This article examines the boundaries that exist between the higher and lower ends of the wealth industry, and what that means for business models.

One of the more tricky subjects is to know what are the real differences between wealth managers advising those at the ultra-high net worth and upper reaches of the HNW spectrum, and those falling more in to the mass-affluent space? Perhaps more than some practitioners might want to admit, these areas of business have a lot in common, and, as we know, technology is commoditising some parts of the value chain, enabling developments such as mass customisation, efficiencies in data handling, and other trends. That said, it appears that even in this time of excitement (or dark fear) around the impact of tech such as artificial intelligence, there are limits and at the higher wealth levels, human contact is essential. And rising wealth does seem to involve rising complexity much of the time. The amount of labour required goes up. And that, of course, has implications for margins, fees and how one measures value for money.

To try and get a handle on some of these issues is Ed Carey, who is chief commercial officer at UK-based Multrees Investor Services, a firm working with wealth managers. The editors are pleased to share these views and invite responses. The usual disclaimers apply. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The amount of clear blue water very much depends on where you look. At the top end of the wealth management space, which serves some of the wealthiest clients and families, there is almost no risk of convergence between advisor and wealth management firms. This is because an advisor firm would have to effectively transform its business in order to offer the true family office work and intergenerational management that is needed to meet the highly complex requirements of clients in this area of the market.  

However, when you start looking further down the scale, the gap between advisors and wealth managers is arguably the smallest it has ever been. Many wealth managers will have clients with assets of around £0.5-£5 million ($6.42 million) but advisors are also increasing their focus on this type of client.

So, who is more likely to end up eating whose lunch? Unlike wealth managers, advisors don’t typically specialise in some of the services and investments required by this type of client, such as direct equities, private equity or multi-currency cash management. But, clients with assets of this size are also likely to require, and value, financial planning – a core specialism of financial advice firms. By contrast, wealth managers tend to place much less emphasis on financial planning, if they offer it all.

Essentially, a firm must be able to offer clients of this size both the traditional wealth management range of services, as well as the financial planning services that IFAs provide. And one of the key components for advisors and wealth managers to achieve this balance is the flexibility of the platform services and technology they use.

By adopting a solution which lives and breathes the multi-custodian, multi-jurisdictional services in a way that the traditional, large-scale, retail platforms simply won’t, advisors can feasibly support the more complex investments required by wealthier clients.

One of the main reasons why advisors tend to avoid active cash management, in particular, is because the technology they typically use simply isn’t equipped to support it. But, similarly, other solutions are now starting to appear which will allow advisors to take a big step in closing this particular gap with the wealth management sector.

Combine these points with some of the figures below detailing the number of advice firms in the current market, and it’s not too hard to imagine advisors taking meaningful steps into the wealth management world.

In addition to platform services, it’s important to note that it will be essential for an advisor firm to form a partnership with a stockbroker in order to push into the wealth management space, and to develop a knowledge of private equity or connect with a third party who does.

It’s a similar story about flexibility for wealth managers too. There are platform services out there which will feature all the functionality a wealth manager expects but with the additional flexibility to also support ISA wrappers, for example, and a broad range of assets extending from a vanilla UK equity fund to the most esoteric investments.

There are a small number of wealth managers out there who are really getting their teeth into financial planning already. But this still leaves plenty of room in the industry for financial planning expressed simply, even for those clients who have quite complex financial affairs. Doing so will also allow wealth managers to form closer relationships with many of their clients, which I’m sure we can all agree is nothing but a good thing for everyone involved.