Pimfa Journal Summer 2021

The Personal Investment Management & Financial Advice Association

JOURNAL SUMMER 2021 DIVERSITY AND INCLUSION IN THE FINANCIAL SERVICES SECTOR: THE “WHY” AND “HOW” OF COLLATING DIVERSITY DATA

MAKING THE DEAL STICK – POST ACQUISITION INTEGRATION

THE FUTURE OF WEALTH MANAGEMENT IS HYPER-PERSONALISED

PROPERTY INVESTMENT: SUPREME COURT DELIVERS BLOW TO BUSINESS RATES MITIGATION SCHEMESHE SLOW RISE OF REGTECH

BUILDING PERSONAL FINANICAL FUTURES

7

CONTENTS PAGE

2

4

6

8

10

MASTERING THE DIGITAL BANKING EXPERIENCE TO TRIGGER THE RIGHT CLIENT EMOTIONS

PROPERTY INVESTMENT: SUPREME COURT DELIVERS BLOW TO BUSINESS RATES MITIGATION SCHEMES.

SOCIAL ENGAGEMENT WITH CLIENTS AND PROSPECTS THROUGH A PANDEMIC: WHAT WE LEARNED

THE UK DIVIDEND PICTURE

12

16

20

22

DIVERSITY AND INCLUSION IN THE FINANCIAL SERVICES SECTOR: THE “WHY” AND “HOW” OF COLLATING DIVERSITY DATA

THE SLOW RISE OF REGTECH

COLLIDE OR ALIGN? ACHIEVING THE BALANCE BETWEEN AML/CFT AND TAX COMPLIANCE AND THE COST OF DOING BUSINESS

EU CLIENTS – WHAT ARE YOUR OPTIONS?

24

26

THE FUTURE OF WEALTH MANAGEMENT IS HYPERPERSONALISED

MAKING THE DEAL STICK – POST ACQUISITION INTEGRATION

3

PIMFA JOURNAL

SUMMER 2021

MASTERING THE DIGITAL BANKING EXPERIENCE TO TRIGGER THE RIGHT CLIENT EMOTIONS

7

1% of clients prefer the flexibility of multichannel interactions, according to a 2020 McKinsey customer insights survey. However, few banks have the digital capabilities necessary to deliver this flexibility.

According to a report by Forrester, banks may have raised their ‘digital maturity’ but few are ‘digital masters’.

These banks face growing pressure to improve their digital services due to both COVID-19 and the fact that customers are encountering fast, convenient, and personalised digital experiences outside of banking.

WHOLE JOURNEYS VS ISOLATED TOUCHPOINTS

Digital mastery requires a holistic approach to digital customer experience with a vision of the customer journey as a seamless whole rather than a series of individual and isolated touchpoints.

When undertaking digital transformation, financial providers need to align their digital capabilities with their individual customers and their unique lifecycles. Each customer will have different financial needs depending on where they are in their lives. Providers must adapt their digital offerings according to the specific stage of life where their customers find themselves.

This means providers need to consider the customer journey as a whole, starting from when the client first researches information about the firm and selects and initiates the onboarding, as opposed to seeing each interaction as a discrete and unconnected touchpoint. Financial firms currently depend on a digital customer journey that lacks this cohesion and personalisation.

Customers use a range of different touchpoints as they explore and engage with different products, develop their portfolio, and execute investment transactions. Yet companies continue to envision these touchpoints in isolation, optimising each individual one without considering the journey as a whole. This is a missed opportunity to prove their value to customers and boost loyalty to their brand.

4

www.pimfa.co.uk

Each experience a client has of a service needs to be positive, driving home the message that the provider understands and cares about their needs. Whether supporting customers as they research and compare different financial products, helping them with transactions and making the process quicker and easier, or responding to investment queries and receiving added-value services, providers need to offer meaningful support at every stage of the customer journey.

LEVERAGING THE 'MOMENT OF TRUTH'

The key to building trusting and productive relationships between a financial organisation and their clients depends on triggering the right emotions. The customer wants to feel understood and respected. They’re less interested in whether an advisor manages to solve a one-off query about a new transaction. They want to know that their advisor has their back at every stage of the journey.

This means financial institutions need to provide customers not only with a seamless hybrid service but one that’s also totally customer-centric, consistently meeting the customer on their terms. Interactions must be omnichannel and flexible, allowing the advisor to step in at just the right moment to leverage this ‘moment of truth’, providing valuable assistance that’s relevant to the client’s unique issue.

Of course, in addition to flexibility, customers also want speed and convenience. They’re demanding the same kind of ease interacting with private banks as they do ordering something on Amazon—and expect to be able to do so from any device. In fact, 64% of affluent US investors expect companies to make their websites more mobile-friendly, as do 55% of UK investors with household assets of £400,000 or more, according to Forrester.

Clients want to speak to their provider in the way that best suits them at that moment. This may mean sending a text to their advisor on their commute, discussing an issue via live chat from their desktop at home, or arranging a video call when face-to-face meetings are impossible. Whatever way they choose to communicate with their bank, they require it to be quick and efficient.

In fact, as customers become more affluent and their financial advice needs become increasingly complex, they tend to prefer speaking to a real person rather than using digital services. Indeed, 74% of affluent individuals prefer human advisors to digital tools.

This makes personalisation a vital element in a positive digital customer experience. Clients want to feel reassured. Simple tactics, such as using a client’s preferred communication method, sharing personalised updates about new products and services, and being aware of any previous interactions they’ve had with the firm, can help providers to prove that they understand the customer and see them as an individual.

While financial firms have already begun the process of digital transformation, delivering a positive digital customer experience is about more than remote advice or chatbot functionality. Financial firms need to build trusting and

productive relationships with customers. As well as speed and convenience, this requires a level of flexibility and personalisation. Becoming digital masters depends on providers envisioning the customer journey as a seamless whole and leveraging each moment of truth to prove their value and win customer trust.

Our recently released report in conjunction with Forrester offers an insightful view on how to assess your digital banking maturity and gives ideas for the next steps of your journey.

Download it here (https://landing.unblu.com/ asses-digital-banking-capabilities/).

Luc Haldimann, CEO, Unblu www.unblu.com

@PIMFA_UK

5

PIMFA JOURNAL

SUMMER 2021

PROPERTY INVESTMENT: SUPREME COURT DELIVERS BLOW TO BUSINESS RATES MITIGATION SCHEMES

F

or investors in commercial property, such as property and pension funds and individuals who hold property (often via a SIPP), the ability to mitigate the holding costs of unoccupied property is a significant consideration, with a major expense being national non-domestic rates (NDR).

