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Top themes that emerged from the survey

Acuity Knowledge Partners (Acuity) conducted a study of global private wealth managers (PWMs) to understand how best-in-class firms organise their research products to drive their advisory businesses. We also questioned the PWMs to understand the evolution of research needs due to the current pandemic and how they have adapted their research products to the current scenario. Our survey targeted CEOs, CIOs, heads of advisory, heads of research, analysts and relationship managers, focused on understanding how PWMs leverage research within their advisory processes to attract and retain client assets, build brand image and comply with regulations such as those from the Securities and Futures Commission of Hong Kong and MiFID II.

The key takeaways from the survey are as follows:

  • Research emerged as a key input to the advisory process, aiding in delivering alpha-generating investment ideas as part of the advisory process.
  • In-depth research and a broad coverage universe were the top investment research inputs picked by the PWMs.
  • With growing focus on cost effectiveness, most respondents see partnering with outsourced research providers as a cost-effective solution for ramping up and maintaining research coverage.
  • With a dip in flow of funds, the COVID-19 pandemic has increased demand for both analytical research publications and high-touch relationships
  • MiFID II has increased the need for proprietary research products and regulatory compliance, increasing the need for cost-effective research solutions.
  • PWMs’ research budgets seem to have stabilised, with their prime focus on increasing market share, launching new products and digitalisation.
  • PWMs leverage multiple strategies for distributing research content to private wealth clients. These range from investing in creating and distributing a proprietary research product to distributing content from third-party research providers.

This is the second year of the survey, and we intend to make it an annual exercise; this should provide us with ample opportunity to draw conclusions with short- and long-term implications.

Survey Methodology

Acuity carried out the survey via an email invitation to more than 500 global PWMs with varied levels of assets under management (AuM). The following charts show a breakdown of the respondents.

