MiFID II WealthBriefing interview with Mathias Wegmueller
An original article by Tom Burroughes, published in WealthBriefing on 21 March 2017
Regulatory demands for data storage can seem like a costly grind but should be turned into competitive advantages, a Swiss firm with a particular take on the industry’s challenges says.
The regulatory juggernaut may provoke cries of frustration from a wealth management industry worried about thinning margins but it is arguable that some of the instructions firms must obey – such as orders to retain data – can become competitive advantages.
This is an argument from Qumram, a Zurich-headquartered fintech that provides clients – such as banks, insurers and other entities – with the kind of data-capturing capabilities they need to pass muster with regulators. And in this day and age of business use of social media and other non-traditional communications routes, such resources are no longer “nice to have” but critical. Failure can finish a business off.
With the European Union’s Markets in Financial Instruments Directive in its second iteration (MiFID II for those who want a snappier term) due to take effect from next year across the European Union, businesses such as Qumram are busy meeting one of the key requirements that the directive will set, namely, its demand that firms provide a comprehensive record of communications, including those done via social media as well as the more old fashioned way. (One of the main aims of the directive, its framers say, is to protect investors more effectively and prevent a repeat of some of the mis-selling and financial blow-ups that have occurred in the past.)
Needless to say, data retention, while it sounds prosaic, also has the potential to cause a storage, access and manipulation migraine for firms that have seen their cost/income ratios soar because of other compliance requirements and in a world where low interest rates have hit banks’ margins hard. Preparing for the directive could cost financial firms more than $2.0 billion in 2017 alone (source: IHS Markit and Expand, Financial Times, 29 September 2017).
Whatever the grumbles, however, many bankers and investment professionals know that if they do not make the most of their valuable data, then technology players such as Google and Facebook will be only too happy to do so, creating a competitive threat, Mathias Wegmueller, co-founder of Qumram, told this publication in a recent interview.
“If you talk to the top bankers the fear is that some of the big players out there, such as Google or Facebook, will kick them out of the market because they have better data and a better – because fresher – digital backbone,” he said. “Those [financial institutions] that have good digital leadership will do something about it,” he continued.
Qumram works with leading financial institutions that understand the importance of the digital revolution, including “having a strong understanding of the use (and misuse) of channels such as social media,” Wegmueller continued. “We work in partnership with firms that understand how innovation will earn them a competitive advantage in today’s digital world. A recent McKinsey report showed that clients of digital wealth management firms express satisfaction levels that are five to 10 times higher than clients of traditional wealth managers. The mobile and digital client experience is becoming the new currency of success,” he said.
This fintech firm, one of a number of Swiss firms that have sprung up in recent years to deal with the crossover of finance and technology, was founded in 2011 and has grown rapidly; it has 35 staff and more than 45 clients. While the majority of its client base is in its home country, Switzerland, Qumram raised $4.1 million in funding in 2016, and is making inroads into the UK, North America, Spain and the Benelux countries. Clients include the world’s largest wealth management house, UBS; a global asset manager, Russell Investments; four out of the top five Swiss banks; a number of Swiss regional banks like Basler and Luzerner Kantonalbank; and Swiss insurers Suva, Swiss Mobiliar, and CSS Insurance. In Wegmueller’s words, Qumram’s solution is “suited to highly regulated environments but our area of expertise is the financial services industry”.
The range of clients and modern data-gathering and storage techniques deployed by Qumram give its leaders a particular perspective on the challenges of the world’s wealth management sector. In a country such as Switzerland, with bank secrecy fading and the country having to embrace new ways to prove added value, smart use of data can be how the Alpine state fights back.
“Wealth managers have lived for a long time with an unchanging customer base and making money at high margins. That’s changed. There has to be real ‘customer-centric’ thinking. This business has to be more and more digital because this is how the younger generation is interacting and communicating,” Wegmüller said.
MiFID and other delights
Inevitably, this publication had to ask Qumram about the UK vote to leave the European Union and whether Brexit had caused a problem for managers working out what to do about adopting MiFID II standards if the directive might not even apply directly to the UK any longer, or in the same way as previously thought. (Organisations such as the UK’s Wealth Management Association have told this publication that even outside the EU, the UK will almost certainly need to adopt MiFID II measures if the country wants to retain access to European financial markets.)
There has been uncertainty, and a rise in caution, among UK-based institutions, Wegmueller said. His colleague, Nicola Cowburn, chief marketing officer (she joined in 2016), added in the same interview that one of the consequences of conversations around Brexit is that clients realise they need to leverage technology to become as nimble as possible to cope with whatever eventuality comes around after Brexit.
A danger, perhaps, is that the focus on Brexit dominates discussion to such an extent that important developments are overlooked. Switzerland itself is readying for a sweeping set of changes to financial regulations due to take effect next year, which are designed to run in tandem in some ways with the MiFID II regime, Wegmueller told this publication. The Financial Services Act (FinSA) and Financial Institutions Act (FinIA) are part of the new financial market architecture being put up in the country. These are also designed to give consumers strong protection.
This publication asked Wegmueller if he thought that after all the upheavals since 2008, today’s wealth management sector is in healthier shape today. There is no clear answer, he replied. Yes, some of the bad actors have been removed and there has been considerable consolidation and restructuring, but a major transformation of the wealth sector, with the arrival of a prominent, brand-new actor, has not happened yet. “I think the time is ready to bring out a new name and a new brand,” he said.
The conversation concluded with a reflection on how other luxury brands, or products associated with the good life, have been challenged and forced to change in sometimes startling ways. Wegmueller said that to thrive, firms can draw inspiration from how other sectors have rebuilt a luxury end even as technology compresses margins and commoditises a business. He pointed to the example of how a Nestlé business division, Nespresso (with a high-profile TV ad campaign featuring George Clooney), created a high-premium brand around its coffee machines and capsules. Another example might be of how in the 1970s and 1980s the Swiss watch industry, suffering from competition from Japanese digital and other brands, fought back with the rise of Swatch. Swiss watches lost some of their old-fashioned image and were increasingly associated with youth and modern culture. And the renowned brands of Rolex or Patek Philippe arguably benefit from the enduring renown of their “Swissness” that Swatch helped reboot.
As far as Qumram is concerned, sectors as varied as beverages and fine timepieces have a lot to teach a banking sector that dates back centuries, but faces a very modern set of challenges.
(Qumram is one of the sponsors of this news organisation’s conference on MiFID to be held on 24 May, where Mathias Wegmueller will also speak at the event. For more details, including how to register, click here.)