The Rating (Empty Properties) Act 2007 withdrew longstanding 100% relief on industrial property and 50% relief on other commercial estates. This was part of a policy aimed at increasing supply and driving competitiveness by forcing landlords to put vacant property to commercial use as they would still be taxed if they did not. The consequence of this policy, which was followed by the financial crisis in 2008, was that NDR avoidance schemes were developed and are now so commonplace that they form part of the investment strategy of many developers.

The instances of landlords intentionally keeping properties unlet or vacant simply to avoid NDR is limited. NDR on empty property is a tax on a non-income producing asset or a “tax on failure”. It can deprive landlords of capital to develop property which may be necessary to attract new tenants. For financially stretched local authorities, NDR avoided is necessary income which is lost and avoidance is an “abuse”. As a result, NDR avoidance has been the subject of disputes between local authorities and landlords.

In Secretary of State for BEIS v PAGAPL [2020] the Court of Appeal held that a scheme which used an exemption from NDR for companies in liquidation was not an abuse of the insolvency regime. It distinguished a decision in Secretary of State for BIS v PAGMSL [2015] that an earlier iteration of the scheme was an abuse of the insolvency process. However, in PAGMSL, the Court had acknowledged that developers use rates mitigation schemes to invest in properties when they would otherwise not do so and that whether NDR schemes should per se be prohibited was a matter for Parliament.

In Public Health England v Harlow District Council [2021] the ratepayer was a government department which had avoided a rates liability in excess of £2.5 million through a scheme based on intermittent occupation (the most common form of mitigation). The Judge emphasised that objections to the use of NDR mitigation schemes were a matter for legislation and rejected the claim by the council..

However, in Hurstwood Properties v Rossendale Borough Council [2021], the Supreme Court allowed an appeal by local authorities against a decision by the Court of Appeal to dismiss claims to recover liabilities going back to 2009.

The case involved two separately operated schemes (one of which was considered in Re PAGMSL). Both involved the grant of a lease to an SPV which then became the “owner” for the purposes of section 65(1) of the Local Government Finance Act 1988 as “the person entitled to possession”.

The SPV went into an MVL so as to be exempt or under the second scheme was subsequently dissolved.

6

www.pimfa.co.uk

The Court of Appeal agreed that a valid lease granted to an SPV meant that the SPV was the “owner” for NDR purposes and it was irrelevant that the lease was for the purposes of avoiding NDR. The Supreme Court re-instated the claims which will now proceed to trial. The intention behind the 1988 Act was that

PARLIAMENT WANTED TO STOP THE OWNERS OF PREMISES LEAVING THEM UNOCCUPIED TO SUIT THEIR OWN CONVENIENCE” AND “CANNOT SENSIBLY BE TAKEN TO HAVE INTENDED THAT ‘THE PERSON ENTITLED TO POSSESSION’….

SHOULD ENCOMPASS A COMPANY WHICH HAS NO REAL OR PRACTICAL ABILITY TO EXERCISE ITS LEGAL RIGHT TO POSSESSION AND ON WHICH THAT LEGAL RIGHT HAS BEEN CONFERRED FOR NO PURPOSE OTHER THAN THE AVOIDANCE OF LIABILITY FOR RATES. The Court did not acknowledge that at the time of the 1988 Act the liability of landlords was mitigated by reliefs on unoccupied property. The judgment creates the impression that landlords leave property vacant through choice rather than circumstance. However, the decision means that other forms of rates avoidance schemes (and temporary occupation schemes in particular) are likely to be the subject of challenge.

The result could be landlords receiving very significant claims for historic “unpaid” NDR. The judgment is already adding to the calls acknowledged in March 2021 in the interim report to HM Treasury’s decision Fundamental Review of Business to reinstate the previous exemptions and reliefs. The commercial property and investment sector have a real interest in whether the Government will address an issue which has placed developers at odds with local authorities. However, any change is unlikely to have retrospective effect and the impact of the Supreme Court decision on the property investment sector will still be significant.

Jonathon Crook Partner in Shoosmiths LLP and acted for the respondent companies in Re PAGAPL and Re PAGMSL.

@PIMFA_UK

7

PIMFA JOURNAL

SUMMER 2021

SOCIAL ENGAGEMENT WITH CLIENTS AND PROSPECTS THROUGH A PANDEMIC: WHAT WE LEARNED

O

ver the past year, advisers were forced to change their game in terms of engaging with clients and prospects. Meetings moved to Zoom, texts and videos escalated, and social content proliferated.

But to what end? Advisers don’t always know if the actions they take are reaching the right people with the right message, particularly when it comes to social media posts. To find out, we surveyed data from more than 200,000 advisers and agents from over 100 leading global financial services firms, and here’s what we learned.

A WILD RIDE Advisers quickly moved to digital communications in an effort to quell investor fears and show value once the pandemic hit, and they saw social engagement spike. Not a huge surprise as everyone moved online together. What was perhaps more notable was the prolonged drop in social engagement that started in May and lasted until September.

Consumers were bombarded with brand messaging everywhere they turned, and most of it wound up sounding like noise. During this period, advisers and firms performed essentially the same digital activities they had worked well previously— they were just doing more of them. This was not wrong, but the pandemic presented new sets of circumstances, which forced advisers to adapt again (and rather quickly) in an attempt to gain and retain business.

To turn things around, advisers took a more strategic approach to social media. They used previously unexploited features like LinkedIn’s 2nd and 3rd degree connections, InMail and Sales Navigator to expand prospecting efforts and garner new business. Video made an appearance—or rather

8

www.pimfa.co.uk

hundreds of thousands of appearances—because it proved to be a great tool for increasing engagement. Additionally, in-app messaging and texting were successfully implemented to cut through clutter and speed responses. Because advisers tried new, innovative approaches, engagement bounced back.

DIVING INTO THE DETAILS: NEW OPPORTUNITIES ARISE In addition to leveraging new digital tools to capture attention, the types of content posted to social channels mattered. So, what resonated and how well did firms deliver?

Our research shows there was a greater balance and diversity of content than ever before. In the wealth management space specifically, social media administrators prioritised Financial Education (34% of total suggested content), with Corporate Brand and News claiming the next spots at 20% and 18% of suggested content respectively. Adviser posts map to these same categories as well, which suggests that advisers are quite willing to leverage content shared by corporate teams.

In the wealth management space specifically, social media administrators prioritised Financial Education (34% of total suggested content), with Corporate Brand and News claiming the next spots at 20% and 18% of suggested content respectively.

Another area ripe for opportunity is Principles-based content. 2020 was a year when consumers got in touch with their values, and they wanted to be sure that the people representing them stood for something as well. Principles-based content demonstrated the third highest engagement rate for wealth management firms, yet it was only suggested 3% of the time. Doing the math, with advisers posting unmodified, corporate-suggested content 88% of the time, and Principles-based content is only suggested 3% of the time, advisers miss out on valuable ways to connect with their clients and prospects. Imagine the kind of engagement spike they could experience if they posted original, locally-focused Principles-based content. It’s worth noting that Principles-based content doesn’t have to be controversial; it can be something as simple as a picture of the adviser participating in an MS walk or video of a community event.

