Turning the suitability challenge into an opportunity for growth

by Adam D. Wisniewski
Senior Manager, Management Consulting Services


Increasing compliance budgets in times of margin pressure


New suitability rules imposed on wealth managers globally are creating a multitude of challenges for the industry. Principal among these are the investor protection regulations: MiFID II and PRIIPs, also making their way to the Swiss market as FIDLEG in 2019.


MiFID II, PRIIPs and FIDLEG expose wealth managers to legal risks from their clients


A critical element of these new regulations is that they expose market participants to legal risks from their clients. This leaves little room as to the level of compliance to be achieved, adding to the necessity of a faultless implementation. Given the complexity of these regulations, it is not surprising that a recent survey conducted by Orbium1 reveals that a majority of wealth management C-Level executives expect an increase of their regulatory and compliance budgets in the coming years, despite significant cost/income and margin pressures.



Risk management and future-proofing through a robust suitability framework


The new regulations will bring the need for substantial improvements to client-management lifecycle workflows and governance approaches. IT systems will need to deliver real-time information to client-facing employees, whose sales and advisory procedures must be standardised and fully documented to stand up to additional scrutiny from regulators.

Additionally, many wealth managers will need to make major changes across compliance and business processes and these will need to be supported by agile technical platforms which are fit for purpose. The new regulations will also introduce the need to obtain, manage and process significantly more client, product and transaction data.


The potential of compliance-driven transformation to impact the bottom line is not yet fully recognised

Given the comprehensive requirements of the regulations, Orbium believes that only a robust and strategic suitability framework considering an integrated approach will deliver the necessary legal certainty. Typically, regulations will force wealth managers to address everything from client risk profiling to  monitoring organisational culture and conduct. Any framework used must also include a dramatic improvement in data quality and governance. For most financial institutions, this is a significant challenge due to multiple sources of client and product data, poor data management and low levels of automation. A comprehensive, well designed response will be the only viable solution to effectively respond to current –and future – regulatory and business development.



Growth through strategic compliance-driven transformation


Orbium’s wealth management C-level survey also reveals that wealth managers are planning for substantial reductions in their Cost Income Ratios (CIR) in the coming years. As efforts focused on cost reduction are slowing, wealth managers are increasingly looking at strengthening the revenue side of the equation.

With growing margin pressure across all traditional product types, increasing revenues means addressing new client segments or an expansion in the service portfolio. The good news is that in many cases, required infrastructure changes have already been initiated, driven by compliance needs. However, not many wealth managers have seized the opportunity of the wider strategic business potential that arises from these changes. This applies in particular to the large amount of data captured as a result of regulatory initiatives.


Those that adopt a strategic rather than tactical approach to data management will be better placed for future margin and revenue growth


Wealth Managers have a golden opportunity to move beyond the tactical approach to data management for suitability purposes, by adopting a more strategic commercial approach. By smartly combining client, market and product data, not only can they provide client facing staff with new business relevant information, they can also take a much more targeted approach to addressing client needs with an optimised combination of product, risk and pricing.

In summary, firms that move beyond tactical compliance and adopt a strategic approach to data management will be better placed to succeed with future margin and revenue growth while ensuring cost effectiveness and agility.





 1 The Orbium Wealth Management C-Level Survey provides a view on the current and future state evolution of the wealth management industry in Europe and Asia. The Survey and interviews with executives provide a view of where they see current opportunities and challenges as well as how they plan to move forward to achieve success in a more challenging and uncertain environment.