UK-based wealth managers are uncertain what effect the new EU regulations will have on their relationships with clients. However, the vast majority of providers expect increased price competition.
MiFID II, a set of updated rules focused on increased transparency in investment management and financial advice (among other things), will take effect across the EU from January 2018. Under the new law, investors will have a clearer view on how much they pay for advice and asset management services.
Our 2017 Global Wealth Managers Survey found that providers expect the introduction of MiFID II to result in increased price competition. In Europe, a desire to avoid management fees is one of the top drivers for investing without professional advice. HNW individuals in Germany, Switzerland, and the UK are particularly price sensitive. As a result, advisors in these countries are most concerned about additional pressure on management fees. Wealth managers in the UK, which will adopt the regulation despite being set to leave the EU, most strongly believe the European law will trigger a price war. This can be attributed to the fact that the UK industry went through the Retail Distribution Review in 2013, and remembers its impact on the market.
Lower prices are undoubtedly good news for clients, as long as quality of service is not compromised. Simple and clear pricing will receive a warm welcome from investors, and investment managers who deliver good results will be able to justify their fees. In the end, this should result in higher trust and a stronger bond between providers and their clients.
However, the wealth managers we surveyed are unsure about the long-term effect the new legislation will have on their relationships with investors. Among the countries covered in the study, only providers in Germany have strong views – and they are concerned MiFID II will not help client relationships. The best tactic in this case would be to stay ahead of regulation and communicate any changes to clients as soon as possible. As discussed above, openness and transparency help build trust, which wealth managers cannot afford to lose.
Preparing for MiFID II is already incurring costs, and staying compliant will also come at a price. To make up for these expenses, advisors have to ensure steady growth of revenue. In a price-sensitive environment, the only way to achieve this is to attract new assets and clients. Being trustworthy will thus be more important then ever.
By Bartosz Golba, Interim Head of Wealth Management