In 2014, the three C’s -costs, complexities, and clients -will continue to forge change in and refocus the global wealth management landscape. This business sector is changing, potentially radically, and outdated and overstretched business models are in the midst of significant revamps. In particular, the biggest international wealth managers are continuing to reposition their global footprints in order to drive efficiencies and increase their focus on sustainable and profitable markets.
Driven by the three C’s, an ongoing development through 2014 will be jurisdictional refocusing, as highlighted by the following strategic moves made by large international wealth managers in 2013:
Go deeper with GlobalData
- Morgan Stanley sold its Europe, Middle East, and Africa wealth management business to Credit Suisse in order to refocus its efforts on North America.
- Credit Suisse later announced its plan to exit 50 existing markets by the end of 2014, including places such as the Congo, Angola, Turkmenistan, Uzbekistan, and Belarus.
- Barclays, by the end of 2016, will exit serving clients in 130 of its current 200 jurisdictions as well as chopping back its booking center network.
- Societe Generale is selling its Asian private banking business. Earlier in 2013, the French bank sold its Japanese trust bank to Sumitomo Mitsui Financial Group.
Additional examples abound, and we expect 2014 to see further intensity as global market players are forced to confront their new realities. Six years since the onset of the global financial crisis, some overstretched, underconsumed, and reactive global wealth management firms’ footprints are now increasingly unsustainable and in need of a better-defined geographic coverage model. As such, the sector’s global players require an increasingly targeted proposition focused on a better-defined set of jurisdictions where firms can better and more efficiently deploy their financial and intellectual resources and focus their efforts on efficiency and improved profits. The days of the true globally active wealth manager are coming to an end.
Further, we see 2014 as a year in which the pace of change in the sector’s broader business practices will also increase for large and small market players. We highlight increased activity in areas such as the following:
- Market exits and M&A: Unsustainable businesses, particularly in jurisdictions where regulatory and tax change is shaking up the market, will increasingly exit or be consumed. Unable or unwilling to adapt to their new environment, the roles of many businesses in a changing market is increasingly questionable.
- Business refocusing: As with geographic refocusing, wealth management firms’ proposition is often too generalist. Many of these firms have to decide whether they can continue to compete as general providers or if they should become specialists, focusing on a particular part of the broader wealth management proposition and outsourcing business processes for the remaining parts.
- Uptake of outsourcing: The confluence of industry challenges, a greater desire for efficiency, and the increased capability and capacity of outsourcing platforms (and acceptance of it by industry) will push the theme of outsourcing further into the market’s consciousness. Many business and operational processes require more scale than can be achieved in-house. In this light, firms will continue in 2014 to rethink and redesign their operating models and strike strategic partnerships with key outsourcing providers (e.g., clearing firms, investment management platform providers, etc.).
- Emphasis on technology as an enabler and differentiator: The real challenge for many wealth management firms in 2014 is the need to redesign their often dated client engagement models to meet today’s technology capabilities and the changed needs of their client base. Firms will be busy in 2014 and beyond with analyzing the needs of the existing client base, rethinking the current client segmentation approach, and developing and implementing technology-enabled client engagement models that do not jeopardize the advisor’s proposition but delight the clients served and allow the firm to differentiate from its competition.
- As this change picks up pace, those that fail to adapt and reposition their outdated business practices – and rethink the way they do business, who they do business with, and the tools they employ to meet the raised demands of their audiences – will become sidelined, further fuelling the potential for churn. As such, in 2014, much of the sector stands at the tipping point of real change.
