Private banks and wealth managers globally are being forced to change client service infrastructure and the way they operate due to increased regulations and “more demanding” clients, says the PricewaterhouseCoopers biennial report.
In the UK, institutions would require to shift from the historically opaque commission based business models to more transparent, client centric models – the report observed in anticipation of additional regulatory scrutiny, particularly after the Retail Distribution Review (RDR) is complete.
In UK 48 percent respondents said the new regulatory environment will have significant effect on operating costs, which is “symptomatic of the volume of regulation which is now affecting the industry here” the report said. Globally, only 30 percent of the participants thought cost will be higher.
“The FSA fired a warning shot at financial institutions catering for the wealthy last week over the suitability of their investment portfolios and evidential standards”, said Jeremey Jensen, Global Private Banking and Wealth Management, EMEA leader.
“This additional regulatory scrutiny will require operational and business model change and will only accelerate the trend for clients to take a much more active interest in their financial affairs. We are on the cusp of fundamental change to a very traditional industry and not all players are fully prepared. Some clear industry leaders and losers will emerge by the middle of this decade with those that can master the necessary transformational change leading the pack”, he added.
New competitors are “challenging the dominance” of established players, the report found in its survey of 275 firms across 67 countries.
“Those who can master change will be in a position to win increased market share and lead the industry”, the report added.
Wealthy investors globally have changed fundamentally the way they used to manage wealth due to recent scandals and the global crisis, the report observed. Terming this tectonic shift as a change in investors’ ‘DNA’, the report said clients are now more actively involved in managing their wealth and paying more attention to regulatory compliance, reputation and risk management.
In order to better align risk and returns, the risk management systems are being upgraded to provide an integrated approach, the report said.
“The global wealth management industry is now at the forefront of regulatory change”, PwC concluded.