How technology enables wealth managers to
serve their clients better while reducing operational costs.
Go deeper with GlobalData
Wealth management is going through a
structural crisis. Over the last few years, it benefitted from a
sharp increase in revenues and profitability that was based on a
management model that has known better days. In the context of
constantly rising markets, wealth managers didn’t have to twist
their clients’ arms to get them to invest in structured products
that were very profitable for the Bank. Their clients were
satisfied with the performance of their investments and hence the
service received.
With the current financial crisis, the crash
and the ensuing market instability have rendered this model less
efficient: the substantial drop in share values decimated the
wealth of investors who then turned towards products that were less
risky but also less rewarding for wealth managers.
Private banking revenues, for example,
collapsed. A McKinsey survey revealed that private banking profits
fell to 2003 levels, a 42 per cent drop compared to 2007.
Faced with this crisis, wealth managers must
think about adapting their management model so that they no longer
have to depend on regular market increases for profitable business:
instead they could apply a model that is less sensitive to
fluctuations in markets that are currently unstable and, in any
case, historically cyclical.
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By GlobalDataA single priority: serve the clients
better
Clients have assailed their banks to
change investment strategies and seek more detailed transparent
information on risks to their investments and underlying products.
Lots of them have changed banks through mistrust or dissatisfaction
with the service.
Serving clients better to gain their loyalty
has become a priority for wealth managers trying to improve
profitability.
Private investors are demanding better service
from their wealth managers. Several needs have come to light: for
example, a) receiving detailed information on the value and
performance of their investments in real time, b) exact up-to-date
knowledge of the risks linked to their investments, c) advice and
investment proposals that suit their objectives and risk profile,
d) a tailor-made financial planning service, and, especially, e)
proactive monitoring by the wealth manager so he or she can react
rapidly to changes in the risk levels of their investments.
A PricewaterhouseCoopers survey in 2009 shows
that client advisors should spend more time with their clients to
improve service quality, limit the risks of losing the client and
increase assets under management (AUM) (the most efficient way
being satisfied clients bringing new assets for management or
recommending their advisors to acquaintances). Currently, client
relationship managers only spend 40% of their time with their
clients while they spend 16% on administrative tasks.
Front-office IT is an efficient way to handle
these questions.
Automating front-office
processes
The key processes to prioritize in a
front-office tool are opening client relationships, investment
proposals, financial planning, performance and risk monitoring and
client reporting.
Client opening is often a long, costly process
for the bank since Know Your Client (KYC) and Anti-Money Laundering
(AML) regulations must be respected. As front offices do not have
the necessary expertise, this process often involves teams from
several departments such as Compliance and the Back Office with a
concomitant waste of time and risk of error.
Automating such processes leads to real gains
in productivity. In a context in which compliance rules are
evolving towards greater investor protection, automation means the
expertise is locked into the computing system.
By saving time on client opening, banks reduce
internal costs and cut their client advisors’ administrative
workload. This allows them to increase revenue since the client’s
assets are transferred faster, which increases AUM and the
generated income faster.
Automating other front-office processes offers
the same advantages. Investment proposals, for example, require
relationship managers to respect certain compliance rules and
possess expertise in investment products. An automation tool for
this process allows client advisors to directly access
recommendations for products that best suit the client’s investment
and risk profiles, and directly generate the orders to implement
the proposal.
For greater efficiency, these tools must be
usable in real time during client interviews. A tool that cannot be
used in such conditions loses a lot of its potential interest since
client advisors would have to continue spending time on
administrative tasks.
Progressively deploy innovative
tools
A complete front-office platform has the
advantage of covering all the front-office processes: from client
management to portfolio management, from investment advice to
financial planning, etc.
It is even possible to make economies of scale
by deploying the tools to third parties (Independent Financial
Advisors) and private clients via an internet portal after due
adaptation. This significantly improves service level for less
cost.
The most innovative front office platforms
often have the advantage of being modular, allowing the progressive
or partial deployment of automated processes, depending on the
needs of the bank. This reduces risk of failure and allows planning
the technological investment progressively over a number of years,
in line with priorities. It is thus possible to quickly deploy
processes, such as client opening, that allow an immediate gain in
productivity and plan other processes for later implementation.
Investing in front office IT is an efficient
way of dealing with the issues facing wealth management, providing
solutions that serve private investors better and increase front
office productivity.
