Recent years have seen a major movement of financial services brokers and advisors. Some are moving away from the big institutions to smaller organisations, while others are founding their own boutique firms.
A mix of factors have pushed high-performing employees to find an environment where they can create a more satisfying work environment for themselves, and provide more tailored and efficient advice to their clients.
No risk please
Global risk and compliance requirements have meant that global institutions now find it easier to deal just with each other. Their risk profiles are such that vendor management policy and approved product list guidelines mean only comparable sized institutions can easily work together. This has left a major gap in the market for boutiques to step in and service the retail and non-institutional clients that the large firms no longer accept as clients.
Talented executives crave autonomy and the ability to grow their business and remuneration outside of the traditional big company environment. Entrepreneurship has become a genuine option for many, due to the availability of new technology and the subsequent fall in the costs of starting a business. The advent of the cloud and applications such as Office 365, Dropbox and Xero, as well as outsourced specialist IFA systems, have lowered the barriers to entry substantially for would-be business owners.
Sticking to your knitting
Specialist providers now provide a product to service these new boutiques. Whereas large institutions tend to develop their technology in-house, operations and support services, boutiques prefer to specialise and only do what they are good at. It makes sense to outsource all non-core functions, such as third party execution and clearing; independent research; and shared service virtual support functions. These activities provide little added value to investors, who just expect them to happen as a matter of course. Far better for advisers and fund managers to focus on their unique areas of expertise, which give real returns to both their clients and their businesses.
Working with utility service providers both reduces a boutique’s need for regulatory capital, and provides a variable cost of core services to match variable revenue.
Follow the leaders
The boutique trend has produced notable leading wealth management firms such as Crestone Wealth Management, Escala Partners and Koda Capital. All have broken away from global banking giants to form their own successful boutique businesses.
Financial planning has also seen a major shift away from the traditional dealer group model to the IFA option, a trend that has been accelerating over the past year in particular.
Just Do It
There has never been a better time to consider starting your own business or breaking away from a large institution. The costs to get started are low and the client opportunity is real.
With the advent of more locally-focused utility service providers to take away the burden of capital requirements and infrastructure costs, we expect to see the trend of boutiquification to continue for many years to come.