Discover our interview with Sphere Digital

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Introduction

Regulatory changes are handing more and more responsibilities to independent asset managers (IAM), requiring them to conduct new types of checks and other tasks. Because of the impact on margins, one of the best responses is using technology to boost efficiency. This tendency was previously visible but has gained traction as the rules have evolved. 

Despite the hit to margins, the wealth management industry is growing at an annual average rate of 4-6% depending on the financial centre considered. A perhaps lesser-known fact is that the business entrusted to IAMs, as measured by market share, has been rising steadily. In Switzerland, we estimate that this has risen from 3-4% between 15 and 20 years ago to somewhere in the region of 20%. 

What solutions are available?

As a custodian bank, we apply a partnership approach with our clients. Different solutions exist depending on how sophisticated the IAM operation is, what their specific needs are, and their modus operandi. These fall into three categories:

  • “Market” solutions, which bring parties together around standardised processes. One example is WeCan Comply, of which Pictet is one of the founding banks. This has revolutionised B2B ties between custodian banks and IAMs. Key to the success of such solutions is the scope it gives to various stakeholders to define standards, which is why we set up the Blockchain Association for Finance, where the common interests of IAMs and custodian banks can be represented. 
  • An in-house solution such as Pictet Connect, the digital gateway linking us to our professional clients, which provides digital account access. Account access will become fully digital when paper-based solutions are phased out in 2023. 
  • The final category is open architecture, which enables discrete systems to interface with each other. 

Portfolio Management System (PMS)

In this third category we can recommend an open-architecture solution. Several portfolio management systems (PMS) are currently available on the market. By providing interfaces with all these available solutions, we allow IAMs to select the system most closely aligned with their requirements. We can also give them impartial advice in the selection process because we do not have sales agreements in place with vendors. But we have detailed knowledge of the market because of our projects to date and regular dealings with clients already using the solutions.  

As an example of hands-on experience, we could mention the project undertaken with an IAM that wanted to make its internal system more efficient and have a single resource for all its custodians, including Pictet. It also wanted to transmit orders directly to trading rooms – including ours – and have a single life cycle for orders, whereby several orders could be placed in a streamlined manner.
As we had a trust-based relationship with this IAM, we helped in finding the PMs and assessing possible solutions.

Do all IAMs have a PMS? No, but our recent conversations with them indicate that those that are not yet equipped are thinking about it or are in the process of getting equipped. We believe that IAMs struggle to function these days without a PMS, which incorporates a growing amount of client data so that suitability and appropriateness procedures can be managed. We understood early on that the chosen system would only be effective if, in addition to upward data flows, the IAM’s investment decisions were implemented digitally via downward flows. Our trading capabilities are now fully integrated so that IAMs can place orders directly from their PMS and be informed about execution in real time, resulting in substantial productivity gains and reducing operating risk. 

So far, this function has gone live with more than 10 different PMS, used by 30 or so IAMs. Over 3,000 orders transit via this channel every month, which already represents over 20% of the orders placed by IAMs.