TREND #2: INNOVATION RETURNS
For the last few years, certainly since the global financial crisis and likely much longer, the vast majority of participants in and around the wealth management sector have been reacting to change and influence around them, often unable to direct their own business course. Instead, they have focused on patching up their businesses to achieve efficiency, compliance, and a minimum competitive positioning. This is all very necessary, of course, but looking across the global wealth management landscape, it has been difficult to find any depth of innovation. There are many followers but few leaders. Now, as we enter into 2014 and the sector’s completes its various attempts to stabilize following the global financial crisis, the market requires a shift in focus, even marginally, toward innovation.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataWhatever shape that innovation takes, and in whatever measure, the change taking place in this sector and the diverse range of influences around it are both forging and allowing for innovation. From challenge comes opportunity. The relative lack of innovation in the market allows for gaps that can be filled by players that wish to take a leap of faith, whether small or big. We feel the time is ripe in 2014 for the market to push innovation to the fore, to take some risk, to look across the business model push to do things differently or just better.
Innovation, of course, can take many forms. Below are areas where we feel market participants have the opportunity to do things differently:
- Customer experience/understanding: Truly understanding clients and what they want is a profit-driving exercise. Technologies, processes, and methods exist to drive up understanding and then client profitability. Their integration into business execution can be critical in retaining and winning additional business.
- Client acquisition/retention: While the emphasis on personal relationships maintains its grip on client acquisition and retention, players will need to emphasize new mechanisms to acquire and retain clients and bolster their over-reliance on relationship managers. This will include digital means, targeted and content-based marketing, improved prospect management, new products and services based on a deep understanding of the client, streamlined processes, and improved front- and back-end technology.
- Technology: Among the many areas of potential technology improvement and innovation, one target for the multinational firms is the realization of a multisite, one-instance solution, able to work across their footprint without limitations. Few have tried to take this route, and fewer still have so far successfully implemented it, but it is in the minds of the market’s leaders as the future.
- Communities/crowdsourcing: Few in this market codevelop, share, or broadly discuss how and where they might do better. Developing communities of active groups that have an interest in a topic, product, or service is one way to learn what could or should be done better, what is missing, how to broaden appeal, and even how to develop a captive, engaged audience.
- Partnerships/collaboration: As the business environment becomes more complex, one way to cut through and find answers is to work with partners. These might be experts in an area of business or those that help enter new markets, geographic or otherwise, and allow a firm to meet client needs across a broader range of capabilities. In meeting increased client expectations, in deepening a firm’s value to their clients’ broader lives, a successful partnership strategy might be key.
- Recruitment/training: Whatever the technological progress around the segment, employees’ roles remain central to most propositions. And they can make or break any relationship. It is in their recruitment, training, and retention that firms need to strive to do more — to develop the next generation of advisors and to build out their skills in meeting broader client demands and remuneration — so that the sector remains economically sustainable.
- Regulation: In regulation, the reactive mindset must give way to innovation. The market’s thinkers will increasingly look to tackle the problems and learn lessons globally … not always locally. What lessons can firms, and particularly multinational firms, learn from regulation? What will they be able to take from one market and apply to others? And how can they make a process out of their regulatory learning and streamline their efforts?
In all of these areas, innovation does not have to be a huge risk-taking process. Even if what a firm proposes to do is new to wealth management, it might not be new to banking, financial services, or other sectors. There is a huge range of lessons to be learned from the non-wealth management world that can be brought across to lessen the fear factor.
TREND #3: LEADING FIRMS TACKLE BIG DATA
One area of innovation that represents an increasing level of importance for wealth management firms is big data. Wealth management firms are at different stages in their data management and analytics journeys. Many of the largest wealth management firms, including leading online brokerage firms and wirehouses, have mostly completed data-consolidation projects that now create opportunities to leverage their client information to improve sales and service.
In 2014, Aite Group expects leading firms to become more like online retailers with how they leverage client and portfolio data to suggest products or position new products in light of past Web browsing and advisor interaction behavior. One large wirehouse is working on an analytics engine that would give advisors access to trade ideas for a specific portfolio based on trades executed for similar clients and portfolios. A large registered investment advisor (RIA) is looking to leverage Salesforce communities to power a client portal that could deliver relevant content to clients based on the vast information consolidated in Salesforce (portfolio, behavioral, goals, demographics, etc.). Large online brokerage firms are also investing in analytical capabilities to deliver more targeted content to customers.
