Lack of tech limiting wealth management propositions

4 June 2022

A lack of sophisticated technology is hindering wealth management businesses, a new report by NextWealth has revealed.

The findings from its Tech and Investment Proposition report show that many investment managers still rely on in-house systems based on spreadsheets, word documents and SharePoint to track multi-million pound investment decision-making.

In addition to a reliance on low tech solutions, the report also found inconsistencies in platform interfaces and functionality are adding risk and cost to managing portfolios on platforms and discretionary fund managers (DFMs) are, in some cases, limiting platform availability to avoid compromising their proposition.

Furthermore, a limited fund universe and the inability to consistently access ETFs means that DFMs often have to compromise from their ‘best ideas’ and revert to more ‘vanilla’ versions of portfolios.

Financial advice firms also struggle to get consistent cost and charges data from platforms due to an inconsistent interpretation of MiFID II disclosure agreements and client journeys are often disjointed with custody statements lacking context on portfolios, NextWealth said.

Heather Hopkins, managing director of NextWealth, commented: “We’ve seen a rapid rise in discretionary managed portfolios on platform but the tech underpinning these solutions is starting to fray. We expect to see a continued rise in assets in discretionary MPS.

“To support that growth, DFMs and large financial advice businesses need better solutions to reduce risk and increase efficiency. The biggest challenges are in working with platforms, in particular rebalancing portfolios across different systems and inconsistent fund availability.”

NextWealth said rebalancing remains a particular bug-bear for DFMs, with firms typically required to log into individual platforms to update models for a rebalance. In some cases, this can result in hundreds of models across multiple platforms, increasing the business risk.

DFMs also need to manually check to ensure the rebalance has gone through and that no trades have been rejected.

Hopkins commented: “Some DFMs are taking a creative route for dealing with the issues, using a mix of old school tech and some new innovations to build their own solutions. This obviously helps them manage their own businesses but it’s a long way from a joined-up, industry solution that works for all the parties: DFMs, platforms, advisers and end clients.”

Andrew Back, chief commercial officer at Multrees added: “With the rapid rise of both DFM and Adviser model-portfolio-solutions on platform, it is more important than ever for platforms and tech providers to step-up, not just their technology, but also their service solutions to meet these changing requirements.

“There is absolutely no justification for DFMs or advisers to be forced to limit their propositions due to platform operational discrepancies or inefficiencies.  We are passionate supporters of the investment management sector and have offered configurable technology and custody solutions since inception.”

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