Funds and wealth management firms must adapt as unstoppable regulatory, technological and social forces ring in unprecedented changes, according to a new KPMG report.
The KPMG publication – its first to focus on the NZ funds and wealth markets – says with industry-wide changes coming to a head “it is timely to pause and reflect on what it means for firms and their clients”.
“From a rise in consumer expectations to increased regulator scrutiny, global trends influencing the local market, and domestic competitors launching new products and services, the velocity and variety of change is significant and is unlikely to slow down any time soon,” the report says.
Beckie McCleland, KPMG NZ head of wealth management, said while the “huge amount of change coming down the pipeline” would affect each market sector differently, all firms faced opportunities and risks in the rapidly evolving environment.
The KPMG report covers six major trends featuring the intertwined themes of technology, changing social expectations and, most notably, regulation.
For example, Rob Everett, Financial Markets Authority (FMA) chief, offers further insights on the ‘culture and conduct’ wave rolling through NZ financial services.
In an article penned for the KPMG report, Everett reiterates the industry-wide intent of the conduct principles, albeit that the latest tranche of proposed legislation targets only insurers and banks (including non-bank deposit takers).
The wholesale sector, which is exempt from many of the existing retail investment regulations and proposed conduct laws, cops a pointed serve from Everett in the article.
“Some areas of wealth management, particularly those that service sophisticated or high-net-worth investors, or do not deal with customers face-to-face, may be inclined to take a more relaxed approach to managing conduct risk,” he says. “This is short-sighted and risky, and may ultimately indicate deeper issues with the business. For a well-managed firm, managing conduct risk should come as naturally as seeking a profit.”
McCleland said the message reaffirms the need for wholesale fund managers, advisers and service providers to “consider the conduct principles” regardless of their regulation-lite freedoms.
“A lot of wholesale firms are doing that anyway but the conduct rules are a reminder that they should be formalising those principles,” she said.
The KPMG report also maps out a bright future for financial advice in NZ as long as providers focus on building trusted relationships.
Matt Prichard, KPMG audit partner, says quality financial advice in NZ has been stymied by both regulatory anxiety from providers and consumer reluctance to pay for advisory services.
Furthermore, Prichard says with the nuts-and-bolts of wealth management services (investment management, custody, registry, admin etc) now mostly outsourced, the core “intimate experience” of advice remains the key value proposition.
“For the sustainability of our local wealth management industry, we need to run organisations with substance, that have something at their heart that cannot be commoditised – trusted advice stemming from meaningful relationships,” he says in the report. “Otherwise, how can a local industry survive amongst the current generation of technology changes, that already mean most of these disaggregated roles could be done efficiently from anywhere in the world?”
McCleland, who also sits on the Code Working Group that developed the new operating principles for advisers under the Financial Services Legislation Amendment Act (FSLAA), said advisory firms that focus on client needs would flourish in spite of regulatory and technological changes.
She said digital tools should expand the availability of good financial advice in NZ without diminishing the scope for high-end bespoke services.
“There needs to be a spectrum of entry points into advice,” McCleland said. “Wealth management and advisory firms have to figure out what is the best service to help the different types of clients get what they need.”
FSLAA, due to enter the transitional licensing phase next month, was designed to accommodate advice businesses across that spectrum, she said.
“It’s important we maintain a variety of advice firms and different ways clients can interact with them,” McCleland said. “If [FSLAA] doesn’t allow that, then we have done ourselves a disservice.”
The KPMG report also includes: a global view of fintech trends; guidelines on ‘digital transformation’; top tips for governance; and, an overview of responsible investment in NZ authored by Pathfinder co-founder, John Berry.
According to McCleland, the aim of the KPMG report was to stimulate debate in an industry on the cusp of major transformation.
She said KPMG also planned follow-up studies to track the issues affecting the NZ wealth and funds management over time.
– David Chaplin, Investment News NZ