Survey Methodologies

By type of respondent
  • 24% Analyst
  • 19% CEO/Head of PWM
  • 16% CIO
  • 13% Head of Advisory/Research
  • 8% Relationship Manager
  • 19% Others
By AuM (USD)
  • 39% Above 50bn
  • 36% 1-50bn
  • 25% Less than 1bn
Research is seen as critical input for generating advisory revenue and growing AuM
  • Private wealth management is a high-touch service where the quality of advisory services and personalised solutions for clients act as key differentiators. In line with the trend in last year’s survey, 70% of our respondents (vs 69% last year) believe that research is an important parameter for generating advisory revenue and attracting and retaining customers. This year, 82% of our respondents (vs 69% last year) have chosen research as a critical component for deriving alpha-generating investment ideas and offering premium advisory services to clients. We believe in-house research is an important parameter for brand building, along with meeting regulatory and marketing needs.
Research – by level of importance
  • 70% Entire organization considers it important
  • 15% The top management considers it important but not investment team
  • 8% The investment team considers it important but not top management
  • 7% It is not considered one of the key aspects that drives revenues
Research – by primary use
  • 82% Investment decision making process
  • 10% Marketing purposes
  • 3% Regulatory purposes
  • 5% Others
The pandemic has led to reduced inflow of funds along with increased demand for analytical research and high-touch advice
  • We also questioned our respondents to understand the impact of the pandemic on the PWM business. While the pandemic has reduced the inflow of funds, demand for more personalised advice and adapting products to changing priorities (as seen in the chart below) has increased. Although the pandemic has led to a lot of uncertainty about the impact on various sectors and economies, the PWMs see increased demand for personalised and trusted relationships backed by more analytical content and increased frequency of research publications.
Bespoke research complemented by a broad coverage universe was identified as the key research input
  • In this year’s survey, the ability to deliver alpha-generating investment ideas emerged as the top input for the advisory process, followed by having a broad coverage universe across sectors and geographies. Having an in-depth proprietary research product also emerged as a key input to the advisory process. The trend this year further amplifies the need for bespoke research that could be used to enhance client relationships and generate more advisory revenue. The results of last year’s survey were slightly different, with depth of research, impact on investment performance and cost of research emerging as the top priorities.
Research production – in-house research provides the maximum advantage
  • Research plays a very important role for PWMs that provide independent advisory services, with the quality of advice suitably complemented by well-diversified global coverage.
  • PWMs have the following options for producing the research content they distribute to high-net-worth (HNW) clients:
  • Proprietary research products – premium offerings that are high-cost, attract ultra-high-net-worth (UHNW) individuals and meet regulatory challenges
  • Third-party research – a lower-cost option, where the PWM distributes research obtained from an independent research provider. The PWM has limited control over the coverage and rating but is able to distribute a research product with wide coverage
  • Hybrid research – a low-cost co-branding solution that uses the ratings and analysis of a third party
  • Internal institutional research – the PWM distributes the content produced by its institutional research team to clients. While it is a proprietary, branded product, the research content is not customised for consumption by private wealth clients since it is designed for an audience that independently analyses companies. The majority of the survey respondents favoured distributing in-house research over distributing external research across product categories.
MiFID II has increased the need for proprietary research products
  • With its ban on receiving commissions for recommending third-party products, MiFID II (effective since January 2018) has pressured the top line for PWMs. Aimed at investor protection and transparency, the implementation of MiFID II has also led to a reduction in the availability of broker research, with brokers ceasing coverage of small- and mid-cap stocks and non-core stocks. Furthermore, in order to charge premium advisory fees, a PWM has to provide its own assessment of the investment advice, increasing the need for proprietary research products. Our survey indicated that 37% of the respondents see no significant impact of MiFID II on their business, and 54% see an improvement.
Impact of MiFID II on PWMs
Half of our survey respondents see a moderate to high increase in research budgets, while the rest see either no change or a cut in budgets
  • PWMs have been facing margin pressure in recent years due to rising regulatory requirements, resulting in increased focus on digitalisation, expansion into emerging markets and intense competition. According to our survey results, 51% of our respondents (vs 35% last year) forecast a moderate to high increase in budgets, while 36% of them (vs 42% last year) expect their research budgets to remain the same. While a proprietary research product offers the most advantages to a PWM, we believe it is an expensive option, especially in terms of scalability and the high cost of maintaining an experienced research team in-house. To overcome these challenges, we believe PWMs could consider leveraging offshore research support to supplement their onshore teams. With the offshore research partner providing pre-final-form content, the cost of producing proprietary research is reduced by 30-40%. The in-house team could then focus on adding deeper insights to the research content and increasing face time with clients to help drive AuM growth.
Changes in research budgets
Ramping up coverage and being an extension of the in-house research team were the top priorities for outsourced research support
  • With significant emphasis on in-house research and cost, 100% of our respondents preferred having outsourced research support to complement their internal teams. We describe the key drivers of such outsourced research support below:
  • Ramping up and maintaining coverage in a cost-effective way emerged as a top function. This is especially true as sell-side firms reduce coverage of small and micro caps and non-core stocks. Furthermore, heavy investment in ramping up the in-house team for incremental coverage would be time consuming and have a negative impact on margins. Partnering with a service provider would help a PWM ensure seamless expansion of coverage without having to incur heavy investment costs.
  • Being an extension of the in-house research team – the respondents believe they could delegate routine tasks to an outsourcing partner, while they focus on more qualitative aspects. The outsourcing partner would deliver near-final-form reports that could be published with minimal intervention by the onshore analysts.
  • Other factors – other top drivers of outsourced research support included providing coverage in markets where the PWM does not have a local presence and taking complete/part ownership of certain research processes such as compiling newsletters, earnings updates and stock screens. Another important parameter was the cost effectiveness of outsourced research support that would reduce research costs and help the onshore research team focus on investment ideas and other important themes.
  • Given the cost constraints and regulatory requirements, we believe partnering with an experienced service provider and investing in technology will provide a PWM with a significant competitive edge.
Functions of outsourced research support
Growing market share, digitalisation and inorganic growth opportunities are the key themes that PWMs are focusing on
  • Increasing market share, digitalisation and growing inorganically emerged as the top three key focus areas in the near to medium term, in line with our views. These were followed by a focus on launching new products and outsourcing.
  • The next two decades will likely see a shift to increased use of digital technology, backed by bespoke solutions, according to the recent BCG report on wealth management. While technology would provide clients with data and analytics, the PWMs would still need to add the human element and personal touch to relationships with HNW and UHNW clients who would value high-quality advisory services. While competition from fintechs providing readymade advice using technology could be a potential threat, PWMs’ focus on offering a trusted relationship coupled with value-added advice would help increase advisory revenue and market share.
Partnering with an outsourced research provider helps the PWM meet regulatory compliance requirements and provides a cost-effective solution to maintaining high standards of client servicing

According to the BCG Global Wealth Report 2020, private wealth growth (to USD243-282tn from USD226tn in 2019) is largely dependent on a recovery from the COVID-19 crisis and the pace of rebound. While PWMs focus on growing their market share to tap new wealth and diversify into newer markets, they also face the growing cost of regulatory compliance and increased investment in digitalisation. In addition, regulatory requirements necessitate that PWMs produce proprietary research so they can charge premium advisory fees. We believe collaborating with an outsourced research provider will be a cost-effective and low-risk solution for PWMs; this would complement their in-house research teams and help them focus on generating value-added advice and client servicing.

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