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David Wood, Luma

Helping advisers differentiate through bespoke advice


David Wood, Managing Director of Luma’s International Business asks: “In an increasingly competitive and cost-constrained world, how do wealth managers differentiate themselves?” One way is for them to offer clients highly tailored advice, Wood says. 

David Wood, Managing Director of Luma’s International Business asks: “In an increasingly competitive and cost-constrained world, how do wealth managers differentiate themselves?” One way is for them to offer clients highly tailored advice, Wood says. 

Historically, this has involved the use of complex investment products (including inflation- and interest-rate hedging products, FX investments or structured products) which are effective at delivering consistent returns within specific risk frameworks.

But for regulatory reasons, offering advice on these products has become increasingly time-consuming and expensive, which has meant only the largest wealth management firms have had the resources to do it consistently. Yet even advisers at bigger organisations face multiple challenges, including a general lack of consistency in terms of definitions, labels and features across products and regions. These can even vary across firms.

For advisers who only advise on these types of products occasionally, these are not insignificant issues. Firms must ensure they have the right levels of controls in place to ensure their advisers are able to provide consistent and compliant advice. 

To do this, large wealth managers and banks typically insist staff and advisers undergo annual recertifications, which provide recorded evidence that policies have been applied and are effective across the business. But delivering content to client advisers around complex products and ensuring they have the testing to evidence they understand what they are delivering is difficult and expensive, and thus challenging for smaller firms.

That gap is now being filled by specialist platforms which can tailor content across regions to ensure all staff are following the same standards and rules, in a way that smaller businesses would struggle to do themselves. Yet that solves only part of the problem. 

Firms must also show how policies are being applied in practice, which means educating advisers, validating how they have been educated, and then showing that controls are active in terms of the products and advice distribution. Put bluntly, advisers need to be restricted from recommending something they are not qualified to sell. This is incredibly difficult to do, because most organisations lack the infrastructure outside advising on straightforward risk-rated managed portfolios. When every product is bespoke and each investment is tailored to the client’s individual needs, the process becomes very hard to manage. 

Bespoke investment advice is, however, where the industry is heading. Advisers spend a lot of time capturing detailed information about investors’ objectives, experience and needs, but this is in danger of becoming a box-ticking exercise unless that information is put to good use. If the investor wants a bespoke service level, then the firm needs the controls in place to facilitate it.

Many advisers, of course, have been advising on complex products for years – they know the investments and have a track record of recommending them. But products change – and fall in and out of fashion – so from a governance perspective, managing the distribution of a product through a wealth management firm means ensuring those controls are up to date. A blanket approval that says XYZ adviser can advise on complex products is simply not possible.

Today, external systems can be specifically designed to help manage that complex distribution, facilitating the linking of the training element with the product distribution and allowing firms to demonstrate the implementation of policies and businesses rules.  

Controlling what can be sold is just one element, however – advisers need better tools to help them advise. Advisers can capture the record of investor circumstances, but to truly tailor solutions – to ensure that information is really used for an investor’s benefit – the technological assistance has largely been lacking. Advisers need better ways to search for the investment and product information they need, and – increasingly – to enable them to include or exclude the companies and sectors that reflect the social and environmental needs of investors. All, importantly, while conforming to their firm’s own investment rules, distribution policies and regulatory guidelines. 

To do this, wealth managers have historically serviced high-net-worth clients with bespoke needs through specialist investment teams. But in the modern world where bespoke investments are getting smaller – and more clients expect more tailored investment solutions – that model works less well. Wealth managers simply cannot afford to employ ever-growing numbers of experienced advisers, working in collaboration, to service an ever-expanding pool of wealthy investors. 

To respond to this problem, banks have built systems to allow for bespoke solutions, and platforms have consolidated these services into a single view and process. But advisers need to be able to apply all the rules and policies into these systems. This is where advisers need help to enable them to simplify and structure investments so that the complex products are suitable for the client. 

They also, however, need investment ideas and this is where service companies have linked their investment and research views with the advice tools, to provide indicative ideas which can be used to tailor solutions – essentially, a roadmap. A bank may be able to afford to build this, but few others can – and this is where specialist platforms, like Luma, can play an important role. 

Wealth managers seeking to demonstrate their ability to deliver bespoke advice need a way to do it. If they want to be competitive, they need to give good advice, but to do that they have lots of complex hoops to jump through. 

Increasingly, wealth managers cannot afford the escalating costs of the investment involved to do this. They are increasingly partnering with platforms which can provide them the technology they need with no upfront IT cost. That also goes for smaller wealth management firms, which can tap into the same resource as the largest businesses, enabling them to offer a similar level of bespoke advice. Where the size of their budget once dictated the sort of advice a wealth management firm was able to provide, the rise of outsourcing means the playing field is now much more equal.

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