Wealth managers need to adapt their business and revenue models in order to cope with regulatory changes under MIFID II, research by an advisory firm has warned.
Research carried out by consultancy Aite Group found that apart from high compliance costs emerging, MIFID II puts significant revenue at risk for wealth managers.
MIFID II comes into effect on 3 January 2018 and is designed to impose stricter compliance requirements on financial institutions. It is designed to increase transparency and consumer protection. . With regard to wealth management clients, they will have greater information on how their advisers choose services for them and how much they are charged for these.
Aite group said: “There are many intended and unintended consequences that wealth managers need to be prepared for with MiFID II. It is not only raising costs for wealth managers but, in many ways, making fundamental changes to their revenue models and demanding new adviser-client dynamics.”
Aite Group has identified key wealth considerations for wealth managers in order to minimise any adverse impact from MIFID II:
- Advisors need to be clear on their business model and how to market it to clients. It said: “Simpler products and more structured and standardised advisory services will emerge.”
- Firms should provide enhanced adviser and client education training
- Wealth managers should focus less on “product-centricity” and more on “service-centricity” to ensure high customer service
- Firms need to get the “technology piece right across the value chain”. Aite said that MiFID II provides a big push for digitalisation and improvements across a firm’s IT infrastructure
- Small firms should collaborate with partners to find “niche value propositions
- Wealth management firms should “find the essential links with other regulations and optimise efforts”.
According to Aite, financial institutions are currently pursuing a “first things first approach” to MIFID II. The company warns that “much more strategic thinking is needed for success in the long-run.
The research was based on 12 interviews covered with members of MiFID II teams and senior management at private banks, wealth managers, consultants and platform providers across Europe.