With diverse businesses, jurisdictions, asset classes, and evolving regulations— the line between asset and wealth management is blurring.
As with many regions today, managing money in Europe is becoming more complex.
Amidst an amalgamation of economic and political jurisdictions—one that spans 44 countries, each with their own regulatory regimen governing investment practices, and a great many languages and currencies—asset managers and wealth organizations, alike, are facing a wide variety of new (and diverse) competitive considerations in the region.
Myriad competing pressures are now at play.
Asset managers are navigating a crowded market. The industry is experiencing unprecedented churn with considerable M&A activity—combined with the need to expand into new asset classes and geographies.
Meanwhile, wealth managers must now systematically evidence suitability and meet new regulatory requirements. Wealth clients are also consolidating assets with an “advisor of choice” who can best personalize solutions and service. And product-oriented revenue sources like retrocessions are destabilizing, forcing firms to find revenue elsewhere. All while investment product commoditization gains momentum and neo-banks continue to disrupt the advice market.
And players—of all types—are rushing to realise the benefits of GenAI against a wider backdrop of shifting technology considerations, especially when it comes to portfolio construction and the underlying mechanics needed to operate within the current state-of-play—all while firms strive to marry a local touch with a global investing view across publics and privates.
To prevail in this complicated, highly competitive market, firms are looking to adopt technology solutions that cover a more fulsome asset management and wealth management continuum—unified by a common data language, modelling, as well as risk monitoring capabilities—to help unlock more value and power sustained growth.
The current state of play
Across Europe, one lever that wealth and asset managers are looking to efficiently innovate on is improving total cost of ownership across their tech stack. To do that, they need tech platforms that differentiate and unify their investment management processes, scale model portfolio construction and risk parameters with the end-investor in mind, increase their distribution leverage—and, ultimately, turn data into insights quickly—so they can better compete in an evolving, modern market.
The financial services regulatory environment in Europe is uniquely intricate. “It is absolutely true that it is more complex in Europe versus other regions for wealth managers or private banks that are looking to manage money across various jurisdictions,” says Francesca Conforti, EMEA Head of Business Development for Aladdin Wealth™ at BlackRock. “If you’re an international or European player, the multi-jurisdictional nature of Europe implies complexity in that it requires the systems with which you’re managing money to be flexible enough to be configured to the specificities of each market and the specific business requirements that apply.”
This complexity across jurisdictions also affects the business models of Europe’s money managers by putting parameters around business practises and asset availability across the region. “Regulation has significantly impacted the way that the investment business is run—especially retrocession regulation—which has driven a significant shift toward fee-based account arrangements in specific markets,” says Conforti. The UK banned retrocessions completely in 2012, and the Netherlands did so in 2013. As a result, says Conforti, “we see a predominance of discretionary wealth models in the UK and the Netherlands, as opposed to markets like Italy where such transactions are allowed.” This has a deep impact on a wealth manager’s revenue model and, as a result, on their business model. International players need to be able to adapt their services and infrastructure to accommodate different models—making growth harder to achieve without connectivity across the system and across regions to help drive it.
“If you consider how Europe operates versus the United States, the fragmented regulatory landscape certainly generates complexity for us and our clients,” says Victoria Kent, Managing Director, European Head of Aladdin Client Engagement at BlackRock. “It places a higher burden on things like data management because of the requirements around reporting for both wealth and asset managers. In this way, you really do need to have a tech platform that unifies the investment process and provides a 1:1 risk profile across the investment management continuum. The level of granularity, clarity of information, and data integrity become more important because these aren’t just alpha generation opportunities. Given the regulatory landscape, these are also essential reporting requirements that go back to regulators.”
What’s more, the vast cultural diversity across Europe further complicates investment management in the region. Conforti cites “languages, currencies, tax requirements, product mixes, fund registration, and cross-border rules” among the factors that make investment management in the region complicated. “An international wealth manager may not be able to distribute in certain markets because it is domiciled in one place and the client has a different tax domicile,” which constrains the manager from distributing that instrument. “In Germany, ETF saving plans are incredibly popular, especially with retail investors, and in Italy, there’s large concentrations of insurance products, which are tied mostly to the ageing population and tax considerations,” says Conforti. Regulation establishes the boundaries within which managers operate, “but from one market to the next, operating and market requirements are very different and make it almost impossible to deploy exactly the same system across jurisdictions.”
The path to progress
As Europe’s investment managers wrestle with the complexity brought on by regulation and local market preferences, many have come to realise that additional investment in their current multi-vendor IT and back-office systems is unlikely to yield an efficient and effective investment management platform for use throughout the region, its markets, and its broad clientele.
The large regional and international institutions have built byzantine investment management systems, often in-house, by buying and customising off-the-shelf software solutions into an enterprise-wise investment platform. “Many of the international players today have very complex architectures, and historically, we’ve seen institutions relying on different systems across various countries to meet local requirements,” says Conforti. “Unfortunately, this can lead to a wide dispersion in client outcomes—and to a lack of oversight and centralisation. This is all due to a sort of ‘spaghetti architecture’ as you just keep adding systems and fail to create interoperability and connect them to one another. However, there are often opportunities that are yet to be uncovered for these institutions. By reassessing and streamlining more complex tech stacks, firms can gain the ability to better manage their overall tech debt—while advancing business goals through emerging technologies like GenAI and blockchain.”
This growing complexity is more than just an inconvenience for investment managers; it cuts to the heart of the business strategies that managers pursue amid growing competition and increasingly sophisticated clients. “The need to generate returns in a difficult economic environment is causing front offices—that is, portfolio managers—to seek out new asset classes, real assets, and alternatives,” says Victoria Kent. “When you look at managing the downstream impact of this broader investment universe within a cost-constrained environment, it becomes a real challenge to risk management, technology, and operations.”
The solution to this challenge, say BlackRock executives, is to reconsider the fundamental economics of the investment business in an effort to see when and how managers across wealth and asset management can evolve. “We see a drive among our clients to look at their operating model and really examine where they are differentiating their business and bringing value to their clients,” says Gareth Morris, Head of EMEA, Aladdin Solutions Engineering at BlackRock. The conclusion among many firms includes an effort to recast operating models to rationalise technology, bring processes together, and potentially outsource parts of the investment process.
“This provides an opportunity for organizations to standardise and re-think their technology,” says Morris. “Switching to hosted SaaS technology solutions, and hence outsourcing part of an organization’s technology infrastructure, is a natural inflection point for wider organizational transformation, made possible through asset servicer partnerships for instance.”
The bottom line
As wealth and asset management business lines continue to navigate an evolving state of play—not only across Europe but globally—it’s clear that the right technology platform, combined with a firm’s own secret sauce, is central to a relevant and flexible playbook that furnishes managers with the ability to localise, streamline, and enhance their own capabilities—so that they can better compete and, ultimately, grow.
The opinions expressed are subject to change at any time without notice.
BlackRock’s Aladdin® and Aladdin Wealth™ platforms are financial technology platforms designed for institutional use only and not intended for end investor use.