These are just some of the fascinating findings which surfaced in the study. Yet it is clear that digital communications played a vital role in adviser-client/prospect relations. Advisers and firms have shown incredible growth, resilience and adaptability over the past year, and now new opportunities lie before them to take social engagement up another level, and to do so with confidence.

Leslie Leach, VP of Marketing, Hearsay Systems www.hearsaysystems.com Read the Full 2021 Financial Services Social Selling Content Study

What we saw emerge, however, is that consumers strongly preferred original, adviser-created content. In fact, original content generated 9x the engagement of unmodified corporate suggested content. When advisers modified suggested content, they saw a 2x spike, which indicates that even when advisers did the minimum to personalize content, they experienced an increase in engagement. This marks an area of significant opportunity moving forward.

@PIMFA_UK

9

PIMFA JOURNAL

SUMMER 2021

THE UK DIVIDEND PICTURE UNPRECEDENTED TIMES: DIVIDENDS DURING COVID-19

S

hortly after the UK’s first national lockdown began, an initial trickle of dividend reductions quickly became an unprecedented flood of cuts and cancellations.

The final tally shows that dividends fell 41.6% on an underlying basis in the twelve months to the end of March 2021. The biggest impact was felt immediately in Q2 2020, as companies scrambled to preserve cash to see them through the economic stoppages sweeping the world. In each successive quarter, however, the reductions became smaller as companies reassessed the situation and those least affected began to restore suspended payouts.

Over the whole twelve months, two thirds of companies reduced or pulled their dividends, and every sector saw firms cut. But the impact was extraordinarily varied. For example, all the banks and nine tenths of companies in sectors dependent on discretionary consumer spending (like travel or non-food retail) reduced payouts, but less than half in essential sectors like food production, basic household items, food retail and telecoms did so.

The overall impact in the top 100 was much less severe than in the mid-250 and among smaller companies. This is because bigger multinationals are more financially resilient and because the dividend giants in defensive sectors (like Unilever, AstraZeneca or British American Tobacco) are represented in the top 100. Top 100 payouts fell 39.1% (thanks to cuts of £36.4bn) compared to a decline of 60.3% in the mid-250 (cuts totalled £6.7bn).

CONCENTRATION OF UK DIVIDENDS - Q1 2021 30.9%

Despite the worst recession in modern history, just over a quarter of companies (27%) were able to increase their dividends; 6% held them steady.

56.4%

THE WINNERS AND LOSERS

Kidbrooke offers OutRank, an API that powers financial analytics capable of simulating and visualising a holistic picture of the end customers' financial situation at any point in time.

OutRank enables financial institutions of any size to build nextgeneration digital wealth experiences. In this article, we briefly summarise Skandia's story of utilising our API to create their new pension advisory tool. We touch upon the experience of Evida, a small Swedish family office equipping their toolkit with next-generation financial analytics. And finally, we describe how TietoEVRY, a leading wealth platform provider, expanded its offering with customer journeys for goal-based investments.

In total, COVID-19 cost investors £44.8bn in lost dividends over the twelve months. The banks, banned from paying dividends by the PRA, made up three tenths of the decline, oil companies another quarter. Miners accounted for £1 in every £14 of the cuts. Leisure and travel, housebuilding and consumer goods, and industrial goods and support each suffered cuts worth more than £2bn too, equivalent in each case to approximately £1 in £22 of the total reduction.

10

www.pimfa.co.uk

12.7%

Top5

two sectors to see dividends grow between April 2020 and March 2021. The London Stock Exchange Group, which profited from huge trading volumes throughout the crisis, was among those able to pay out more.

Next 10

The Rest

By value, food retailers were the stand-out winners, increasing their dividends by 22.0% on an underlying basis, thanks, in particular, to Tesco. The big supermarkets returned government aid thereby gaining the flexibility to reward shareholders after months in which consumers, barred from hospitality and the office lunch routine, bought almost all their food from supermarkets. Consumer basics (including names like Unilever and Reckitt Benckiser) and general financials were the only other

2021 AND BEYOND

During the pandemic, many companies that had been over-distributing permanently reset their dividends to more sustainable levels. Most of these now hope to grow their dividends gradually from this lower base. For others, the effect of the cuts is more transitory so they will bounce back quickly.

We now expect underlying dividends to rise 5.6% to £66.4bn (down from an expected increase of 8.1% in January) in our best-case scenario. We are slightly less optimistic because restrictions on bank payouts will remain very tight. It’s worth remembering that 2021 is held back by Q1 still suffering the effect of COVID-19’s dividend cuts. Payouts in Q2 and Q3 should be significantly higher than in 2020. For the full year, headline dividends will shoot up 17.2% to £74.9bn, thanks largely to the enormous Tesco one-off payment in Q1. Whereas Tesco’s special dividend was to distribute asset-sale proceeds, the big miners are using them to pass on bumper profits. BHP’s Q1 payment was just the first. Rio Tinto is set to pay close to £800m in the second quarter too.

Looking to the future, 2025 looks like a realistic moment for UK dividends to finally match their 2019 underlying high point.

If the recovery is stronger than we anticipate, retail investors will reap the rewards of holding their nerve throughout the tumultuous last 18 months.

IN SUMMARY •

•

•

• • •

Dividend payouts fell 41.6% on an underlying basis in the twelve months to the end of March 2021, as cuts and cancellations totalled £44.8bn The rate of decline slowed as each quarter passed during the pandemic, from -48.2% in Q2 2020 to -26.7% in Q1 2021 on an underlying basis (i.e.excluding specials) Two thirds of companies made a cut during the year, but the impact varied widely from sector to sector Our best-case forecast reduced to £66.4bn, an increase of 5.6% year-on-year Headline payouts set to jump by a sixth on a best-case basis to £74.9bn 2025 is still a realistic target for regaining 2020 dividend highs

Ian Stokes, MD of Corporate Markets, Link Group www.linkgroup.com

@PIMFA_UK

11

PIMFA JOURNAL

SUMMER 2021

DIVERSITY AND INCLUSION IN THE FINANCIAL SERVICES SECTOR: THE “WHY” AND “HOW” OF COLLATING DIVERSITY DATA CONTINUED FOCUS ON DIVERSITY AND INCLUSION

W

hen gender pay reporting was introduced in 2018, it shone a spotlight on gender diversity in the workplace and sparked extensive debate.

