Reviews: the impending regulatory crunch

Nick Skelhorn, Founder of Corrival Capital Management looks at how technology drove efficiency and fairer pricing of their investment management proposition.

I started my career in 1993. Share certificates were normal, settlement periods were a month, transactional commissions easily outweighed management fees and stocks were more common in client portfolios than funds. I estimate a deal went through the hands of 13 different people before it was completed and delivered to the client. Now, if we place a deal for 12 noon pricing, transactions are contracted from mid-afternoon and reflected in client accounts, huge efficiency gains driving opportunity for cost savings. Yet over those 30 years, annual investment management charges haven’t really changed despite huge efficiencies enabled by improving tech, how can that be?

The investment management sector is dogged by inefficiency, too often created by legacy systems, poor tech choices, and a reliance on manual tasks which can result in process paralysis and inevitably leads to higher charges. Now firms are feeling the heat as expectations for a slick experience and better value for money rise towards the top of selection criteria for advisers and their clients. However, disruption rarely comes from within.

Look closely though and things are beginning to change. Initiated by PROD, and galvanised by Consumer Duty last year, good product governance and value for money are integral in meeting the requirements that result in better client outcomes. Technology can, and is, taking the strain, re-engineering the infrastructure of financial advice and presenting real opportunities for the positive disruption of UK platform and investment management services.

I see this as the beginning of the digital investment transition. Take the refreshing P1 platform, powered by Octopus-owned Seccl Technology, as an example. Genuinely paperless rapid client onboarding, simple wrapper set-up, easy investment management functionality, automated client reporting, digital drawdown, and a customisable report suite, all completely transparent and at a great price. Addressing many of the issues that slow down client take-on and servicing by automating the mechanical ‘behind the scenes’ parts of the process.

When I started Corrival, the direction of travel was clear for investment managers relying on financial advisers for asset flows. Subtleties around the edges and individual personalities separate investment management propositions these days, but cost and being easy to do deal with are more important factors than ever. Unencumbered by legacy systems or technology, we set out with a mission to simply offer better value for money by enabling lean, flexible service options on a ‘use what you need to and only pay for what you use’ basis.

"The investment management sector is dogged by inefficiency, too often created by legacy systems, poor tech choices, and a reliance on manual tasks."

First, we deconstructed the inbuilt cost of investment services between the component parts. Intellectual capital (our investment process), resource cost (is it a tailored solution), settlement and custody (think platform cost), and client reporting. Then, we could reassemble our individual services to a pricing point that was reflective of the cost to the business whilst making a profit. A simple, consistent, and scalable approach.

We then went further though and added an uncommon feature. As investment propositions become more commoditised, open-ended annual management charges become more at risk. A client with £200k paying £2k, and a client with £1m paying £10k, for the same portfolio and service has numbered days in my opinion. So, years before the issue has been highlighted by the regulator, we introduced capped fees. Modern thinking and the newest technology drastically reduce the need for people and paper, with automation helping to lower the profit point of providing a service, enabling this simple and much fairer approach.

Additionally, this fresh thinking and culture provides scope for a more flexible approach to service options. With model portfolios growing in popularity for understandable reasons, ‘bespoke’ or ‘tailored’ solutions are under the spotlight. Outside of tax management, individual preferences for inclusions or exclusions, a specific income requirement or a complicated tax wrapper combination, bespoke services are more about having the ability and comfort of meeting with, or speaking with the person that manages your hard-earned wealth. This facility, is the most expensive component of the service – the person, but should it come at such a premium price?

To address the gap between these two extremes, we created our Model Plus service option, a simple service combining a commoditised investment solution with someone the client can interact with. Priced higher than simple MPS, but lower than a traditional bespoke proposition, a clear target market being those clients who have been in bespoke services until now but who wish to retain some personal interaction for when times are tougher, whilst saving money.

What about tailored solutions in the future? They will still have a place, but I think they will become specialised, targeted solutions, such as decumulation options that are now readily available. The orientation of demand for better value services will prompt important decisions for investment management firms relating to resources and capital spend, but the opportunity to deliver a better experience for advisers and their clients has never been greater.

We were early with our adoption of a digital (paperless) investment management proposition, but the pandemic has changed the game. The right technology enables us to innovate and buck the trend, keeping sensible service entry levels, a fair approach to pricing, flexible service options and still with access to a human. A user experience that is much closer to what the next generation will expect to interact with, and all this before Artificial Intelligence produces the next step change.

Get in touch

corrivalcm.com
01823 426555
info@corrivalcm.com

Important Information:
Corrival Capital Management is a trading style of P1 Investment Services Ltd, which is authorised and regulated by the Financial Conduct Authority, under Firm Reference Number 752005.