That time of year again, where in this part of the world (Sydney), most people are heading back to work after a solid break. I find that each year after such a break, the thinking in the industry advances considerably as people have had time to clear their heads and absorb what has being going on around them last year. This often leads to new energies and directions, and this year I am already experiencing no different.
You may have been also reading about what many in Davos have been calling the ‘4th industrial revolution’ which others have called the ‘digital revolution’, and I suspect there are a number of other names also for it. My key observation is that this ‘revolution’ is about the highly connected society that we now live in, where the power of the highly connected consumer (through smart phones primarily today) is having amazing effects on industries, businesses, society and individuals. Wealth management is no different and many in the industry are realizing that there is perhaps some profound trends and changes that are upon us, and this is driving the new energies for 2016.

Whilst sheer power of communication between individuals and businesses has clearly been evident in the use of smart phones, what is now being realised that this doesn’t just mean we communicate like we did before must more efficiently, but there is now new ways to communicate that mean that some communications of old are now redundant, and other types of communication are becoming more relevant. In wealth management, this is stuff like not just understanding valuation of portfolios with associated research, but introducing consensus on investments and sectors, dynamics of the markets with new metrics, and even ‘social’ overlays associated with companies etc. This also applies to what regulators are expecting to be reported to them.

We are also however seeing that some of the conflicts and shortfalls of the prior industry model as it has developed becoming increasingly exposed and industry participants finding themselves under increased scrutiny both from their clients who are demanding more information, but also the regulators, who are having to respond to the increased amount of data and information appropriately, which is in many cases creating new regulations, codes of conduct or even laws. I suspect in 2016 that will see this accelerate and like in many industries or other parts of life, that the ‘social regulator’ may in many cases have more of an impact than the one that comes through the door.

Back to people coming back from their Christmas breaks….well we are already number of enquiries around ‘how do I deliver to my clients better ?’, ‘how can I stop using product based platforms ?’, ‘how can I put in a model that allows me to scale the business easier than hiring people ?’. Well a lot of this happened last year, so what is different this year ? This year the difference is firms are recognising that rather than looking at each of these issues individually with point solutions, there is clear recognition that to manage such different initiatives separately, often with different technologies, is both expensive, and often leads to increased overhead rather than improved overall business performance. I suspect that is why many are telling me that so many wealth management firms around the world last year were struggling to improve profits, or in many cases even make a profit. The new year realization for 2016 that people are coming to is that just ‘putting more lipstick on the pig’ is not a recipe for success and that a more integrated coordinated approach, requiring broad enterprise review and modeling is required.

In the UK we saw a number of mergers of wealth management firms that I suspect will get efficiencies of scale in delivering the model with less duplicated overhead, but the question I ask is whether that is just short term fixing but avoiding the real issue of that a new engagement model is required in the digital revolution.

I still think we are at the start of this ‘digital revolution’ and some rules of thumb that I think will emerge from such are:

–          Be very clear on your value proposition to your client

–          Be very clear that your clients understand the value (to them) of everything that is put in front of them

–          Expect regulators to start wanting to look at more ‘data’, and ask for more definition of what your business is              doing to add value to such data

–          Take it for granted that you cannot hide from the social regulator, and ensure practices and conduct reflect                   such

–          Often your uniqueness is your value

–          If you are in a value chain, expect your suppliers and partners to ‘pirate’ the value chain, ie move around you

–          Expect new forms of digital communications to be requested by, and valued by, your clients

Thankfully at Financial Simplicity, we have been helping wealth and investment management firms with much of this for some time, preparing them to survive and thrive in the digital revolution. If you are wondering what the digital revolution may mean for you or your firm, drop me a line. Its more than a web page.