This spotlight and debate has broadened, following Black Lives Matter (BLM), to include a greater focus on racial diversity. And of course a focus on diversity does not, and should not, stop there. By way of example we are seeing calls for both disability and social mobility, in addition to ethnicity, mandatory pay gap reporting to be introduced.

The FCA’s 2019/20 Diversity Report highlights that there is still work to do on diversity and inclusion (D&I) in the financial services sector, and that action needs to be “bolder and more challenging”. A recent speech by the FCA’s CEO Nikhil Rathi, Why diversity and inclusion are regulatory issues (which followed an earlier FCA speech Why does the FCA care about diversity and inclusion?) illustrates the regulator’s ongoing commitment to D&I issues.

Mr Rathi, who talked about the importance of workplace culture in the context of D&I, stressed that

"diversity reduces conduct risk and those firms that fail to reflect society run the risk of poorly serving diverse communities. And, at that point, diversity and inclusion become regulatory issues."

The FCA, PRA and Bank of England have now jointly produced a Discussion Paper to consider D&I in the financial sector, and in particular whether to introduce regular reporting of employee data by firms. The objective of the paper is to engage financial firms and other stakeholders, alongside collaboration with regulators in other UK regulated industries, in the production of rules and guidance which will clarify the regulatory approach to D&I and guide

12

www.pimfa.co.uk

the implementation of interventions to bring about “rapid and more substantive progress…across the financial sector.”

There are also wider cultural expectations in today’s society in relation to employers having a focus on D&I, and a failure to have that focus leads to reputational risk.

WHY YOU NEED DIVERSITY DATA

The issue for employers is that you can only target action on D&I in your workforce if you know what underrepresentation issues you have and what is preventing individuals in disadvantaged groups from entering and/ or progressing in your business. In their latest discussion paper, the FCA and PRA are clear that they

“want to see firms taking meaningful steps to achieve greater representation at all levels, in particular at Board and senior management levels.”

So the first step is for employers to collect meaningful diversity data on their workforce on all areas of diversity and equality (including ethnicity, religion or belief, sexual orientation, disability, age, socio-economic background).

The FCA and PRA have noted that “many firms have

legacy systems that hinder effective collection of diversity data across all protected characteristics and socio‑economic background”. A pilot data survey will

therefore be conducted in Autumn 2021 to understand, amongst other things, firms’ existing levels of diversity, categories of data collected, strategies to collect data and anticipated challenges, as well as their ability to produce data.

Issues around collecting this personal information from employees are much more complex than for gender

@PIMFA_UK

13

PIMFA JOURNAL

SUMMER 2021

diversity monitoring. The biggest hurdle for employers will usually be managing to collect comprehensive diversity data from staff who may feel uncomfortable disclosing sensitive information.

Diversity monitoring will only be successful if a high percentage of staff support the initiative. This includes individuals from majority groups, because proportions of staff from particular groups, such as disabled employees or minority ethnic employees, are always expressed as a proportion of those whose disability status or ethnic background is known. So if employees who aren’t disabled and who aren't in minority ethnic groups don’t participate in diversity monitoring, the resulting data for underrepresented groups will not be robust.

PROCESSING DIVERSITY DATA LAWFULLY

While our data protection laws allow employers to process their employees' personal data for the purposes of monitoring diversity and equality of opportunity or treatment, strict parameters apply.

Diversity monitoring will generally involve processing 'special categories' data, the most sensitive form of personal data, as it includes information about ethnicity, health and sexual orientation. It isn't necessary to obtain an employee's explicit consent to collect this data, provided it is only collected for its proper purpose (i.e. diversity monitoring) and it is proportionate - but this can be difficult for employers to judge, and there are potentially high penalties for getting it wrong.

That said, there are steps employers can take both to minimise risk and to maximise the potential offered by the data collected, including: • anonymising the data where and if possible, so that it will no longer constitute 'personal data' under the data protection laws • recording in writing what you are doing with the data and why, to help protect against data protection noncompliance, in line with your data protection policy.

INCREASING EMPLOYEE ENGAGEMENT

It is vital that employers are transparent about processing employees’ data, and that they take significant steps to reassure staff on confidentiality and that meaningful action on D&I will follow as appropriate. Employers must ensure they build an atmosphere of trust, so employees are clear about: • whether they can be identified from the data they provide • whether the data will be processed in line with data protection rules • what the data will be used for • who will have access to the data • how the data will be recorded.

14

www.pimfa.co.uk

Employees are more likely to engage positively with data monitoring if they see this as an integrated part of your D&I strategy. Key steps which employers can take to engage employees in this process include: •

• •

•

ensuring employees understand how and why the information is relevant to the business and their experiences at work encouraging open, inclusive conversations about diversity at work ensuring employees have easy access to information on how their details will be used, and on confidentiality championing equality from the top of the organisation.

Then, after analysing and interpreting the data to establish whether they have equal representation of different groups across the business and to seek to identify what is causing any under-representation, employers can use this to inform appropriate D&I action. Employers need to take a holistic approach to what is driving the lack of diverse representation across the whole business - there may perhaps be some common themes across ethnicity, disability, social mobility etc, such as bias in recruitment and promotion processes, a lack of flexibility at senior level, or of diverse role models.

WHAT THIS MEANS FOR EMPLOYERS

It is clear that there is only one direction of travel for D&I in the workplace. The cultural expectations of employees, customers and the FCA mean that, using their diversity data, financial services employers need to establish the extent of any under-representation or disadvantaged groups within their organisation, and what they can do to improve D&I. It is also important that employers show they are tackling D&I issues in a holistic way, for the benefit of everyone within the business.

In their recent discussion paper, the FCA and PRA have provided suggestions to improve D&I and have invited employers (and other stakeholders) to provide feedback by 30 September 2021 on a range of questions. These include topics such as their role, the benefits and drawbacks of monitoring D&I data, the responsibility of Senior Managers and the Board, whether remuneration should be linked to D&I metrics, whether firms should publish their D&I policy, whether non-financial misconduct should form part of fitness and propriety assessments, and how D&I should

be audited internally and externally. They then intend to conduct consultation on more detailed proposals in Q1 2022, followed by a Policy Statement in Q3 2022.

If you have any questions, or would like advice on any of the issues raised here, please contact chris.holme@clydeco.com Chris Holme, Partner, Clyde & Co LLP www.clydeco.com

POSITIVE ACTION

While employers must be mindful of avoiding positive discrimination - treating someone more favourably because of their race, disability etc - which is unlawful, “positive action” is specifically designed to deal with underrepresentation and disadvantage in particular groups in the workforce.

Positive action in recruitment and promotion is permitted where, for example, an employer reasonably believes that the number of individuals with a protected characteristic in a particular role within the workforce is disproportionately low and, provided certain circumstances apply, they can treat those individuals more favourably in the recruitment or promotion process.

