Wealth Management : Need for Change

Credit crisis and global meltdown have leveraged high net worth individuals (HNWIs)
to new levels of consciousness with focus on risk and returns. HNWIs have become
increasingly sophisticated, globally aware, and proactive with their
investments. Today, the majority of their assets come from business ownership
and other proactive wealth generation activities. These individuals are as
active in building their wealth as they are in investing it.

This new generation of HNWIs will require wealth management services to be
more dynamic, sophisticated, and diverse. Firms will need to have IT
architectures, governance structures, and service models that breakdown the
traditional boundaries between asset classes. CIOs of tomorrow will have to take
a leadership roles in becoming the facilitators for this change.

Gone are the days for standalone product centric strategies. Tomorrows need
is Integrated financial solution supported with stable, easy- to-use
technology. To effectively target the mass affluent segment, service offerings
must incorporate numerous transactional and investment products and services
with a strong advisory component. Effective use of technology is the
differentiating factor for success in the future vs failed attempts in the past.

Serving Clients

Tomorrows mantra for most wealth management firms, or any firms that
service the wealth management sector, is to get closer to their clients and
knowing more about their clients. Today financial institutions are increasing
their emphasis on maximizing existing client revenue. Vigilant CIOs can see
revenue generation, client retention as business drivers for technological
investment in new and existing distribution channels. Direct low cost
channelsInternet, CRM systems, front office applications, specialized effective
call centers/help desks are tools to improve productivity for years to come.
Providing high quality self-service mechanisms is a prerequisite to efficiently
serve this segment, which will be characterized by higher volumes and lower
asset sizes compared to the traditional high net worth and ultra high net worth
segments. Throughout this crisis, one of the differentiating factors among
wealth management companies was those who reached out to clients. CRM platform
and voice technology played a pivotal role. There are a lot of ways to reach out
to clients. I have seen a very solid dichotomy between those firms that have
reached out to clients and communicated with them regularly and those that
havent. This has resulted in real outflow of assets from firms that have not
communicated with clients. I see this as a necessity and realize that firms need
to invest in technology to communicate with clients.

Investors Needs

The view that most investors have now is security and understanding what is
out there, having to be more measured in the way they view the markets, and
understanding the risks that are posed to them. Regulatory compliance is the top
business priority along with business growth. I can predict that a large chunk
of IT budgets are being sucked by regulatory compliance readiness requirements.
As economic indicators strengthen further and strong market conditions becomes a
reality, vast majority of firms will increase IT spend and usage of technology
to increase their reach and access to right information at the right time.

Today, most wealth management firms follow a common process. How well firms
implement this process from technology to personnel has significant impact on
success in the increasingly competitive wealth management space. A
well-implemented wealth management process can increase the differentiating
factors of the firm to the market by:

• Improving client service, from reporting to call centers.
• Retaining and attracting top advisor and/or customer service talent.
• Reducing operational and administrative inefficiencies.

Technology in Use

Traditionally, different technologies have been used at each step in the
wealth management process. For example, a firm might have a particular brokerage
processing provider, but use a different application for performance reporting
and yet another for proposal generation. Each of these applications, in turn,
has its own data model and notion of the client, advisor and firm.

While the original intent of assembling best-of-breed functionality as point
solutions seemed the right choice, the result of co-mingled technology generally
disappoints all those it affects. The two biggest shortcomings of this approach
are:

• Data Continuity: Disparate technology results in little or no data
  continuity across systems, perpetuating the swivel chair environment of
  reading data from one screen to key into another. Errors and inconsistencies
  take a significant toll on administrative efficiency and customer
  satisfaction. While some firms are still in pursuit of external aggregation,
  most cannot consolidate their own systems to a common household view.
• Workflow Continuity: An advisor often has seven or more applications to
  manage a client, rather than a single, cohesive desktop. Scalability is often
  limited to time, the advisor has to load information from multiple systems
  into Excel to answer the inevitable sonetimes the client often asks me that
  how am I doing?. Collaboration is limited, as most of these point solutions
  are desktop based and not readily distributed via Internet.