Firms that are still struggling with data consolidation and access will be at a disadvantage compared to firms that are monetizing their valuable data to improve their sales and service effectiveness. Analytics players that will benefit from wealth management firms’ analytics efforts in 2014 include traditional providers, such as IBM/SPSS, SAS, Teradata, and Oracle, as well as a growing number of startups and recent entrants. Business process management provider PegaSystems has a unique solution that combines analytics and business process to transform analytics into real-time actions with customers across channels. Other providers that have implementations in wealth management include Opera Solutions and QlickTech.
TREND #4: THE CLIENT EXPERIENCE TAKES CENTER STAGE
Wealth management firms will continue their multiyear efforts to realign their people, processes, and technology around clients’ needs. Leading firms spent 2013 on client data consolidation and giving client-facing staff easier access to a 360-degree view of client information. We expect 2014 will be the year for these firms to start using their client data and insights to improve the client’s experience. Understanding clients’ needs and goals is the important first step toward delivering a client experience that meets expectations. Exceeding these expectations will require innovative ways of presenting wealth management topics to clients and delivering proactive, value-added service over time.
A few of the leading wealth management firms have already taken next steps forward toward building a client experience that exceeds expectations. Here a few key client experience initiatives that we expect will become mainstream in 2014:
- "Wowing" clients by teaching them something they don’t already know: Clients come to the table knowing a lot about the available investment products and investing strategies after doing their own research online. Financial advisors who deliver cookie-cutter investment recommendations, even if tailored to clients’ needs, goals, and values, are unlikely to outshine competitors today. Because of the Internet-related knowledge shift, leading wealth management firms are changing their selling approach. Instead of focusing only on needs-based selling, several firms are teaching advisors to "insight-sell," or give clients valuable insights about themselves and their "investment personality" or financial planning strategies they had not thought of. These insights will make clients listen and want to engage advisors for the long term.
- Understand clients’ goals and align investment management to client goals: Most clients seek to work with a financial advisor to maximize their ability to reach certain financial goals, such as retiring at a certain age or funding their children’s education. In 2014, we expect more wealth management firms to bridge the gap between goal-setting and ongoing portfolio management to give clients frequent updates about how they are progressing toward their goals. In 2013, Merrill Lynch announced that its new fee-based platform would be providing clients with a goals-based view of their portfolio’s performance. Other leading wealth management firms will likely follow in its footsteps.
- Delivering multichannel service with enhanced client portals and mobile tools to help clients not only access their consolidated financial information on any device but also to manage and plan their financial lives. We expect more wealth management firms to add to their client portals and roll out mobile capabilities in 2014.
- Investing in customer relationship management (CRM) solutions and analytics: This will allow advisors to deliver more tailored and proactive service to clients through advisor alerts (e.g., portfolio drift alerts), client portals (e.g., tailored content delivered based on client profile/segment), and tools that automate the creation and distribution content (content management systems, campaign management systems, email marketing solutions, etc.).
- Building multichannel onboarding processes: The experience firms deliver during onboarding can make or break a relationship. At a time when high-net-worth clients have more wealth management providers to choose from than ever before, delivering a professional, timely, and unique onboarding experience matters more than ever. A large number of wealth management firms have already invested to automate their account-opening processes over the last few years. We expect firms will now be in a better position to finally manage and improve the onboarding process to meet client, business, and regulatory objectives. In addition, we expect firms to incorporate mobile and online capabilities into the onboarding process to improve client data and document capture.
TREND #5: ONLINE SERVICING BREAKS THROUGH
Financial advisors will value their client portals even more in 2014 as firms continue to enhance their capabilities. According to a 2013 Aite Group survey of just over 400 U.S. financial advisors, most financial advisors whose clients benefit from a client portal already recognize that the client website gives them back time they used to spend answering client questions about their portfolio. As firms add new capabilities to the client website (e.g., account aggregation, visibility into cash flow, document vaults, access to and interaction with the financial plan), advisors will see the portal as more than a customer service tool: They will recognize the value of the portal as a client engagement and collaboration tool.
