Neil Craddock, recently appointed Head of Wealth Management at consulting-firm Citisoft, talks to WealthBriefing about his new appointment a...

Neil Craddock, recently appointed Head of Wealth Management at consulting-firm Citisoft, talks to WealthBriefing about his new appointment and the outlook for the wealth management sector.

So where does Neil Craddock see the wealth management industry developing over the short term?

Firstly, outsourcing will present significant opportunities. “At present there are some immature offerings and there have been some early adopters. This has produced some mixed results. There are always challenges to early adopters and lots of people are waiting to see what happens. There is still a lot of interest from vendors but they are cautious about taking on too many clients. They are keen to get the service model correct,” Mr Craddock said.

“US custodians are the main players. But there are real problems with geographical location. For instance the location of operational functions within the US can present problems with time differences and also tax and regulatory knowledge.”

Outsourcing will become more popular when people become more comfortable with the robustness of the systems, especially in times of regulatory change. The types of organisations who are going for outsourcing at the moment include start-ups, especially in the hedge fund space, where there is a scalability issue. Those with legacy systems and those which are risk averse, Mr Craddock told WealthBriefing.

The main regulatory challenge facing the wealth management industry is MiFiD according to Mr Craddock. “The message of the importance of this change is not getting through even though its implementation is less than 2 years away. For wealth managers the biggest issue is to be able to prove best execution and the requirement to publish trade data. At the moment there are no mechanisms to do this.

This includes off-market transactions but it’s not clear how far this extends. It could in theory include unquoted equities although it is unlikely to include foreign exchange transactions,” he said.

As for the EU Savings Tax Directive, wealth managers are tending to over-egg the pudding by capturing all transactions according to Mr Craddock. “The decision on what will be reported on will be taken at a later stage. A lack of clarity during the drafting of the directive has caused much more work for people than should have been necessary. The regulations are not detailed or clear enough,” he said.

Mr Craddock thinks that the pressure on wealth managers is firmly on the front office staff. “Not only do they have to prove suitability of product, they must also assess clients’ appetite for risk. People’s perception of risk is very difficult to gauge; they often think that higher risk guarantees higher returns,” he said.

The development of trusted advisors is also an important trend. Wealth managers are aspiring to offer similar services as family offices. This presents problems with multiple sources of information gathering, and information is an area in which clients are becoming more demanding. “New money clients are keen to participate more in the investment process much more than old money and are much less loyal,” said Mr Craddock.

“The question is will they move from discretionary to advisory with trusted advisors in the middle? The challenge is to see the whole picture. Being independent of product is being seen as increasingly important – there is a growing demand for open architecture but at the moment not many providers offer this.”

In the wider wealth management market Mr Craddock believes that there will undoubtedly be more consolidation with the bigger players offering more services and new entrants being snapped up. “Everybody seems to want to grow faster than organic growth alone will allow,” he said.