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Holistic Solutions for Key Challenges of the Wealth Management Industry

www.infosys.com

- Anjani Kumar, Kamlesh Ghewarchand Oswal

In spite of its growth, the global wealth management (WM) industry is gripped with numerous challenges today. In order to successfully overcome the challenges, capitalize on the opportunities and become successful, WM firms must make large scale changes to many aspects of their business. This paper discusses the key challenges that WM firms face today and provides solutions for overcoming the challenges.

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While the economic environment is gradually improving in countries like the U.S. (e.g. the U.S. unemployment rate fell to 8.3 percent in January’12, the lowest level in the last three years), the environment still remains challenging in many countries across the globe. For example, there is a recurring threat of default by European countries like Portugal, Italy, Greece and Spain. Consequently, for many WM firms, budgets remain tight. Firms’ spending on key technology improvements or on business enhancements is constrained. There is also enormous competition amongst WM firms. Mergers and acquisitions and the foray of non-traditional players in WM business (e.g. brokerage, insurance companies, independent consultants etc.) have all increased the competition. Today, firms of all types offer similar products and services to similar client segments and there is limited differentiation amongst the offers provided by firms. The sub-optimal and siloed strategies that firms have followed for years are also starting to haunt many firms. Although critical, not many firms have well laid out client segmentation and valuation strategies. Many view client onboarding processes as back-office functions that needs to be cost-contained, rather than being a competitive differentiator. A large number of financial organizations lack sound strategy to bring their entire gamut of services (investments, brokerage, banking, retirement products etc.) to their clients in an integrated fashion. Firms have failed to change their business model with the changing times.

WM firms must enhance their business model, revise their strategy and must work towards moving to a robust business model. In such a model, a relationship manager would be the primary contact point for the client. The relationship manager would be supported by various product specialists. Firms must also focus on integrating their service models. For example, where it makes sense, large firms must look towards restructuring their multidimensional enterprises offering lending, insurance, consumer banking and other products and services around their WM groups. Banks providing WM services could work towards having closer links between small business operations and mass affluent sections while strengthening links between private client services segment and investment banks. Many clients (including baby boomers), will retire in the coming years and a large number of these clients are ill prepared. They are looking for sound financial advice and robust retirement income solutions. There is also a gradual, but definite change occurring in the makeup of the demographic culture in many countries. For example, in countries like the U.S., the ethnic economic composition is changing and minority groups’ wealth is increasing significantly. Firms must adjust their business model to meet the global investing needs of their clients and capitalize on opportunities arising out increasing retirement needs and changing demographics. Exhibit 1 shows a recommended transition map for WM firms.

Overview

The global WM industry has grown significantly over the years and is poised for further growth in the future. The growth is thanks to the continual increase in number of high-net-worth individuals across the globe; and other enabling factors like changing demographics and increased retirees’ needs. However, in spite of its growth, the WM industry has been facing myriad challenges. In addition, the industry is witnessing disruptive changes like client technology transference and evolving revenue streams. Following are the key challenges that WM firms face today and solutions to overcome the challenges.

Challenges and Solutions

Challenging environment and sub-optimal strategy

Challenging environment and sub-optimal strategy

Client and advisor dissatisfaction

Regulatory pressures

Sub-optimal operations, processes and tools

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In recent years, clients’ confidence in their WM advisors has been shaken badly. Many clients have started to closely scrutinize their advisors and have raised expectations from their advisors. For example, many clients are asking for more control over their investment and WM decisions while they expect ‘just in time’ (e.g. timely financial advice to invest windfall gains. They also expect ‘just for me’ (e.g. personalized and bespoke retirement planning advice) solutions and services. Regaining clients’ trust and meeting their heightened expectations is a major challenge for firms today. Firms are also grappling with dissatisfaction of many of their advisors. Having faced client ire, significant market losses, reduction in compensation; and intense press and government scrutiny in the recent past, many advisors have been under tremendous pressure, and are dissatisfied with their firm.

Firms must shift to a client centric view and must deliver a differentiated and unique client experience. They must provide a unified view to the client and enable them to see all of their assets held outside the firm through a web front end. Firms must improve their delivery channels and provide personalized services to clients. Firms must leverage their entire suite of product offerings and pursue sound client acquisition strategies. These institutions must also work towards improving product functionality (e.g. retirement products), performance and its returns. Aligning their marketing campaigns towards targeted clients is a priority that requires monitoring for campaign effectiveness. Firms must also understand the enterprise value of their client and proactively improve the quality of service – especially to the “mass affluent” who have generally not been served well. Building a strong advisory component is crucial for firms. Firms must enhance advisors’ capabilities through advanced training and product knowledge. Hiring the right talent in the local markets is a priority. Investment in an advisor desktop and client portal that is accessible to both clients and advisors is crucial. Advisors should have access to a unified view of the client, CRM tools, financial planning and advice tools, tools for collaboration with the back office, and access to market information and data. Firms could look at providing a single workbench to advisors that can cover all aspects like portfolio management functionality, order management, data warehousing, due diligence and more. Exhibit 2 illustrates features of best-in-class advisor desktops while exhibit 3 shows features of a best-in-class CRM solution.