Aite Group’s financial advisor survey reveals that slightly less than half of financial advisors see the client portal as a means of enhancing client interactions (Figure 1). By the end of 2014, this belief will be dominant across advisors. Large brokerage firms and leading RIAs are in the midst of client portal projects that will add data aggregation, financial management, and, in several cases, financial planning capabilities to the portal. As clients see their portal as place where they can go to manage their entire financial lives, advisors will have more opportunities to interact with clients and develop deeper, longer-lasting connections.
Personal financial management technology providers, and enablers such as Yodlee, CashEdge, Strands Finance, and BP Analytics, are seeing an explosion of business coming from wealth management firms, particularly large U.S. and international banks, as well as from direct-to-consumer startups such as LearnVest in the United States and Cha-Ching in Australia. In the independent broker-dealer segment, eMoney Advisors is gaining in popularity partly due to its client portal and the ease of setting up an advisor website. Several leading independent broker-dealer executives interviewed in Q4 2013 indicate that eMoney is winning financial advisors over other financial planning software providers because of the attractiveness of its client portal and the sophistication of its financial planning solution.
RIAs are starting to see the importance of establishing an online presence to acquire and service clients. Personal Capital and LearnVest were among the first startup RIAs to acquire clients by providing a free online financial management service. Established RIAs are also looking to extend their business to the Web to service any client remotely. Ric Edelman, an RIA with US$18 billion in assets, launched Edelman Online in January 2013; Savant Capital Management, a US$3.4 billion RIA, launched eSavant in May 2013. With account minimums of US$5,000 and US$50,000, respectively, these two offers extend these firms’ reach to a large population of mass-affluent and high-net-worth investors throughout the United States who would value working with a reputable RIA. While these large RIAs have the funds and the technology staff to build their own online portal capabilities, most RIAs with less than US$1 billion in assets do not. Several startups have emerged to serve this market by including data aggregation, personal finance management/client reporting capabilities:
- Balance Financial provides a client portal that enables collaboration between clients and financial expert teams; the firm was recently acquired by TaxAct.
- Oranj is part of RIA Main St. Financial, which developed its own advisor front-office and client website/portal and is now offering the platform to RIAs and fund managers through its newly created technology subsidiary.
- WealthAccess, an online platform built in 2011, delivers an updated balance-sheet view of assets and liabilities to high-net-worth and ultra-high-worth individuals.
2014 is sure to be a good year for technology providers that can help wealth management firms build out their Web and mobile services to give clients the experience and service choices they expect.
TREND #6: PLATFORMS INTEGRATE
Several of the largest wealth management firms, including Merrill Lynch and Morgan Stanley, are going through a significant consolidation of applications to provide advisors with a more efficient and integrated technology environment. Merrill Lynch introduced a single managed account platform that will replace five solutions. Morgan Stanley built a new advisor desktop, 3D, which intends to make advisors’ processes easier through application integration and process-centric delivery and presentation of information. In addition to these large providers, several midsize independent broker-dealers are also in the midst of application replacement and integration projects in an effort to win over a new generation of advisors who seek an efficient operating environment. Recent conversations with 15 midsize independent broker-dealers (between US$50 billion and US$250 billion in assets under management) and large RIAs (over US$1 billion in assets under management) reveals that firms are serious about building one platform that includes, at its core, two or three best-of-breed providers that integrate well with other applications.
