One of the most contentious issues currently facing both asset and wealth managers is their ability to offer a personalised client service against the desire of central management to monitor, control and standardise.
As the industry has consolidated, the objective sometimes appears to be to fit clients into the appropriate risk box and then deliver the standard product for that classification.
Perhaps I am oversimplifying, but there is clearly a conflict between a bespoke offering and centralisation. Although there may not be a simple answer, as an industry we need to find a third way. As this is a difficult issue, change can only come through utilising experienced individuals in combination with good systems.
This is particularly of interest in how wealth managers select funds for clients. There are two distinct approaches. The first is to have a centralised research team, dedicated to meeting managers, understanding investment processes and running the numbers to check the manager’s claims stand up to scrutiny.
However, this approach is often perceived as too top-down by their client-facing colleagues. Often, they feel the fund analysts have limited experience of managing funds and little understanding of the complexity of building portfolios: there is no buy-in!
Many research teams are also woefully understaffed as they are not viewed as revenue generators. When strategy is just a nod to the regulator, it challenges the authenticity of the client proposition. Consequently, there is a tendency to have a narrow list of preferred funds, which tend to include the big names and funds that have recently performed well.
The alternative approach gives much more authority to the client-facing wealth manager. This is popular with wealth managers but requires the support of robust systems to flag any significant irregularity and ensure that client mandates are matched by appropriate portfolios.
This can ensure greater personalisation, but it can create a huge amount of additional work, as there is still the requirement to conduct research on any fund before it can be selected for portfolios.
As a result, many wealth managers are busy and don’t want to take on the additional burden. Plus, if it doesn’t work out, the balance of blame will be on them, so why make life harder?
From a central management position, this is difficult as it concedes control, increases the number of holdings across clients and the variation of returns between similar clients. It also decreases the amount of time available to spend on attracting new business.
A third way?
A hybrid, third way appears to be gaining support. This is a more collaborative approach across the business. It aims to combine the analytical strength of the research teams, with their knowledge of competitor funds, with the experience of client-facing managers who can hopefully not only view a fund from a wider perspective, but also have the respect of their colleagues to help increase the buy-in from the rest of the company.
This will mean time on research from the most senior client-facing people, who are also likely the biggest revenue earners.
The best businesses I have come across have strong teams, with a range of different skills, who are able to quickly assess challenges and take appropriate action. Why do firms bother hiring for ability and experience if central controls prevent managers from deploying their skills and experience?
Research is a vital part of any proposition, whether it is identifying investments for a fund manager or finding funds for a wealth manager. It is not a junior role: the best results are achieved by bringing experience and multiple perspectives to the table for an open and frank discussion.
A successful research process still needs the support of good systems and the involvement of experienced client-facing managers in the debate.
Let’s hope our industry can scale back some of its centralising tendencies. Rather than selling a service on price or size, firms can offer greater value through bespoke products that appeal to the diverse requirements of their client base.
Graham Campbell is the chief executive of Saracen Fund Managers and co-manager of its value-oriented TB Saracen Global Income and Growth fund. Over the past year the strategy has returned 42.5% compared with 30.5% by the Global Income sector average