Exhibit 1: WM industry transition map

Client and advisor dissatisfaction

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From To

• Productsalesfocus• Secrecyandassetpreservationfocus• Proprietaryproductsfocused• Siloedserviceandproductsapproach• Secrecyandassetpreservation• Limitedsayofclient

• Trustedwealthadvisor• Value-addedsolutions• Openarchitecture• Provideswiderangeofalternativeproducts• Integratedandholisticmodel• Customercentricityandadviceledbyin-depthresearch• Moredecisionmakinginthehandsofclient

Holistic WM Model

A one-stop-shop WM firm meeting the clients’ needs from Insurance, Trust, Brokerage, Private Bank and more

Relationship Manager

Specialist Team

Client

• FinancialPlanning• Investment

Management• Insurance• CashFlow

Optimization

• RetirementPlanning• Liability

Management• Trust&estates• Personal&business

lending

• WealthTransfer• Charity/

philanthropy• BusinessSuccession

Planning

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Exhibit 2: Features of best-in-class advisor desktop

Exhibit 3: Client data aggregation and reporting platform solution

The WM industry had already been struggling over the years to ensure effective compliance with many regulatory requirements (e.g. AMl, KYC regulations, pre-and-post trade compliance, SoX etc.) Recently, firms across the globe have been subjected to intense governmental scrutiny and are facing many new regulatory changes. Many of the regulations are still evolving. At both the global and country level, there is lack of consensus amongst legislators and administrators on the evolving regulatory requirements. The plethora of new regulations and the uncertainty around many of these regulations have increased the challenges of firms face manifold. Enhanced MIFID, U.S. Dodd-Frank Act, UCITS IV, Basel III, RDR and FATCA are only few of the regulations that WM firms are grappling with today.

Firms must focus on meeting compliance needs and on improving the efficiencies of their existing compliance programs. They must leverage compliance solutions for their competitive advantage. Towards this end, firms must invest capital on new compliance technologies, consolidate older compliance systems where appropriate, and centralize their data management operations. They must leverage robust data aggregation, reporting and management tools. For effective data management, it is important that firms establish a robust governance framework. They must create a unified framework for effective management of system enhancements and upgrades arising out of current and future regulatory changes. Focus on leveraging good information risk management programs that will help them assess their readiness for a regulatory compliance audit and in aligning with global information security standards (e.g. ISO17799, COBIT etc.) is critical Exhibit 3 shows a recommended client data aggregation&reportingplatformsolution.

Regulatory pressures

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e.g. dashboard, alerts, CRM

e.g. client profiling, portfolio analysis, portfolio rebalancing

e.g. account management, performance management

Desktop integration (risk, compliance, trading,

services and operations)

e.g. investment proposals, profiles, reports

e.g. sales tools, collaboration tools,

aggregation tools

e.g. news, quotes, indices e.g. analyst research, product screening

Servicing&execution Book managementAsset allocation

Financial advice tool Client presentationFinancial planning

Research&content Market dataPortfolio management

KYC / Risk Pro�ling

Investment Suitability

CRM

Loans

Investments

Deposits

Trust Accounts

Data Loading

Data Quality Solution

Downstream systems

Operational Data Store

Portfolio Performance MeasurementClient Website

Internal Website

Relationship Reports

Legal Statements

Business Intelligence

Financial Reporting /

Compensation

Investment Performance

Reports

ETL layer

VisibilityAccount Financials & Performance

Client Account Linkages

Client Reporting Roles

Client Demographics

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Exhibit 4: Issues in client on-boarding process

Exhibit 5: Technology challenges of WM firm

A large number of firms are saddled with sub-optimal operations and processes and lack process management discipline. For example, many firms lack the means to effectively gauge their immediate exposure. Many don’t track important metrics that could help them improve their processes. It seems many firms are not in control of their client onboarding process. This results in missed asset growth opportunities. Exhibit 4 highlights issues in many firms’ client onboarding processes.

A large number of firms lack robust advisor productivity improvement tools, tools for providing unified views of the client, robust CRM tools, financial planning and advice tools and tools for collaboration with the back office. Their advisors use overlapping technology tools to conduct their business. It means that they are unable to integrate internal data from the myriad of siloed and redundant systems as well as from external data sources. Many firm’s websites lack important features like single sign-on access, portfolio performance tracking capabilities, and real-time access to market information. As of today, most firms are unable to effectively meet their clients’ demands of instant access to their accounts information on mobile devices. Exhibit 5 shows key technology challenges that WM firms face today.