Across most firms, the core solutions selected are portfolio management and reporting applications. Portfolio management application providers most often cited include Envestnet (for broker-dealers who outsource some of the investment management) and Folio Dynamix. Large RIAs see CRM solutions, particularly Salesforce.com, as core solutions that can unify the advisor work flow. Achieving an integrated platform that allows advisors to shift seamlessly from prospecting through to client reporting without opening multiple applications and rekeying data is no longer a pipe dream. Commonwealth Financial, ING, NFP, and Cetera are leading independent broker-dealers that have built such platforms or are almost there.
We expect these larger independent broker-dealer firms to propel others in their peer group to make important strategic technology moves that will drive integration and consolidation. In particular, firms holding on to multiple clearing providers will question the value of doing so when they see their more focused competitors moving ahead in terms of advisor productivity and recruiting top talent.
Vendors are and will continue to respond to these integration efforts by acquiring other vendors (e.g., Envestnet and Tamarac), building interfaces (APIs), or by opening up their application to allow complementary technology providers to develop their own applications and integrations (e.g., Salesforce’s marketplace). Clearing firms and custodians will continue to build out their platforms.
TREND #7: CORRESPONDENT CLEARING GO HOLISTIC
In light of the need for tightly integrated platforms, as outlined in the aforementioned trend, clearing firms are decisively evolving into one-stop technology shops for small and midsize broker-dealers. These broker-dealer firms often don’t have the technology budgets necessary to tackle platform integration or other platform improvements on their own, which have become necessary due to the growing importance of fee-based business as well as new regulatory demands.
Clearing firms have traditionally shied away from supporting the non-brokerage business of correspondents, not least due to their pricing model, which has been closely linked to brokerage trading volume. Large correspondent clearing firms in the United States have started to think in much bigger terms, moving beyond competing on a feature-function basis and aiming to provide platforms that can tightly integrate with other third-party platforms used by their broker-dealer clients and provide work flows that run across multiple platforms. With this new positioning, clearing firms are in a unique position to also take over all or some business processes relating to a broker-dealers’ back offices (e.g., data aggregation and reconciliation, and client reporting).
In the United States, Pershing and National Financial Services (NFS) have been at the forefront of this trend. They have recently rolled out work flow solutions to streamline new account opening for brokerage accounts (including e-signature), with near-term projects to extend this functionality to integrated managed account solutions, annuities, and direct business. NFS is complementing its new account-opening tool with prebuilt interfaces to popular CRM systems (e.g., Salesforce.com, Redtail) that ties in with the new account-opening tool to pre-fill forms. Pershing and NFS are also working on provisioning a consolidated view of an advisor’s entire book of business, including assets not custodied with the clearing provider; NFS is planning on offering directly held mutual fund order entry through its Streetscape advisor workstation. Regarding fee-based business, NFS has teamed up with Envestnet to offer a managed account solution, with much of the technology integrated with their advisor workstations to streamline fee-based business, while Pershing has integrated its own managed account platform.
2014 will continue to see further activities by the leading clearing firms and put further pressure on second-tier competitors. The landscape of clearing firms has undergone significant consolidation in the last 10 years, a trend that is expected to continue in 2014 and beyond. Clearing firms will also increasingly become competition for technology vendors, especially as the midsize and small broker-dealers are concerned. Technology and platform providers (e.g., fee platforms, aggregators, and client reporting vendors) are advised to seek close integration with the leading clearing platforms. While this will be a good strategy for vendors with a functional footprint that complements the clearing platforms, others will see their addressable market shrink as a portion of their current client base will increasingly be attracted by their clearing firm’s one-stop technology offering.
TREND #8: GLOBAL FIDUCIARY REGULATORY CHANGE CRAWLS
While financial services regulators in the United Kingdom and Australia forged ahead with fiduciary reforms in 2013, U.S. and Canadian regulators have been moving at a slower pace, and other European and Asian country regulators are waiting to see the impact of the U.K.’s reforms (referred to as RDR) before attempting change.
