Mid-tier managers squeezed by regulation
Mid-tier wealth and investment managers are getting squeezed by increasing regulatory demands as they do not have sufficient size to generate the economies of scale needed to remain competitive, according to Mike Le Garignon, head of UK sales, business development & relationship management, Societe Generale Securities Services (SGSS).
Le Garignon, who was instrumental in developing SGSS’s recently launched outsourcing solution, said that mid-tier fund managers are faced with the same constant regulatory change and operational developments as their larger competitors but, as they can only spread the cost over a smaller client base, face an increasing competitive disadvantage. He said that UK wealth managers face an “astronomical bill” for IT over the next three years to meet RDR and Mifid II: “The regulatory drivers are there, and they are picking up speed”.
SGSS estimates that the wealth management segment – which it defines as wealth managers, family offices, multi-family offices, private banks, advisors and online retail direct broking companies – contains 400 companies but is entering a phase of consolidation.
“We are seeing a continuous M&A consolidation of the market. The market is expensive and the small managers will be feeling price compression. They will either have to adapt their models or they will be sold. If that happens, you are bringing together two different businesses together with two different front offices, two different back offices and multiple suppliers. That is not a cost efficient model – it is not scalable and it is not economic,” he added.
SGSS has launched a one-stop-shop outsourcing product for the UK market that spans post-trade process from execution to global custody. At launch the product was made available just to wealth managers but will be rolled out to asset managers in the coming months.
It has partnered with specialist IT provider JHC and ultilises functions from across the bank group, such as execution by SG CIB. The solution is modular so managers can sign up for the entire package or select any number of services. It can provide segregated and managed accounts on a automated straight-through-processing basis. “It allows mid-tier managers to focus on their core function,” said Le Garignon.
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