On reflection however, it might not be so simple. Remaining compliant isn’t as easy as ticking a box or occasionally filing a form; it is a long and arduous process which continues to evolve and change at the exact moment you think you have a positive hold of it. So how can a firm gain advantage from a process that ostensibly brings about the disadvantages of increased use of time and money? What if actually being compliant is itself a disadvantage? Ay, there’s the rub.
From a business perspective, collecting large amounts of data from customers can be extremely useful in helping shape products and services and being compliant is itself simply good business practice, keeping a firm in the game.
‘Knowledge,’ said Sir Francis Bacon, ‘is power’. The addendum perhaps, is that one has to know what to do with that knowledge. Reading blogs, attending conferences and following regulatory development proves that we all agree on the first point, but the question is how we approach the second. What do we do with the inevitable – and some might argue obvious – news that costs are rising as a result of increased financial services regulation? ComPeer’s data shows that the UK wealth management industry experienced revenue growth of 5.9% in 2011 and 3.5% in 2012 (breaching the £5bn total revenue milestone for the first time).
So, one might be forgiven for thinking that increased costs in such a vigorous market are nothing to worry about. Indeed, though 2012 costs were at record levels (for the second year running), they increased at a slower rate than revenue and pointed to the fact that many firms retain the ability to achieve healthy profit margins. Rising costs however, as we all know, can never be disregarded, nor healthy profits taken for granted. Compliance costs, whether from new initiatives or continued monitoring are going nowhere but up, at least in the medium term. The challenge for wealth managers is to pursue competitive advantage in spite of costs introduced by regulation.
When The Share Centre acquired most of the customers of Wills & Co in February 2010, it may have fitted in with their strategic business plan, but they were initially contacted by the (then) FSA to consider the acquisition. By cultivating a positive compliance attitude they were able to institutionalise robust regulatory practices, resulting in the FSA recognising them as a firm that could be entrusted with such an opportunity.
Compliance can generate rewards where none were previously apparent and need not be a source of disparagement from staff outside the compliance department. If competitive advantages are realised by doing something that your competitor is unable to do, then compliance is not the primary avenue by which to seek them; but such advantages can be seized – despite competitors implementing the same initiatives – by timing it right. Incorporating compliance into your ongoing business strategy can help protect against future transformations of the compliance landscape. While the different stages of RDR implementation may have date specific deadlines, the window for implementing them is much wider. For example, firms that switch their customers to ‘clean funds’ sooner rather than later, may initially see negative impacts on income, but in the end will likely observe greater client retention as customers remain loyal to a firm that has shown a willingness to take compliance seriously.
Although the current environment ensures that compliance issues continue to be on the agenda, the industry can at least gain some comfort from the thought that it faces those struggles as a whole and consequently has a unified voice able to raise concerns as one. That is not to say that working as one means competitive advantage brought about by compliance is a fantasy. Shell Oil’s Arie de Geus was perhaps onto something when he said that ‘your ability to learn faster than your competition is your only sustainable competitive advantage’. In a rapidly evolving regulatory market, heeding such advice might be the perfect starting point.
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