In the United States, the Securities and Exchange Commission started 2013 with the fiduciary standard as a high priority on its agenda and ended the year by categorizing the rule as a "long-term agenda item."1 The U.S. Department of Labor, by contrast, is eager to see a fiduciary rule passed in 2014 that would require any financial advisor who advises investors on investments held in retirement accounts to abide by a fiduciary standard. Whether the Department of Labor can craft a rule that garners enough votes from both the House and Senate is questionable, given its past performance and the number of brokerage-industry friendly members of Congress.
A similar political war is playing out in Canada as the Canadian Securities Administration determined in December 2013 to put the fiduciary debate on hold while it gathers more information on the topic. In both countries, the brokerage industry is lobbying hard to maintain the status quo by claiming that requiring financial advisors to act as fiduciaries when recommending investments would push up the cost of financial advice, making it difficult for millions of middle-class Americans to afford a financial advisor.
Based on the United Kingdom’s one-year experience with RDR, it remains unclear what positive and negative impacts the new set of rules will have on financial advisors and clients. Thus far, research on the topic shows that the new fee disclosures are too complex for clients to understand. The Financial Conduct Authority, the U.K.’s new independent financial services regulatory body, commissioned a study to monitor how investors were responding to these disclosures. The study found that much work is needed to make disclosures clearer (e.g., giving examples of what clients would pay given different investment amounts) and to ensure financial advisor clients are using the disclosures to make decisions.2 Early studies like these show that implementing RDR is a multiyear process; it will take time to change advisor and investor behaviors.
A more significant and positive near term-impact of RDR is innovation among large wealth management firms to add new fee-based advice services. UBS was first to market with a new service called UBS Advice, which provides advisory services for a fixed fee. The software-based service automatically checks client portfolios against their risk profiles and the bank’s market views. Rebalancing recommendations are delivered to advisors the next day and communicated to clients. This solution shows how the legislative changes taking place in the United Kingdom will eventually make changes in other markets through global firms. UBS developed this new fixed fee service due to changes in U.K. advice regulation, but the offer was developed in Switzerland. We expect more global players that have a strong U.K. wealth management presence to develop a fixed fee advice service similar to UBS advice. These new services will eventually migrate to the United States and compete strongly with established product-based compensation models.
In the United States, Aite Group expects a uniform fiduciary standard to emerge over the next couple of years, propelled by the Department of Labor’s efforts to give retirees the best investment advice possible.
The final proposal is unlikely to bring significant changes to the way advisors are paid (commission- or fee-based), but commission-only models will likely gravitate to the Web, where algorithms can deliver unbiased advice (coming from startups SigFig, Future Advisor, or Financial Guard, for example), or advisors will start charging clients for unbiased financial advice to compensate for any loss in commissions due to recommendations of low-cost products. Another likely characteristic of a U.S. uniform fiduciary standard is that it will only apply to commission-based business at the point of sale. There is precedent in the United States for such a fiduciary duty applying to transactional, commission-based business, as most states require licensed real estate agents to act as a fiduciary with their clients.
TREND #9: MOBILE TRADING ACCELERATES GROWTH
U.S. wealth management firms with self-directed trading capabilities are at an inflection point with regard to the way they evaluate and respond to mobile trading. The contribution of mobile trading to a firm’s overall daily average revenue trades (DARTs) is set to accelerate rapidly over the coming three to five years, and this shift is also setting in motion a wider challenge for securities firms to rethink or enhance their clients’ mobile customer experience.
The norm since at least the 1990s, when PC computing converged with the Internet, was for U.S. brokerage firms to focus all technology development efforts to craft unique desktop and Web-based trading experiences for clients. Up until 2011, this PC/laptop-centric development approach was justified and produced more than 95% of DARTs.
Since 2011, the rise of mobile trading has become noticeable (9% of DARTs in 2013), but within the next three to five years it is set to reach a virtual tie with Web-based, non-mobile trading as the most important front-end technology. An Aite Group survey that included seven of the top 10 U.S. retail brokerage firms in November 2013 reveals that brokers expect to see mobile trading’s share of DARTs rise
