With their wealth of resources, can American giants take advantage of Brexit uncertainty?
As the split of the UK from the European Union continues to drag on, space has arguably been opened up for North American companies in Britain.
But have they really left their mark on the UK financial advice and wealth management planning worlds yet, and what do their forays so far tell us about where they are heading?
Banks on adviser hunt
In March, US-headquartered Citibank launched its “fully digital financial planning solution”, Citi Wealth Advisor, which involves a human financial planner and is available to the bank’s Citigold private clients, who have a minimum of £650,000 across its savings and investment accounts.
The service lets clients first select their goals (whether it be sending their children to university or saving for retirement), and then provides them with the probability of achieving each goal, as well as suggestions on how to increase the probability of achieving them.
The input of the financial adviser then lies in checking and rebalancing the goals.
Citibank has been looking to increase its ranks of wealth planners. Recruitment consultancy BWD senior client director James Woods says that Royal Bank of Canada has recently approached the firm to recruit paraplanners and financial planners for their propositions.
Most of the positions available have entry requirements for Level 6 qualifications, with some current openings looking for Level 7, which is higher than the standard entry level within UK firms.
But the rewards are matching the requirements, according to Woods. He says: “These companies looking for advisers will have to come up with extra compelling propositions to entice them away from independent practices.” He adds that their packages – including basic salary, bonuses, pensions and benefits – are “very, very good”.
According to Woods, these North American banks are following in the footsteps of their competitors in the UK, like Lloyds and Barclays, which have been upping their presence in the advice market. He sees the entry of the likes of RBC and Citibank in the UK as good news.
Woods says: “It can only be beneficial to have higher-educated advisers, which can then be best for the client. It will improve the professionalism that financial advice deserves.”
For years, many have been concerned that banks mixing with advice could hurt the reputation of the profession, but can US players do things differently?
Closing the high-net-worth gap
When asked why US companies are venturing into the British market now, Woods notes that the UK client is currently under-served, leaving space for new entrants.
While some US players are indeed citing “helping to close the advice gap” when dipping into the financial advice market, their propositions are often aimed at high-net-worth individuals. It is the lower-end clients who remain under-served.
But other North American firms have come to the UK market with low-cost offerings for these savers and investors.
Last autumn, Wall Street giant Goldman Sachs launched a savings account called Marcus with a 1.5 per cent interest rate, which can be opened with just £1, up to a maximum of £250,000.
Goldman Sachs says 250,000 accounts have been opened since the launch, and it currently has £8bn in deposits.
A Goldman Sachs spokesperson says the launch of the online savings account has been “a great success” in the UK, while it remains the bank’s “key focus”.
The US version of Marcus was launched in 2016. It has 2 per cent interest rates and also offers loans.
There are no immediate plans to widen the proposition, according to the company.
Altus director for wealth Simon Bussy says: “It’s possible [Goldman Sachs] could evolve the UK proposition along similar lines, to offer a broader offering than just savings, which could be a neat way to help move savers to become investors.” Bussy adds: “Should Marcus in the UK broaden out its service in such a way, it will make many of the ‘narrow’ digital wealth services look decidedly second-rate.
“Some smaller firms in both the UK and US recognise this. The new Open Money proposition in the UK, born out of Evestor, provides a nice mix of digital and human, and provides advice; while Pefin in the States was built to make sure anyone could access true fiduciary advice, and creates a digital AI-driven financial plan (covering debt, savings and investments) to achieve the client’s long-term goals.”
Goldman Sachs also recently became a shareholder in the UK robo-adviser Nutmeg, which introduced a personal financial advice service last year. In the US, Goldman acquired a fintech personal finance money app, Clarity Money, last year.
US giants make a valuable contribution to Britain
US firms are an important part of the UK investment management and financial advice market, and have been for many years. There are several of these firms among the Pimfa membership and they bring benefits to UK plc, in terms of large-scale employment and taxation, alongside an important element of innovation for our profession, which helps drive positive benefits for both the industry as a whole and for personal investors.
The US personal investment management and financial advice industry is large, mature and very diverse. Set in the context of a highly developed and competitive capital market culture, it is clearly going to bring valuable experience, insights and innovative methods to the table. These range from low-cost approaches to client access through product development work, to the application of fintech by US-based firms.
The importing of ideas into the UK from such a background can help to challenge industry group-think and bring new ways of looking at personal investment and engaging of clients.
The scale of some US operations can also allow them to conduct important research in various areas, and help the continuous drive that the profession has overall to modernise and constantly enhance its client offering.
John Barrass is deputy chief executive at the Personal Investment Management & Financial Advice Association
Giants on the horizon
Vanguard – a household name in the US market – has the second-largest assets under management globally.
In the US, it has a hybrid advice model, Personal Advisor Services, which is a digital proposition supported by advisers. Some reports in the market suggested that Vanguard was considering opening an advice proposition on the back of its UK direct-to-consumer platform launch in May 2017.
However, the company now says it has no immediate plans to launch a proposition in the UK market.
A focus on the retail investor would make sense, given the firm’s history of keeping things low-cost.
When Vanguard founder Jack Bogle, who pioneered passive index investing in the 1970s, slashing the cost of investing and making it accessible to the broader population, passed away at the beginning of the year, many articles paid tribute to a man who revolutionised retirement and made it possible for an average American to save for later life. Could Vanguard have a similar effect on UK advice and investing?
According to Interactive Investor head of personal investment Rebecca O’Keeffe, passive investing had been “dwarfed in the UK by active managers, but Vanguard put low-cost trackers firmly on the map”. O’Keeffe says: “This has been great news for investors, as other passive managers expanded their range and reduced their costs.”
Shore Financial Planning director Ben Yearsley agrees. He says: “I think the main impact of Vanguard is cost pressure. In a lower-return environment, especially in areas like bonds, fees being charged by many active investors simply look too high.
“Add in the wider variety of passive funds available today, and active fund groups need to wake up and do something before it’s too late.”
Last month, Vanguard’s biggest competitor and the world’s largest asset manager, Blackrock, launched a range of multi-asset funds, MyMap, which many saw as a response to the firm’s rival.
In a wider overhaul of its global business, Blackrock created a new role, head of UK, and named its head of institutional client business in the US and Canada Sarah Melville in the role.
It says the UK is one of its most important business areas worldwide, with $840bn (£662bn) of assets managed on behalf of British institutional and wealth clients.
So while North American household names have made some waves in the UK advice market so far, there are plenty of signs to suggest they will continue doing so.