient. One reason for this is “in case revenue margins come under pressure,” he explained.
The firm is currently “part way” through its IT programme and Mr Andrew estimates it has around 18 months before it reaches the end of programme. When it does it will be “even more scalable and efficient than it is today.”
This programme of investment in IT is just one of ways the firm is aiming to create future growth, he said.
Mr Andrew was speaking to thewealthnet following the publication of Close Brothers Asset Management’s first half figures. These revealed a statutory operating profit of £8.7 million, a year on year increase of 32 percent. Adjusted operating profit for the business increased 25 percent to £11.4 million. Net inflows were £573 million, an increase from £125 million a year earlier.
In order to keep growing profit Mr Andrew said there is a focus on attracting new clients to the business. He added that it was “encouraging” that net inflows had come from a range of channels, including the firm’s own financial advisers as well as a number of third party sources.
“It is also important that we continue to look after our existing clients as well as gaining new clients,” Mr Andrew said. “We have to recognise the 100 percent of revenue comes from the clients we have on-board. In addition, to protecting that revenue, our existing clients are the biggest single source of new business. This is either with them giving us more assets to manage or via referrals from their friends, contacts and family. Our number one priority has to be providing a brilliant service to our clients.”
Mr Andrew believes that by creating efficiencies, looking after existing clients and gaining new clients, growth will continue. However, he added that the headline growth rate may lessen if he decision is taken to invest further in the business. “We are always balancing short term investment against long term development of the business,” he explained. “If we see good opportunities for investment we would consider it.”
The firm has hired a number of “high calibre” individual investment managers and financial advisers, Mr Andrew said. He expects to continue making these types of hires. He highlighted the firm’s new location in the West End of London as one that he would like to hire to grow.
While small “in fill acquisitions” remain part of the long term strategy, Mr Andrew said the firm was not currently looking at any potential deals. This is in part to due to the focus on becoming MiFID II and GDPR compliant as well as the IT programme in recent months, but deals could be made in the future.
Mr Andrew says the long term strategy remains the same and that the plan is for the business to “incrementally” grow.
He added that whilst there is often much focus on the “headwinds”, such as regulatory change, the outlook for the UK’s wealth management sector remains positive.
“Long term it is still an attractive business,” he said. “The UK’s economy is growing, the number of wealthy individuals are growing and they are, in the large part also growing their wealth. People's financial affairs are getting more complex and the state is asking individuals to take control of funding their retirement. The entire wealth management sector can be of huge benefit to the UK and society in helping individuals manage their financial affairs.”