Megan Butler, the FCA’s Executive Director of Supervision – Investment, Wholesale and Specialists, gave a rather encouraging speech at the PIMFA (Personal Investment Management and Financial Advice Association) Virtual Festival last week. She, quite rightly, took a moment to praise the industry on its preparedness for COVID-19 and how well it has performed thus far. The FCA itself must take some credit for the excellent performance of the wealth management industry. The regulatory and enforcement regime that it has put in place over the last 10 years seem to have done the trick. Of course, to quote Churchill we are perhaps “only at the end of the beginning” of COVID-19. Ms Butler directed the industry’s focus to the “what now?” question and how we might create a sustainable model for the “new normal” over the next few years.
She cited 5 key areas of focus for the FCA, the most significant in my opinion being the operational resilience of MiFID (Markets in Financial Instruments Directive) firms. She placed a very strong emphasis on the protection of client money, stating that “the preservation of client assets and money is central to our [the FCA’s] focus in the wealth management sectors”. Making it clear that the FCA expected some asset managers to fail due to COVID-19, she restated the regulator’s required outcomes from a firm’s CASS compliance, that there must:
- Never, not even for one day be a shortfall in the cash and assets held for clients,
- Be the shortest possible delay in the return of client money and assets following the failure of that firm.
The other story that caught my eye this week was James Pickford’s article in the FT: “Wealth management faces fallout from coronavirus”. In the article, some of the best in the industry are interviewed and it covers similar ground as Ms Butler’s speech but perhaps with more of an emphasis on the customer-facing front end.
The most interesting part of the article related to profit margins in the industry. Mr Pickford stated that the wealth management sector was in a worse position going into the COVID-19 crisis than at the start of the last financial collapse over a decade ago. Wealth managers’ cost-to-income ratio “stood at 63 per cent in 2007 but rose to 73 per cent after the crisis in 2009, and by 2018 had reached 77 per cent.” Despite this, the article also quotes Boston Consulting Group’s (BCG’s) evidence that UK wealth managers’ profit margins were still very much higher than their continental competition, many of whom may now be seeking entry to the UK market.
There are so many challenges for the asset manager at this time – increased competition, the FCA breathing down your neck on CASS compliance, fee income down 15% in line with the market and an urgent requirement to radically change your business model and improve your client offerings. The next few years are going to be tough.
How Cashfac can Help?
Our products help these financial institutions improve productivity and provide greater visibility, automation and control over their critical cash management operations including compliance with Client Money (CASS 7/MiFID II) regulations. As well as an internal and external reconciliation solution, our client money platform offers a full suite of accounting, banking and reporting functionality that can be quickly configured to bring your firm’s cash operations up to best practice standard.
This is achieved by our open technology solutions plugging into existing client systems giving corporate and client operational accounting solutions which are fully integrated with your bank’s records, virtually eliminating the need for reconciliation.
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