Sub-optimal operations, processes and tools

Redundancy of tools and applications lack of Integration

Sub-optimal tools

Sub-optimal onlines channel

Sub-optimal reporting solutionslack of good document

managment system

Inability to provide robust mobile solutions

Data security challengeslack of real time access

to market information

HighLow Impact on client

Hig

hLo

wIm

pact

on

WM

�rm

Disparate channels for

gathering data

Paper based data

collection & review

Inadequacy of gathered

data

Changing regulatory

requirements

Disparate data needs

Changing data

requirements

Client o�-boarding due

to data related errors

Long lead time for KYC

and data veri�cation

Multiple personnel gathering

dataRepetitive gathering of

same data

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Firms must leverage Business Process Management (BPM) solution. BPM’s workflow automation and rules engine will help firms to manage risks, lower cost, better understand and control their client relationship and also manage regulatory burdens. Firms should deploy BPM without disturbing their legacy applications. They need to pay close attention to all of their internal processes. Ensuring that their processes meet the firm’s control requirements and that these processes are effective, efficient and dynamic to account for rapid changes is critical. Firms must also leverage business intelligence (BI) solution and the required information must be integrated with and available to the BI applications. Can the firm look at BI initiatives holistically and implement these at the enterprise level? Creating an agile technology environment and having a flexible architecture is a crucial imperative. Firms must review their entire technology solution landscape and carefully evaluate and deploy in earnest the right solutions. They must work towards integrating their WM tools and front, middle and back office components. Exhibit 6 shows features of a best-in-class WM platform.

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Exhibit 6: Features of best-in-class WM platform

Exhibit 7: Technology improvement areas for WM firms

For technology investments, firms must think strategically and make prudent investments. Exhibit 7 identifies key areas where WM firms could focus their technology investments. Firms must look towards outsourcing their non-core functions and also consider hosted (SaaS or managed) technology solutions. While choosing a vendor for providing technology solutions, firms would be prudent in considering the vendor’s past record, managerial and technical capabilities, fitment with firm’s needs; solution’s flexibility, scalability and its ability to service multiple groups within the same organization. For global operations, firms should select a service provider that understands the local market and has a proven capability of investing in the solution integration.

Data Aggregation, Reporting & Management

Website Improvement, Web 2.0 & RIA capabilities

CRM & Analytics

Business Process Management

Front-office and Back-office Improvements

Collaborative Network and Service Orientation

Mobility Compliance needs & Information Risk Management

Best-in-class Wealth

Management Platform

Customer Experience

Advisor Productivity

Transaction Processing

Infrastructure

� Holistic and real-time investment view� E�cient on-boarding� Decision making tools� Web 2.0 technologies� User centric approach

� Integrated work-station� Holistic view of products and services� Integrated lead and contact

management� Advance portfolio management

capabilities

� STP, cost e�ective and modular processing

� Multi channel integration� Dashboards and work�ow enablers� Intelligent exception management

� Multi-skin single platform approach� Customer segment based

di�erentiated services� Data quality management, dashboard� One-stop-shop; leverages white labeling

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ConclusionToday, it is crucial for WM firms across the globe to follow robust strategies to be on firm footing and regain clients’ trust. Towards this end, firms must holistically view their key challenges, the disruptive forces that are shaping the industry, and the opportunities. Firms should further consider the solutions provided in this paper and tailor these per their needs, to come up with tailored strategies for overcoming their specific challenges. Importantly, firms must focus on flawless execution of their defined strategies. If a firm can implement recommended solutions flawlessly, it will transform its business and prosper tremendously. Those firms that don’t take heed of the recommendations run the risk of being left far behind by competition.

About the Authors

Anjani Kumar

Principal Consultant in the Consumer Banking practice of Infosys Limited

Anjani has ~15 years of IT, domain and process consulting experience. He has deep knowledge and expertise on the Consumer Banking techno-function aspects; with special interests in the Banking Channels and Analytics space.

Kamlesh Oswal

Associate Consultant in Capital Markets Practice of Infosys Limited

Kamlesh has 3.5+ years of experience in area of Wealth Management and Process and Domain Consulting. As a part of professional responsibilities Kamlesh has acquired exposure in Broker /Dealer function alongwithWealthManagementand Credit Analysis. He has had extensive exposure to Equity Trading and has keen interest in Derivative products.

© 2012 Infosys Limited, Bangalore, India. Infosys believes the information in this publication is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of the trademarks and product names of other companies mentioned in this document.

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