To have confidence in using positive action both lawfully, and also in a way which seeks to remedy underrepresentation, the first step is understanding your data (as set out above).

@PIMFA_UK

15

PIMFA JOURNAL

SUMMER 2021

THE SLOW RISE OF REGTECH R

egTech is a term first introduced by the FCA when calling for input from the financial services firms, solution vendors and academics, saying;

diversity reduces conduct risk and those firms that fail to reflect society run the risk of poorly serving diverse communities. And, at that point, diversity and inclusion become regulatory issues.

RegTech solutions in the next 12 months. In total, just over two thirds of respondents to the survey said their firm used a mix of external and inhouse solutions to manage their response to compliance-related regulation although, interestingly, the trend was for greater use of specialist external solutions over inhouse. Finally, the survey identified that over a third of firms, two thirds of global firms, saw RegTech’s greatest value being in the operational management of regulatory processes.

Since then, the FCA has led a series of projects that support the development of RegTech solutions.

Recognising that a key pinch point is regulatory reporting, since 2017 the FCA has been leading an initiative to digitise regulatory reporting in order to make it more effective and efficient.

So, despite real appetite from the regulator and the term RegTech being more widely used in the industry, for many, progress is slow and adoption patchy. Is that true and, if so, why?

Two recently published reports provide insights into the perception of a slow and patchy adoption of RegTech.

Thompson Reuters Regulatory Intelligence’s (TRRI) fifth annual survey on FinTech, RegtTech and the role of compliance explores these issues. It concluded that progress was being made and that the pandemic, with the need to retain regulatory reporting standards with less resource or team working remotely, caused over two thirds of firms to increase their reliance on technology (over 80% in firms with a global footprint).

The survey identified that a third of firms used solutions to manage different aspects of their compliance and that a third of firms predicted increased budgets for

16

www.pimfa.co.uk

@PIMFA_UK

17

PIMFA JOURNAL

SUMMER 2021

The City Of London’s ‘2021 – A Critical Year For RegTech’ report, painted a more cautious view of the growth of RegTech, with over half of solution vendors reporting that adoption of RegTech by firms was no more than ‘moderate’, although providers in certain sectors within RegTech, such as Financial Crime, were more bullish. That said, over 60% of solution vendors saw sales growth in 2020 and over 80% are predicting further growth in 2021.

Consequently, although both surveys identify growth and predict this to continue, the ‘mood music’ is not one of explosive growth even though the argument that RegTech can, and should, be the solution to containing the costs of compliance in a world of ever-increasing regulation is compelling, e.g. over 20,000 regulatory rules alone in the U.K. Given the compelling case for RegTech, these two reports also provide pointers to the barriers to faster adoption and, importantly, proposals on how these barriers can be overcome to provide the more compliant and costeffective future that the regulator, firms and solution vendors all want.

Whilst the Thompson Reuters report highlights a ‘trust gap’ between firms and vendors, based on what they politely term as ‘an uneven start’ and centred on early promises being unfulfilled, it goes on to provide some commentary on the steps needed to move the current situation, notably the lack of specialist skills and reliable IT infrastructure in firms, and for RegTech vendors to provide more products that help inform strategic decision making, not just manage the operational challenges of remaining compliant.

18

www.pimfa.co.uk

By contrast, the City of London report goes much further and provides a comprehensive roadmap for greater uptake of RegTech with recommendations for firms, solution vendors and the regulator to take on. In total, the report identifies 12 recommendations (page 57), with three identified as a priority: 1.

Solution Vendors: to create a coherent and collective voice for the RegTech industry.

2. Regulator: to adopt a ‘tech embracing’ stance to advocate for improved standards for technology driving regulatory compliance in firms.

3. Regulated Firms / Solution Vendors / Regulator: to create a new testing and accreditation centre for RegTech solutions.

The City of London report paints a clear picture, whereby it will take proactive and concerted action from all three stakeholder groups for RegTech to deliver the anticipated results of increased oversight and compliance at lower cost and effort. The report goes even further to suggest next steps for each of its 12 recommendations.

Interestingly, a newly published thought leadership piece from the FCA Insights team, The future of RegTech – what do firms really want? | FCA Insight cites a satisfaction rating of over 90% in firms of all sizes with RegTech solutions, once implemented. Interestingly, that figure is in line with our customers’ views of our multi-award-winning SM&CR and complaints solutions. So, we have first- hand experience that RegTech can make a real difference.

However, unless someone takes the lead and provides the catalyst for this change, RegTech will remain a story of patchy progress and potential unfulfilled. Therefore, if the City of London report provides a ‘call to action’, the ‘sixtyfour thousand dollar’ question is, who will take that first step and be the catalyst for creating this future?

Julie Pardy, Director Regulation & Market Engagement, Worksmart Limited

Whilst no roadmap is ever perfect, the report provides the direction and framework for a future where RegTech underpins the regulatory dimension of a UK financial services industry that can, post-Brexit, be a truly world class place to do business.

@PIMFA_UK

19

PIMFA JOURNAL

SUMMER 2021

COLLIDE OR ALIGN? ACHIEVING THE BALANCE BETWEEN AML/CFT AND TAX COMPLIANCE AND THE COST OF DOING BUSINESS

I

ncreasing the transparency of Beneficial Ownership (“BO”), including identifying controllers of legal entities and legal arrangements, is fundamental to the effectiveness of regulatory measures to comply with Anti-Money Laundering (“AML”) and Anti-Tax Evasion initiatives.

Beneficial ownership remains a massive challenge for regulated firms around the world. The stringent requirements create a high compliance burden to identify and verify BOs using independent and reliable sources.

5AMLD AND REGISTRIES

Amendments in the 5th Anti-Money Laundering Directive (“5AMLD”) include several measures to achieve this, including the introduction and enhancement of corporate registry information concerning the ultimate beneficial owner(s) of legal entities and, to be introduced soon, legal arrangements such as trusts and foundations. A pan-European registry is also to be introduced by the end of the year, allowing access to Member State registry information from a single source.

This initiative, while providing greater transparency for KYC compliance teams who need to identify and verify a BO, is not without its challenges. Not all Member States provide the same level of access to their registers, with varying levels of fees that must be paid to access information on them. Others are still in the process of setting up their registries, while those Member States with established registries are trying to understand how best to receive and process discrepancy notifications, also introduced under the 5AMLD.

5AMLD AND TAX TRIGGERS

An often overlooked requirement also introduced in the 5AMLD is the new KYC review requirement known informally as the “tax triggers”. These relate to the

20

www.pimfa.co.uk

between information that firms’ tax teams may receive about or from customers with AML KYC teams, allowing them to detect when changes to that information may indicate an overall change to a customer’s known risk profile.

Automatic Exchange of Information (“AEOI”) regulations, designed to help deter and detect tax evasion when customers hold financial accounts outside of the jurisdiction(s) in which they are tax resident.

This new requirement appears to have been introduced with the goal of detecting changes to a customer’s tax residency that may indicate suspicious activity associated with tax evasion. The idea is not to require that firms treat every change as conclusive indicia that a customer is engaging in tax evasion. Rather, firms would be expected, on a risk basis for AML/CFT purposes, to consider whether a tax trigger may be grounds to further investigate the risk rating assigned to a customer or even whether further investigation of a customer is warranted.

For example, if an existing customer changes their permanent residential address from Italy to France, they need to provide a new self- certification declaration.

On receipt, firms must check the AML information held to ensure there is no reason to doubt the tax residency information provided. For example, if the permanent residential address in the KYC information and the selfcertification is in France, but the customer does not declare a French tax residency, this would need to be explored with the customer and trigger a re-evaluation of the customer risk assessment.

Changes to tax residency of an individual or the BO of an entity can happen for a variety of reasons, some of which may be perfectly legitimate. The purpose of the new requirements appears to be intended to build the bridge

CHALLENGES AHEAD - NEED FOR ALIGNMENT

From an operational perspective, the AEOI tax requirements are rules based whilst AML is risk based, this can lead to several differences operationally, and ones that will need to be considered when operationalising these requirements. Requiring that customer transaction activity be halted and investigated each and every time a tax trigger is raised, for example, is not ideal either from an operational or customer service perspective. Achieving synergies through proper planning, coordination and rollout of these new tax requirements will ultimately help to work towards the long term aim of aligning these objectives.

CONCLUSION

•

•

•

Data aggregation and access – are the systems used for the above compliance programs designed to capture and store the data needed in separate areas, or can this be searched across both programs to identify discrepancies between the AML KYC and Tax KYC data received; Operationalising risk-based treatment – how will existing risk-based alert management and KYC review processes need altering to incorporate these new triggers and ensure that staff responsible for those activities understand how they should be managed; and Is your MLRO and its investigation team members trained and well versed in how to investigate cases involving possible tax evasion?

It’s a fine balance between AML/CTF and tax compliance and the cost of doing business but taking the first step towards planning for the implementation of tax triggers will help achieve this balance and do so in a way that does not impact on the customer experience.

Jayne Newton, Regulatory Expertise Director, Efficient Frontiers International www.efilimited.com

Thus far, little in the way of regulator guidance has been on offer for Member State firms, despite the replacement of the 5AMLD related Risk Factor Guidelines earlier this year.

However, this should not deter firms from proactively taking the first steps towards planning for their implementation. This could include; • Conduct an integration assessment of existing AML/CFT and tax compliance processes – do the programs “speak” with one another or are they currently operating in a siloed fashion;

@PIMFA_UK

21

PIMFA JOURNAL

SUMMER 2021

EU CLIENTS – WHAT ARE YOUR OPTIONS? THE EU PASSPORTING FACILITY CEASED FOR UK FIRMS AT THE END OF LAST YEAR, AS YOU ARE ALMOST CERTAINLY AWARE.

W

hilst the UK has acknowledged regulatory equivalence for EU entities, the EU has not confirmed the same in the opposite direction – and there is little sign of that happening in the short term, if at all.

The UK has also ensured continuity of business - through frameworks such as the TPR and FSCR – but, as yet, the EU has not reciprocated in a similar manner. There are different regimes in various countries across Europe but none of them offer the same, relatively easy, continuation options – and some offer literally nothing at all.

Therefore, at present, for a UK financial advisory company to assist clients in an EU Member State (MS), it will need to meet the local law requirements in the MS in question.

REVERSE SOLICITATION

Whilst some see this as a potential solution for UK advisory firms in certain circumstances, it needs significant care; legal advice is recommended, in my opinion, and any strategy should be viewed on an individual MS basis.

In January ESMA issued a public statement on the MiFID II rules concerning reverse solicitation (general details here

22

www.pimfa.co.uk

and the actual statement here), which was an overt message to UK firms post-Brexit. It clearly highlights the considerable limitations with this approach to business

Reverse solicitation, in this context, is when a client established within the EU initiates “at its own exclusive initiative" the provision by a third country firm of investment services or activities. It potentially allows a firm to service EU clients without triggering local licensing requirements.

However, the third country firm cannot then market or advise on new investment products or services to that client (as that would no longer be reverse solicitation). Therefore, for most advisory firms, it is effectively unworkable if an ongoing relationship is desired and necessary.

2.

3.

SOLUTIONS

The following possible solutions are therefore the main, if not only, viable solutions for most FCA-regulated advisers with clients elsewhere in the EU: 1.

Set up an operation in an EU Member State and become “locally” regulated there. If this has not already been arranged it is not a quick answer of course; becoming

4.

regulated from scratch tends to take at least 3 months in most Member States and that is assuming a full understanding of the system and a good level of language proficiency. In addition, this approach usually requires at least one (and sometimes two) key individuals to be based and resident in the country concerned. It is thus logistically impractical in most cases.

Operate under a Europe-wide network based in the EU and passported across all MSs (or at least those required by the UK advisory firm). This may well be the best approach where the number of clients (and the revenue that they generate) is sufficient to make this logistically and financially worthwhile.

Work under the umbrella of a company already regulated in the EU (and outside the UK). This could be a different company for different countries or one that covers all of the countries required. In most cases, the latter is quite likely to be the more logistically favourable option.

Arrange a B2B relationship with a firm regulated in the EU (outside the UK). This is probably an appropriate approach where there are only a few clients concerned and the end objective is for the EU advisory firm to eventually fully take over the relationship with those clients within a pre-planned timescale.

We are very concerned that Brexit, and the subsequent actions, or inaction, of the European and national regulators across the EU, is leading to client detriment, not least consumers being disenfranchised from advice. This is one of the main reasons that we have offered help to UK advisers and advisory firms at no cost.

It would be nice if all of the regulators did what they instruct the sector to do; namely, put the client first!

Paul Stanfield CEO FEIFA (Federation of European Independent Financial Advisers) pstanfield@feifa.eu www.feifa.eu FEIFA is a non-profit trade association representing financial advisers across Europe

@PIMFA_UK

23

PIMFA JOURNAL

SUMMER 2021

THE FUTURE OF WEALTH MANAGEMENT IS HYPERPERSONALISED

Hyper-personalisation is at its maximum hype nowadays.

Apart from the easy pun, the art of personalising products and services to meet clients’ needs is not new. Brands regularly ask themselves how to engage with clients to maximum effect and deliver the best customer experience possible, simultaneously boosting client satisfaction, improving brand loyalty and increasing sales. However, driving customer engagement has never been more complex than today.

Focusing on the Wealth Management sector, a survey report from Objectway – a leading provider of Digital Wealth & Asset Management software – came up with some interesting findings on the applications of hyperpersonalised services and on how firms are leveraging them to increase the customer base and ensure their future growth.

In their survey report “Are You Developing A HyperPersonalised Strategy?”, Objectway asked domestic and overseas Wealth & Investment Managers which definition of hyper-personalisation fitted best for them.

Respondents have equally opted for the definitions of hyper-personalisation as the provision of a customised investment solution (29%), a personalised

digital wealth experience (25%), and – interestingly - a dynamic educational or promotional content based on customer analytics (29%). Investors’ education is thus a key component of responsible and sustainable investments in the long-term.

SUMMARY

More than 1 in 2 wealth managers - surveyed by wealth and asset management technology and services provider Objectway - have developed or are working on hyper-personalisation. It will be a major topic for the years to come in Wealth & Investment Management.

Adopted to satisfy client expectations and capture future growing market segments, it will bring the sector the unmissable opportunity to build highly personalised relationships with investors, and to boost customer loyalty.

24

www.pimfa.co.uk

More than half of the surveyed wealth managers have developed or are working on a hyper-personalisation strategy, showing it being among the top priorities of the digital agenda, especially in this period, where it could represent the future of customer engagement post-Covid.

Throughout the client investment journey, 4 out of 10 respondents are focused on implementing a hyperpersonalised service in portfolio construction and product recommentations, where artificial intelligence, data analytics and machine learning are applied to create personalised proposals, which is the most important achievement, according to one third of the surveyed panel.

Bespoke financial planning (18%) and risk profiling (18%), and reporting (16%) are equally placed, underlining that leveraging advanced technology to analyse client behaviour enables one to provide well-rounded, tailored advice on investment decisions.

Coherently, the vast majority (83%) argues that the use of hyperpersonalisation is essentially aimed at elevating customer experience and, consequently, to gain a competitive advantage among Wealth & Investment Management firms.

To personalise client experience, behavioural sciences and sentiment analysis seem necessary, since most of the respondents (67%) would like to leverage these techniques, but only 25% of them can rely on these methods, while 42% are still working on it or just talking about it at the moment.

Financial advice and reporting are usually data-driven, but the information used to this purpose is generally very limited.

Best practice would require all available data, including extracorporate and unstructured items, subjecting it to the most advanced data science.

So, there is a long way to go before AI-driven technology will be at the centre of hyper-personalisation in Wealth Management.

You can already try and enjoy these services, and then subscribe for the paid offering. This could also apply to the financial services business.

It’s time to rethink the ‘must-do’ onboarding process and turn it into a commercial opportunity. To achieve this goal, artificial intelligence, machine learning and analytics are not enough: it’s advisable to create an effective data management program and a data-driven culture.

If the ultimate objective is to build longlasting personalised relationships with investors, together with customer loyalty towards your brand, we can assume the more personalised a service or an experience is, the stronger the client relationships become. And the stronger client relationships become, the more organisations will be able to compete in today’s increasingly crowded environment.

Alberto Cuccu, CEO, Objectway Ltd. The full survey report from Objectway can be downloaded here: https://www.objectway.com/insights.

BIG TECHS HAVE LED THE WAY OF HYPERPERSONALISATION. AND HNWIS HAVE TAKEN NOTICE. Brands like Amazon, Spotify and Netflix, to name a few, have all focused on hyper personalisation for many years when offering their services to the market. Think about the “pre-client” experience they offer, even when you’re (still) not a customer of services like Amazon Prime or Spotify Premium.

@PIMFA_UK

25

PIMFA JOURNAL

SUMMER 2021

MAKING THE DEAL STICK – POST ACQUISITION INTEGRATION M&A ACTIVITY CONTINUES AT PACE IN UK ASSET AND WEALTH MANAGEMENT

O

ver the last 15 months there have been a lot of unknowns and uncertainty. However, as we now start to learn to live with Covid-19, let’s look back specifically at the M&A activity in the wealth management sector. What a 15 months it’s been.

Increases in regulation and an ever-ageing adviser base continue to drive consolidation in the sector. In particular, the recent uptick in deal volumes was driven by the threat of capital gains tax increases in the UK Budget (all be it a non-event in the end), alongside private equity liquidity and investment in the sector. According to Experian, deals in the financial services space accounted for nearly one fifth, by value, of all deals completed in H1 2021.

Whist the deal volumes in H1 2021 haven’t quite recovered to the levels of H1 2020, activity in the sector continues at pace and, although H1 2020 saw less activity than we might have anticipated, H2 20 and H1 21 has been one of the busiest times we, as professional services and M&A advisers, can remember.

UK deals by industry Q1 2021 £2.2 £2.3

£m

£1.2 £1.0

Manufacturing Financial Services

£19.6

£6.2

Wholesale & retail

UK DEALS

Q1 2017 - Q1 2021

Infocomms

£11.7

Support services

160000

2500

140000 2000 120000 100000

1500

£18.7 £16.4

Health

£17.3

Construction UK deals by industry Q1 2021 (Source: Experian)

1000

60000 40000

500

20000

Q1

Q2

Q3

Q4

Q1

Q2

2017

Q3

Q4

Page 2 | MarketIQ United Kingdom and Republic of Ireland M&A Review

www.pimfa.co.uk

Q1

Q2

2018

Number of Deals

26

Mining and quarrying Real estate

80000

0

Professional Services

Q3 2019

Value (£M)

Q4

Q1

Q2

Q3 2020

Q4

Q1 2021

0

With all the change and uncertainty we’ve seen in the last 15 months, what’s the secret to making an acquisition stick?

Before the pandemic, getting the deal done was just the start of the journey and ensuring the long-term value of the deal wasn’t eroded was complex. In the new post-Covid world, with new ways of working and the different needs and mindsets of both clients and employees, it’s as important, but in many ways a lot trickier.

As with most businesses, adapting to the post-Covid world also means learning as we go. We wouldn’t profess to have all of the answers but, by working collaboratively and as trusted advisors to our clients, we can help you lock in deal value for the long term.

@PIMFA_UK

27

PIMFA JOURNAL

SUMMER 2021

WHY DO SO MANY ACQUISITIONS STRUGGLE POST-DEAL? WHAT ARE THE CHALLENGES? Architecture:

Deals can be used as catalyst for positive change and to engage effectively with employees. At this juncture, it is essential to identify the key talent critical to the future success of the business. They will have highly specialised and hard-to-access skills or knowledge vital to running the combined business e.g. legacy IT systems knowledge, key client relationship holders.

Acquisitions add complexity to your existing business structure. If not carefully considered, group structures can quickly increase in size and complexity, creating a significant administrative burden. It’s as important as ever to have a structured approach to legal entity integration of acquired businesses; changes here can have far reaching consequences.

What can you do to ensure you have put in place the right foundations?

•

Visibility – employees must view integration as core to the business and leaders must be seen as prioritising cultural integration.

There are important tax and regulatory matters to be dealt with. Failing to deal with these can leave a complex structure which will give rise to unnecessary compliance cost and risk, and may impact on value on a future transaction.

•

Ongoing assessment – begin the assessment of culture during the due diligence process and continue to take it seriously at all stages of the acquisition. The best acquirers revisit value creation formally, several times during the integration process.

Where the management of acquired businesses are critical to the value of the acquired business, models of incentivisation will be very important. Acquired management will need an incentive to grow not only their part of the business, but the business as a whole. The aim should be to maximise the synergy benefits whilst not losing sight of the tax and accounting complexities which can arise.

Every board should immediately be thinking ‘how do we manage reward and performance as the business and new ways of working become more complex”. In a number of deals we have been involved with, incentivisation has taken the form of carefully constructed bonus schemes, as well as share ownership opportunities, either directly or through option schemes linked to and promoting capital growth.

•

Goals – Create momentum and trust in the workforce by identifying joint areas for improvement, with clear accountability.

•

Identify the most critical talent - legacy heads of each function and HR of both organisations identify ‘critical talent’ in each area; individuals in mission-critical roles, high performers, or those with strong future potential. Management can then determine the need for retention programs based on the impact and probability of each individual's departure. Move quickly to engage them and implement a retention program.

•

CULTURE AND TALENT:

Any acquisition changes the DNA of the business, but done right, the new business is stronger, more diverse and resilient.

All too often acquirers return from initial deal interaction convinced that the combined workforce will integrate seamlessly, having only considered the visible expression of culture. Changing of culture, to some degree, did happen by osmosis in the past. However, now more than ever, creating a cohesive organisational culture requires careful consideration of the underlying management practices and working norms.

•

HAVE YOU PUT IN PLACE THE RIGHT FOUNDATIONS TO RETAIN AND DEVELOP THE RIGHT TALENT?

28

www.pimfa.co.uk

•

Financial vs non-financial incentives - lead with ’soft’ incentives such as praise, attention from leaders and opportunities to take on more responsibility, to keep the team motivated. Financial incentives can be appropriate for addressing short-term needs.

Incentives should also be offered in waves rather than at once, as not all critical employees will be known to management.

Effectiveness of the retention program - with an increasingly diverse workforce, businesses need to ensure diversity in rewards. Rewards need to be broad to meet the needs of the workforce including learning and development, career opportunities, flexibility in leave and recognition. An acquisition can be a complex transaction and to make smart decisions about which programs to use, engage with staff to understand what they value.

Measuring and monitoring the impact of the retention program – Businesses can use metrics such as unwanted attrition, turnover costs and employee satisfaction. Management need to be proactive in adapting the retention program in response to the findings.

In this sector, people are at the heart of the client experience and the intrinsic value of the acquired business. Failing to integrate culture and retain key talent, can leave you with your acquired value walking away.

TECHNOLOGY AND SYSTEMS:

Post-deal integration of processes and technology from day one is difficult without a well-planned strategy and can drain deal value. Tough business decisions need to be made around what systems should be left behind, and which (if any) should be migrated because they add value.

The synergies often underpin many of the expected deal benefits, such as establishing a single customer view, acquiring new data and insights, improving the customer and adviser experience, as well as reduced cost and risk.

As highlighted above, this is ever more important in what is likely to be a more “remote working world”.

Those who succeed started their journey well before the acquisition, and their technology leaders played a key role in shaping the acquisition strategy. They invested in new skills and capabilities, performed robust due diligence, and established a well-tested model at least 6 months out to rapidly absorb acquisitions, using a flexible approach to technology, process, and data architecture.

MANAGEMENT INFORMATION:

Great MI informs great decisions. Key to a successful post acquisition integration and realisation of predicted value is the availability of high-quality information on a timely basis. This is another area where planning and thinking through some of the key things at the outset of a deal will reap rewards further down the line and it’s hugely important for this workstream to be closely aligned to any digital transformation technology one.

Here are four distinct phases: Step 1 – Understanding • At the outset it is key to identify priority areas to control to ensure timely, reliable information both financial and non-financial. This due-diligence phase involves information gathering and is dependent on communicating the vision to, and building the trust of, the target.

Step 2 – Planning • This phase is about defining timescales and responsibilities and training staff so that there are no hiccups post acquisition.

Step 3 – Go live • Strategies here include the big bang approach; the gradual absorption by running two systems simultaneously for a period of time or the ongoing operation of two systems. Decisions will need to be made based on the relative risk and cost of each option (and will create interdependences with the technology stream).

• The goal is how quickly you can be up and running and receiving the information you require to assess the

success of the acquisition, achieve the value predicted at the outset and make the right decisions for the newly enlarged business.

• Key activities at this phase include the standardisation, integration and close down of the acquired MI system.

Step 4 – Review Evaluate the choices made and the actions taken and learn lessons to apply to the next deal.

IN SUMMARY:

Structure, people, technology and data are at the heart of almost any deal. For the wealth management sector in particular, it’s hugely important to get these right. People, data and clients are essentially where the value is in deals and this value can erode very quickly if there isn’t a clear plan and workstream focused on them. Underpinning all of the above is, of course, regulatory compliance. The regulatory implications of any of the aforementioned will differ from organisation to organisation, but it’s important that your regulatory team or advisers are also embedded in the integration process and we would certainly endorse the inclusion of them end-to-end in the deal process. The last thing any firm would want is a knock at the door from the regulator just as the value from any deal is starting to be maximised.

If you would like to talk to our team about any aspect of the deals process, then please do not hesitate to get in touch.

Hugh Fairclough, Audit Partner & Angela Toner – Transactions Partner, RSM www.rsmuk.com

@PIMFA_UK

29

@PIMFA_UK www.pimfa.co.uk The Personal Investment Management & Financial Advice Association

Would you like to contribute an article?

Alongside updates from PIMFA, the Journal includes several useful inputs from our associate member firms. These articles are an excellent opportunity to gain interesting insights into the wider industry and to learn more about PIMFA associate members. If you are an associate member who is interested in contributing to future editions of the Journal then please contact: Richard Adler, Director of Strategic Partnerships (richarda@pimfa.co.uk) or Nigel Ross-Scott, Content Manager (nigelrs@pimfa.co.uk)

Journal design by Cicero/AMO cicero-group.com For more information about design please contact: Megan Harley, Digital Creative Director, Cicero/AMO (megan.harley@cicero-group.com)