In order to implement a more dynamic client servicing model, financial
service providers will have to significantly improve and update their IT Through
sophisticated and agile IT architecture, armed with data gathering and data
analysis capabilities, firms will have a better understanding of clients
changing needs.

For success in future one needs to have solution that embodies portfolio
management, relationship management and customer administration, delivering on a
unique value proposition of integrated applications leveraging a common,
holistic data set. Solution in my mind is a composition of four distinct, yet
highly synergetic, application tiers: the Boundary Layer, the Data Model, the
Application Layer and the Interface Layer.

Wheres the Gold?

I am seeing the future trend. In terms of predictive marketing, real time,
centralization, web services, outsourcing, global portfolio management and hedge
fund administration.

• Predictive Marketing: To grow the wealth management business profitably,
  wealth managers must have CRM capabilities that are highly analytical in using
  customer data to draw sophisticated insight and predictions around profiling
  and targeting profitable customer propositions. Wealth managers need to
  customize offerings and deliver value within efficient service models that
  balance costly resources against a high quality customer experience. Feedback
  on marketing campaigns, customer interactions, and customer transaction
  insights is crucial to the continual improvement of the success of the CRM
  analytics and predictive trending forecast.
• Real-Time: As wealthy customers demand more frequent and a higher quality
  of guidance from their financial advisors, and become more active in the
  investment processes and performance measurement of their portfolios, the need
  for real-time access to information becomes critical. Strong data management
  with highly integrated feeds from internal and external data sources will be
  essential for real-time wealth management platform. Real-time security pricing
  information greatly enhances the effectiveness and value of risk metrics and
  supports more informed, and better timed investment decisions.
• Centralization: Going forward, wealth managers will need to
  institutionalize their knowledge about customers and their needs to allow for
  more timely advice, more consistency of client servicing across advisors, and
  a better customer experience in each of the access channels. More
  institutionalized customer information will also support the replacement of
  existing high-cost, decentralized delivery models with lower-cost centralized
  virtual models, thereby making more personal service available to more
  customers at a lower cost.
• Web Services: Wealth managers and wealth management servicing providers
  are making their platforms available to the wealthy end users and Independent
  Financial Advisors (IFAs) through private-labeled-hosted web services
  applications that allow an investor to directly collaborate with an advisor.
  For example, advisors can use a third party secure publishing platform which
  handles a variety of document formats such as HTML, Word, Excel and PDF, and
  is integrated with the wealth management processing platform.
• Outsourcing: The cost of developing and maintaining wealth management
  platforms and operations is a significant component of the overall cost base
  of the wealth manager. In addition, there are many wealth managers who are
  looking to develop integrated platforms with the characteristics described
  above. Integrated platforms with sophisticated wealth management functionality
  would take many years to set up, and require an enormous investment, along
  with the cost of maintaining them. Therefore, many wealth managers are more
  aggressively outsourcing large portions of their middle and back office
  technology and processes such as security processing, settlement, trust
  accounting, reconciliation, and performance reporting.
• Global Portfolio Management: Some of the wealth management service
  providers to HNW individuals need platforms that support capabilities relating
  to cross-boarder diversification of portfolios,
  multi-language/currency/accounting/and cross-boarder regulatory concerns, and
  can monitor and compare the portfolios against relevant regional benchmarks.
  Portfolios must be able to reflect these global differences when managing
  positions and reporting holdings, tax liability, and performance.
• Hedge Fund Administration: With the growing use of hedge funds and
  structured products in the portfolios of HNW individuals, wealth management
  platforms are adding the capability to process and report on these assets.
  More complex hedging strategies and derivative products are often processed
  using different applications that must be integrated into the overall wealth
  management platform.

To summarize the winning formula the right service model, based on well-toned
business services for a distinct wealth management segment, must be enabled with
a low-cost technology platform which provides both a natural user interface for
self-directing wealth management activities and high-touch talented advisor
support when needed. It is with this new generation of smart wealth management
platform that wealth managers will be able to realize their share of the huge
growth opportunities and achieve profitability at the desired levels.

Yateen Chodnekar

The author is head of technology, real estate and corporate services, Mangal
Keshav Group, Bank of Muscat

maildqindia@cybermedia.co.in