Although 2013 will be a pivotal year in wealth management as Retail Distribution Review (RDR) rulings are put in place on 1 January, the past 12 months have also been extremely busy as firms tighten up their business models to meet the deadline.
Whether it has been ensuring individuals are appropriately qualified, or deciding whether to take the independent or restricted route, 2012 will be remembered by wealth managers as the year of preparation or, for some, the calm before the storm.
Here, Investment Week looks at the year’s key events in the wealth management industry.
What did 2012 bring for wealth managers?
In June, the FSA began a new phase of its review into wealth management, threatening to take regulatory action if firms had not moved to tighten up systems and controls.
The regulator had previously outlined its concerns over the suitability of portfolios and clients receiving ‘unfavourable’ outcomes in a Dear CEO letter, sent in June 2011.
The firms were expected to “take reasonable steps to ensure that a personal recommendation or a decision to trade is suitable”.
If the FSA decides the steps taken offer no improvement to client outcomes, it will take further regulatory action next year.
The IMA and APCIMS, trade bodies for the asset management and wealth management industries respectively, also joined forces to oppose the FSA’s proposed changes to the FSCS sourcebook.
The bodies argued the proposals put forward fail to consider the impact of cross-subsidy, which in the past led to asset managers being required to find £233m of the £333m needed in 2011 for intermediary defaults. They also criticised the FSA for not carrying out a wider review of the scheme, which Guy Sears, IMA director of wholesale, said needs a “complete overhaul”.
This year also saw a significant drop-off in sales of funds to wealth managers.
Data on fund flows reveals wealth managers put £8.6bn into UK domiciled funds year to date, an 18% fall from 2011. Third quarter flows were almost 24% lower in 2012 than in the third quarter of 2011 at £2.6bn. As a share of total sales, wealth management assets accounted for 12%, compared to 14% the previous year (see table).
In September, Williams de Broë dropped its historic name, which has been around since 1869, after the business was merged into Investec Wealth and Investment, with Investec chief Jonathan Wragg at the helm of the new business.
That same month, Canaccord snapped up Eden Financial’s wealth arm in a £12.8m deal. The division was absorbed into Collins Stewart Wealth Management, which the firm acquired in 2011. The acquisition boosted Canaccord’s AUM in its wealth management operations to £9bn.
South African insurer Sanlam merged stockbroker and private client manager Merchant Securities with Principal Investment Management, bringing it under the Sanlam Private Investments brand.
Quilter signed a merger agreement with Cheviot in November that is understood to have cost £100m. The new group is known as Quilter Cheviot and will have a total of £12bn in assets under management.
Saltus fund management also bought Mercater Capital Management for an undisclosed sum. The combined entity will trade under the Saltus name and brings Mercater’s £65m of discretionary assets onto the group’s book.
Back in May, Investment Week exclusively revealed Ben Yearsley, investment manager at Hargreaves Lansdown, left the firm by mutual agreement after 14 years.
He took some time out from the industry before resurfacing at Charles Stanley in October, as head of investment research, to help spearhead the group’s new direct-to-client investment service.
Later in the summer, Adrian Gough left RSM Tenon to take up a role on the discretionary team at BNY Mellon.
Meanwhile, Adrian Lowcock left Bestinvest to join Hargreaves Lansdown in November. After working at Bestinvest for eight years, progressing to head up a team of advisers, he joined Hargreaves to take a senior role in the research team.
Restricted v independent
Under RDR, life policies, pensions, unit trusts, OEICs, investment trusts, and ETFs are classified as Retail Investment Products (RIPs). For an adviser to be able to refer to themselves as ‘independent’ they have to be able to advise on all RIPs. The vast majority of wealth managers are set to offer restricted advice, with only some of the firms with financial planning arms in a position to offer independent advice.
Charles Stanley confirmed they will offer restricted advice just before the deadline passed.
Private bank Coutts will also be providing restricted advice and will continue to evaluate in-house product capabilities and the panel of external providers "to ensure they meet clients' exacting standards."
Brewin Dolphin, one of the largest independent private client investment managers, with £26bn funds under management, said it will be restricted when the new rules come into place, but is working towards being able to offer independent advice sometime next year.
Hargreaves Lansdown and AWD Chase de Vere will offer independent advice.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress