Ocorian's global survey of leading private capital advisers has given fresh insight into how the role of the outsourced service provider must evolve in order to accommodate the magnitude of changes impacting the sector, explains the firm's private clients service line leader, Nick Cawley.
The role that third-party advisers and administrative partners play in the private client sector has rapidly grown, and given the complexity of the sector, will be central to how firms and their partners navigate a volatile global marketplace and sophisticated investment landscape. Working with relevant partners should be seen as the ‘glue’ that links all the trends driving the growth and evolution of the private client world together.
Digital and regulatory disruption have transformed market participants' business models and the traditional ways of private banking are dissipating as the demographics of wealth change. For those servicing the financial needs of the wealthy, advisers and their clients are looking for proactive partners that allow them to structure their wealth across multiple jurisdictions in the most effective way.
If we take family offices as an example, each is set up to meet the needs of a specific client family yet their operational aspects are becoming ever more distinct. Wealth professionals' traditional ways of operating are being challenged by client demands for increased visibility and control of their affairs. As a result, we need to foster open and honest communication channels to deliver the bespoke services they request for the entirety of the family office's life cycle. Intricately tailored services, well served by advisers and service providers alike, put private client firms in the very best position to retain a client for years to come.
Pandemic expedites change
The pandemic has catalysed existing trends across all sectors. For the private client industry, data and analytics have been thrust further into the limelight, with technology, product offerings and speed of service driving the market and refining what is possible. Investing in-line with ESG standards is also becoming the norm as clients increasingly choose offerings that enable them to express their values. On a more personal level, clients want a stronger connection with their wealth manager and service providers as the importance of highly personalised offerings built on deep-rooted knowledge of the client becomes an expectation.
Outsourcing popularity rises further
In an indication of the successful role that outsourcing and relationships play in the private wealth space, an overwhelming majority (96 percent) of private capital advisers we surveyed said they use a partner to manage the administration of their clients' funds. The most common functions outsourced to experienced third party providers are trust formation and administration (54 percent), foundation formation and administration (43 percent), succession planning and structuring (42 percent), family office services (40 percent) and cash monitoring and management (39 percent).
Moreover, as a result of issues such as increased regulation, transparency demands, tax increases, new tech-led service propositions, jurisdictional competition, and the rise of ESG, private capital advisers anticipate a rise in the demand for outsourced administrative support.
The leading functions that advisers expect to need to outsource in the coming three years are legal entity administration (80 percent), regulatory reporting (79 percent), trust formation and administration (77 percent), foundation formation and administration (77 percent) and asset administration. (Fig.1)
(Fig.1) Elements currently outsourced to experienced third-party providers and the likelihood of the need to outsource them over the coming three years:
What this tells us is that there is a significant demand across all aspects of private wealth administration, from commonplace items such as trusts and foundations, to those with lower uptake such as legal entity administration. This points to a demand for providers that are able to offer a wide range of services to avoid the requirement of managing a number of competing providers on day-to-day private wealth matters.
This view is echoed in the research, where advisers were asked about the factors that played the biggest role in their appointment of outsourcing support. The ability to provide a full-service offering was one of the most commonly selected factors (79 percent), behind only the provider having a client base that is similar to their client or business (82 percent) and being able to offer a dedicated account manager (80 percent).
It is clear, then, that as the demographics of wealth change and external market pressures stimulate the evolution of the private wealth sector, reliance on proactive and dedicated third-party advisers will become an increasingly standardised means to deliver a richer, more enhanced service.
Ocorian has extensive experience in establishing and managing complex, high-value structures to help protect and preserve for the future of its clients’ personal and family wealth. To discuss how Ocorian can support your needs, get in touch at ocorian.com/contact-us.