Will the City's asset management industry go bust, or will the EU directive be the chance for a much needed reform in the financial world, asks Matthew Hardeman
Move over Brexit, the Big Bang is upon us. Not the exploding-universe kind, but the wealth-management kind. That’s according to Alan Miller, wealth manager (and husband and business partner of hopeful Brexit-buster Gina), who told us last summer that January 2018 would be ‘big bang for the fund management industry’. He’s talking about the implementation of Markets in Financial Instruments Directive II (or MiFID II), of course – the EU legislation that obliges wealth managers to disclose their total costs of investing to clients as a single number, as well as apportioning the costs of investing and research services: a statute forcefully advocated by the Millers, no less.
That the changes, which increase the burden of reporting and record-keeping for firms hugely, are a challenge to some in wealth management isn’t in dispute. What remains to be seen is whether the regulations herald a revolution for the back-offices of asset managers or will put many out of business entirely. The swarm of M&A activity and consolidation of recent years (plus the dominance of the largest firms) certainly won’t be blunted by regulations forcing them to spend tens (if not hundreds) of millions on extra resources to meet the legal requirements – investment that surely can only be offset by brutal cost savings (and potentially rising fees) – among those that stick around to afford that, at least.
It’s a lot to swallow. But if the young are still the future, and wealth managers are to survive and thrive in 2018 and beyond, it’s not enough to just comply with the technical demands of MiFID II – firms must embrace the spirit of the legislation – and the age. Like it or not, as many of the reputation managers in this edition’s index make clear, transparency is now an essential fact of life.
That’s as true for high-profile HNWs and family offices as it is for FTSE 100 telecommunications giants, politicians and wealth managers. In the context of the latter, as one well-placed industry observer remarked to Spear’s, it’s time to ‘humanise’ the technical data that firms create, communicating it ‘in a format that can be understood easily by all’.
Matthew Hardeman is assistant head of the Spear’s Research Unit
This article first appeared in the Jan/Feb edition of Spear's. To buy a copy, head to selected news agents or WH Smith travel stores or subscribe here: https://www.spearswms.com/subscribe/