The CEO of Pershing - part of BNY Mellon - recently shared his thoughts about the evolving shape of the UK wealth management industry with this publication.

The UK’s
wealth management industry might feel a bit unloved at times and under cost and
regulatory pressures, but new business models continue to spring up in what
remains one of the world’s liveliest markets, the chief executive of Pershing,
part of BNY Mellon, told this publication recently.

A mass of regulatory activity, rising cost burdens and
continued worries about the state of the world economy (such as what happens
when the monetary taps run dry) provide plenty of reasons for a sombre mood.
And it is true that wealth management in the UK has its challenges, but there
are also positives, argues Kevin Bonar.

The UK
has recently witnessed “disruptive” business models, such as from firms
challenging existing fee structures and embracing new distribution channels
available from technology, Bonar told this publication in a recent interview.

One stand-out feature of the UK and European wealth management
industry has been a period of merger and acquisitions that arguably is the
busiest in volume and number terms for up to two decades, he said. This is
driven by a need for efficiencies and critical mass in certain markets, with
some firms deciding to quit sectors where they haven’t achieved scale, he said.
In the last 12 months alone, he said, about £50 billion of assets under
management have changed hands.

“If you add up all the AuM involved in this, which is about
more than £50 billion, that is more than the AuM of Britain’s biggest wealth
manager (Barclays),” Bonar continued.

According to one measure, he said, there have been 22
M&A deals of varying size in the past two years.

Position

Pershing is the kind of business that has a good overview of
the kind of changes sweeping the industry. As for Bonar, he brings 20 years of
experience within the industry to the role. Most recently, he was head of
Citi's Investor Middle Office and Wealth Management businesses of Securities
Fund Services groups for EMEA. From 2000 to 2008, Bonar held a number of other
senior management positions at Citigroup; before joining that US bank, he
spent 10 years at J Henry Schroder & Co.

Having been in the industry for two decades, one thing Bonar
is sure of is that nothing stands still for long. And this has its positive
side.

Bonar pointed to some of the new business models that have
arisen in recent years. An example is Nutmeg, which opened last year and it
lets investors open an account for as little as £1,000 ($1,556). Another
innovator he mentioned is Parmenion, the UK-based investment systems and
advisor support services firm. Bonar also gave examples of firms seeking
advantage of the issue of clients “orphaned” by the rising regulatory and cost
tide. (As discussed recently in these pages, firms such as UK financial advisor BestInvest
have sought to do this, while Hargreaves Lansdown, for example,  has a large execution-only platform as part of
a range of different offerings designed to meet different types of client.)

Such innovation is actually made easier, Bonar said, by the
existence of large banks and financial groups with the scale and economic
muscle to provide much of the “plumbing” that boutiques and smaller firms find
too expensive to perform in-house.

He expects the range of investment platform solutions to
expand. Where there is a need for scale, such as custody and like, this will
continue to play to the benefit of the biggest firms with economies of scale.

“The handful of big financial services providers enable
boutiques and smaller firms to exist,” he said.

Earlier this year, Pershing issued a report - produced by Scorpio Partnership, the consultants - which founda lack of confidence by UK financial advisors in their existing business models. The research, Through the Looking Glass: An Executive Perspective of UK Wealth Management in an RDR World, showed that over
39 per cent of advisors felt the primary value delivered by the firm
to clients was through the personal relationship they offer, while only
17 per cent felt their knowledge and qualifications was of greatest
value.

Managing existing client relationships was considered as “critically
important” to the future of their business by 46 per cent of advisors, the report said.

Pershing regularly issues reports looking at wealth industry trends. For example, in March, it examined the role of women in wealth management. (To see that study, click here.)