Growing your financial services business in the complex new regulatory environment

*This content is brought to you by Carrick Wealth, leaders in wealth and capital management 

Two major factors will determine the survival, sustainability, and growth of the financial advisory and wealth management industry: a paradigm shift in regulation and, understanding contemporary client expectations. In the first of a two-part series, Craig Featherby looks at how regulations benefit asset and wealth managers as well as the clients.

By Craig Featherby* 

Craig Featherby

There are many who would dismiss a two-part solution to a complex industry as indicative of either naivety or ignorance. If, however, we interpret “naivety” as keeping to simple, workable solutions and “ignorance” as a willingness to say, “I don’t know, but let’s ask a few hard questions”, then consider me as naive and ignorant!

It is obvious that existing and proposed regulatory changes herald the implementation of what has been described as a “vastly complex new regulatory environment”, one which will put enormous pressure on the operations of the financial advice and wealth management sector.

Shifting the culture in financial services

However, the paradigm shift from a lackadaisical regulatory environment (simply doing what is legal) to one that simply believes in doing what is right has not happened. In other words, a “gaming the system” culture still takes precedence over one that embraces regulation and builds on a corporate culture of trustworthiness, honesty, competence, and reliability.

Once a paradigm shift has become permanent, we are then talking about current and accepted behaviours or norms. From the client experience perspective, the paradigm shift of product-driven financial advice to a customer-centric focus has happened. We must accept it. The customer experience and how that is embraced, utilised, and enhanced is the norm. But, as I say, the shift has not happened in the regulatory field.

Technology, data and trust

There is a strong argument that the advances in technology — from robotic process automation (RPA) to machine learning to artificial intelligence (AI) — are also a major factor in the survival of the sector. But technology is simply the ticket to the game and is a given in today’s environment. No doubt, the access technology is providing, and will provide, to big data can’t be underestimated. As Morgan Stanley Disruptive Change Researcher Stan DeLaney said, “Whoever owns the data will own the technology because machine learning is only as good as the data that gets fed into it.”

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Since the Facebook/Cambridge Analytica debacle, however, data has become a dirty word. Our potential clients emerging from the millennial tribe, who are already highly sceptical, and view the sector with outright suspicion are more likely to ask, “Why should I believe you?” before they even ask, “Why should I trust you?” when it comes to sharing their information. And if they believe we are exploiting — or not protecting — their personal data, we will never get even close to winning their trust or, more importantly, being seen as a trustworthy partner.

And while new regulations address this to some extent, how effectively we deal with this will form the second part of this series. The client experience, I propose, will become integral to the company culture, and vice versa.

So what paradigm shift do we need to recognise in the increasingly complex regulatory environment? A recent survey found that more than 85% of CEOs listed over-regulation as top of their list of concerns. I’d like to say Carrick is part of the remaining 15% that disagreed.

We focus on understanding the intention behind the push for greater regulation rather than worrying about the reasons and the applications of such regulations. We start from a position that regulation is generally a good thing to be embraced by all stakeholders. And we see it as invaluable in the future protection and integrity of our client’s personal data.

Accepting the regulatory demands to increase operational inefficiencies

Yes, increases in regulatory demands will impact our costs in the short term but instead of asking how can we cut costs by 10% to cover this added expense, we should ask, “How do I get more bang for my buck?” This is the real question that should be asked about increasing efficiency and ROI. We should, for example, count on offsetting the costs by the smart use of RPA and getting technology to do the “heavy lifting” in the HR, risk assessment, and compliance departments of our companies. Our time should be spent on handling our client’s needs.

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Crucially, there are two things we must accept around regulation. First, we need to acknowledge that increased regulation per se will not have any effect on winning new customers or retaining existing ones because many consumers will still believe that “clever” advisers will always try to “game” the system. This is one of the unintended consequences of the incentive schemes/bonus culture for wealth managers.

Transparency vs communicating intelligently

Second, we need to distinguish between “transparency” and “communicating intelligently” with clients. Simply laying out for the client all the information required by the regulators may qualify as transparency, but it sets a low standard of service. What the client needs and deserves is for us to make sense of the information. Wealth managers are in the business of communicating intelligently — sifting through and making accessible and intelligible the vast amount of information so that the client is able to make an informed decision.

And this is the core of the culture we need to create around the client experience, and leads to the second major factor that will determine our survival, sustainability, and growth. I believe two things: that culture cannot be regulated and that culture drives conduct. In the next article I shall examine the importance of this.

  • Craig Featherby is the CEO of Carrick Wealth, a financial services provider and wealth management advisory, which he established in 2014, with the vision of creating an innovative, customer-centric company that sets the benchmark for wealth management across the African continent.
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