The current reshaping of the wealth management industry has led private bankers and advisors to face inevitable Darwinian changes in the way they service clients. Though traditional skills and rules remain crucial, clients are asking for more. Valentina Romeo speaks with key industry players to understand how the role of relationship managers is evolving.
The wealth management industry is at a major transition point. As a result of rising regulations, a large number of players have chosen to change or radically reshape their business models. New entrants and digitalisation are also fundamentally driving this change.
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Needless to say, if a bank is showing signs of ‘modernisation’, that will first reflect in the quality of service offered by the client-facing advisors and relationship managers (RMs). In private banking, they hold the first and most important point of connection with clients.
In the last few years, private bankers have globally changed in number, adapted to new functions, standardised their capabilities and services, and amplified their core skills. However, several challenges are yet to come as the industry develops and the stage is set for further developments.
Coming of age
First of all, there has undoubtedly been a shift in the wealthy advisors’ behaviour as a whole. Private banking clients, currently, are clued in, savvy, and informed about the various products on offer, which has led to the rise of a deep advice-based relationship between RMs and their clients.
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By GlobalDataIn the past, an advisor would push products to customers whereas now the advice is extensively personalised and much more insight based, says Ian Woodhouse, director private banking and wealth management, at PwC.
According to Woodhouse, due to markets’ volatility, wealthy clients are generally becoming more cautious, so they are actively seeking more advisor-assisted services.
"The regulators have placed an increasing emphasis on transparency and, in some countries, they moved the industry towards being retrocession free.
"In the past the advisor would push products depending on the level of retrocession. Now the advisor has to give more objective advice, because clients are being educated that there is a need to pay for that service," he says.
As a consequence, the ability of wealth advisors to explain new and transparent pricing approaches to clients has become core.
Tom Slocock, CEO for Wealth Management, UK at Deutsche Asset & Wealth Management (DeAWM), also shares his views.
"Today, RMs need to focus on areas where they can really add value to the client’s outcomes and experiences and leverage technology and dedicated investments, lending, and wealth planning professionals as much as possible.
"For RMs focused on the UHNW segment, this can mean re-directing the client in cases where other non-traditional solutions would provide the optimal outcome."
The DeAWM division of Deutsche Bank has added more than 1,000 staff in the past year, with plans to recruit more wealth managers specialising in elite clients in London and Asia.
"Much of an RM’s day-to-day activity – client interaction, tools, and compliance – has changed and will continue to do so," says Slocock.
Honing core strengths
However, Slocock says the core function of an RM – to be a knowledgeable, honest professional working towards the good of the client – should not change.
James Fleming, chief executive at Arbuthnot Latham & Co., the private banking and wealth management arm of the Arbuthnot Banking Group, says that in the last five to 10 years, the market has recognised that "the RM skill is a core skill in itself".
"Not everybody has the ability to walk into a room, create rapport, build empathy and trust and develop a conversation that leads to a new client relationship.
"When we interview prospective RMs that’s the core skill that we are looking for," Fleming adds.
Arbuthnot Latham’s wealth planning division was the first private bank to hold Chartered status as issued by the Chartered Insurance Institute. Across the business, which is adding selectively to its staff base , the bank has around 30 private bankers, six chartered planners and around 12 investment managers, with financial planners all qualified at Level 6.
"In our business we are specifically focused on sourcing opportunities and bringing new clients to the bank and manage the on-going relationship, introducing specialist skills as and where appropriate. We ask our RMs to qualify and take examinations to build their theoretical knowledge and understanding.
"Beyond that, our RMs are also looking at how they are best able to develop the client relationships and their contact base generically across the market place," says Fleming.
As Woodhouse puts it, advisors skills have not really changed recently, they’ve just taken a quantum leap.
Clearly, adapting to a new more regulatory driven world has been tough not only for advisors, but also for the organisations that employ them. In the more regulated markets like the UK, Benelux and Switzerland, in many firms, advisor productivity has shrunk, cost to serve clients has risen, and client satisfaction scores have declined.
According to PwC, with the retail distribution review (RDR), the advisor’s or RM’s capacity has fallen significantly in the UK market, with the total number of advisors declining by 24% from 38,317 in 2011 to 29,130 in 2014.
Fleming says: "Today, in this complex world, a private banker has to demonstrate a set of highly developed skills and also bring the expertise of other professionals within the bank to support those skills such as marketing, IT and technical advice"
Future proofing advisors
Primarily pushed by regulatory requirements, there is quite an emergency for the wealth management and private banking industry to be more client-centric, and to cope with the requests from HNWIs for more technology-enabled services.
"It is very important for wealth managers to future proof the business in terms of advisor quality because you’ll see a transition point in the client demands," Woodhouse says.
