Doing more with less: The efficiency conundrum facing fiduciaries

Adele: We understand that it’s important to have the right partner to provide the services that ultra-high-net-worth clients need to avoid some of the common pitfalls. The challenges for fiduciaries are actually threefold:

Firstly, cost pressures and the complexity of the wealth management industry is rising, causing fiduciaries’ margins to be squeezed.

Secondly, the investment market is really quite fragmented and difficult to navigate. Often fiduciaries find themselves relying on many third-party providers making it a really resource intensive job to set up, monitor, and report back to clients.

Thirdly, higher value clients require far more complex non-standard solutions. Their demands move at pace. The compliance that comes with keeping pace and meeting the ultra-high-net-worth client demands can really be costly and time consuming.

Simon: Consolidating providers is the first step in institutionalising a fiduciary’s approach. There are clear benefits from a cost perspective, but this also creates increased servicing and support levels and the opportunity to drive operational improvements. A common misconception is that this creates concentration risk, but we disagree. Investment assets are housed in designated client containers and ring-fenced. Thus, it’s the exposure to the underlying assets that remains relevant. Consolidating, ultimately, allows fiduciaries to better control governance and cost, reduce bias, and protect client margins more effectively.

Eileen: Risk control and governance is all about trying to avoid that black swan event. In essence, we would look at investment due diligence, operational due diligence and how they manage and control in an offshore environment. When we talk about investment due diligence, we are looking across the five P’s: parent, people, philosophy, process and performance. And it's really important that no one P is more important than another.

We talk about operational due diligence. So what are we testing there? We’re testing infrastructure ownership trading and execution, custody and counterparty risk, attitude to regulation and compliance, auditors and administrators. And then we look at the offshore environment. How is the provider positioned to manage areas specific to offshore, such as capital and income splits and tax status?

Simon: When we think about leveraging a partner, the most obvious advantage is found in commercial agreements. I’d argue, more importantly, however, is the attention and service levels from the provider. From technology, to make the client experience and operations more efficient, to expertise in onboarding accounts, through to quality and timeliness of broad, high-quality advice.