In the last 12 to 18 months, the 25 largest private banks have already spent nearly $1bn on front-end digital redevelopment, says a recent study by Scorpio Partnership.
"In some instances, we have adopted communication techniques used in social media, which our clients are accustomed to, and adapted them to private banking," says Juan Gandarias, general manager, CaixaBank private banking, the Spanish lender that has received multiple awards for its digital banking offerings.
CaixaBank launched "The Wall" in 2012, based on the online Linea Abierta channel, which is a transactional platform where clients hold conversations with their advisers either via video calls or written messages. The service also provides a self-planner only for private banking customers, allowing them to simulate different scenarios for their own financial investments.
However mature their business can be, many players are seeing a digital divide with their clients.
Fleming says: "I think the problem in our sector is that not enough businesses actually talk to their clients or take the time to talk to their clients in order to develop solutions . We are a service-based industry and if we don’t provide an appropriate service how long will we keep our clients?
"Digital devices are becoming an essential aspect of a client relationship and this will only continue. There are various degrees of approachability to technology. Now in financial services there are very few people that can survive in their career if they don’t have an understanding in technology. It’s no longer a luxury, it’s a necessity".
Market polarisation
Woodhouse says the wealth management market has started to polarise into the self- directed or technology enabled model, which requires none or low advisor interactions with very simple products, and the ‘traditional’ face-to-face advisory model.
The first model, suited to relatively simple client situations, is still nascent but growing faster than the second.
In the traditional advisory-led model, technology would be deployed in different ways, so it doesn’t disintermediate the advisor. The RM would leverage on technology to have richer discussions and share insights with clients to better manage their needs.
With the increasing success of online communities and networking, however, digital interactions are becoming the ‘new normal’ in wealth management – especially with the GenY clientele – and there are abundant examples of this.
Chris Williams, chief executive of newly- launched Bristol-based online wealth management firm, Wealth Horizon, says there is a need for a model that meets the needs of clients digitally, but offers additional augmented advice delivered as and when required.
At the firm, investors with more complex needs have the option of speaking to a qualified adviser, if they don’t want to complete their journey online.
Gandarias agrees that, undoubtedly, "providing customers with greater control over their finances changes the nature of their relationship with their advisor".
However, even though the traditional advisor-led model seems to be increasingly under pressure, Gandarias stresses that no matter how advanced technology platforms become, they cannot replace the trust placed in an expert advisor delivering bespoke expertise.
New entrants such as Wealth Horizon also have another agenda – to close the ‘advice gap’ and reach out to more clients. RDR has made it difficult for RMs to advice clients with below £1 million of investable assets and has created a gap of more than 20 million people without advice, research shows.
Williams says Wealth Horizon will predominantly aim to make their service "simple and straight forward" for that clientele. "However, there is no reason why an individual who has more money could not use our service," he adds.
Attracting talent
In the past, the path of a wealth manager’s career was very defined, and the industry was largely male dominated. As many agree, female advisors and diversity will become increasingly important going forward, especially as clients’ wealth spreads geographically.
Williams says: "The industry should make the role of advisors more attractive to younger and more diverse individuals. That will be one of the biggest challenges that we have to step up to. We need a fresh perspective on how we do our roles."
"The private banker in the past was not viewed in the same league as other professionals working in the wealth management industry such as lawyers and accountants. With the rise of qualifications and professionalism, this should start changing," adds Woodhouse.
Additionally, potential RMs also look at the quality of the wealth managers’ brand and supporting platforms before choosing to join them.
"Attracting wealth management talent is easier if you have a credible and attractive story to tell – a story about the client, the business and personal opportunity for the individual. If you can explain why and how you are going to be successful in these three areas, candidates are much more likely to commit to the journey ahead with you," says Slocock.
Importance of being well trained
While continuing to attract new talents, banks are also keen to train, groom and develop their own people.
"Giving them the skills and experiences they need to progress in their careers allows us to provide continuity of service (sometimes through generations!) as well as develop a cohesive and committed team of employees," says Slocock.
Fleming sees growing a firm’s own talents as a priority.
"For example, we have employed several young graduates this year. They are progressing well and we are giving them a thorough training. They are the next generation of talent.
"There has been a lot of change in private banking and we have been successful in attracting new people who see us as an opportunity to develop and further their careers," Fleming adds.
In a globalised world, a private banker has to have international awareness, an understanding of how to behave in different environments, how to build a relationship in a different culture and be flexible to embrace that culture.
Fleming concludes: "In Asia, RMs would need to be good traders, negotiators, with good investment ideas. These are different skills sets to core relationship management. Do not think you can walk out of London or New York and apply the same principles of relationship management in a trading environment."
