In the first in a two-part series, this publication gathered views from the world's top consultancies about the big themes and trends in the wealth management industry for the next few years.

The past 12 months
were hard for some parts of the wealth management industry – but much brighter
for others. The next year will be at least as challenging although
professionals in the sector will hope for finer economic weather. With
conflicting pressures of rising client expectations, tougher regulations and
revenue-hungry governments, this industry faces the need to keep its business
models ruthlessly relevant to clients. So as 2013 got under way, this
publication spoke to some of the consultants who track the fortunes of this
industry and proffer solutions to clients. Not all of the organisations we
approached were able to talk or willing to do so on the record but this
publication is nevertheless most grateful to those individuals who have taken
the trouble to see out their views on an industry that runs around $19.3
trillion of client money worldwide (source: WealthInsight).

Each organisation was
asked to give a view on a single topic, although several chose to be more
expansive. The first part of the responses is published today:

Key take-aways:

-- It is more
necessary than ever to understand what clients want;

-- There are moves to
codify the client experience and produce usable data;

-- The industry has
not yet fully adapted to a world of very low interest rates;

-- Business models
must be re-thought to cope with regulatory and other pressures;

-- Social media
should be used intelligently – these are not gimmicks;

-- Fostering a
culture of quality service and attention to clients takes time but can be done;

-- A new area of
concern is “conduct risk” – made very real by regulatory crackdowns.

Tony Cohen, global
head of private client services, Deloitte.

The “shrinking” globe is not a new phenomenon and
globalisation has been a watchword for a number of years but for 2013, it is
different. Global markets are in the midst of profound change. Governments rely
on business to lead future wealth creation by focussing on near-term growth
targets. Many look to the entrepreneurs who run private business to provide the
inspiration that will lead to future prosperity. New markets need to be
penetrated to enable this growth and individual business owners are looking at
the likes of China, India, Brazil as well as the African
markets to deliver the global demand that the developed markets used to
dominate.

Tax authorities are becoming more sophisticated and are
focussing on global tax compliance - and global exchange of information is a
reality. The global tax rules are not necessarily consistent and early cross-jurisdictional advice is critical. Wealthy individuals who are globally mobile
need to understand all the implications of their actions and not be caught out
by unanticipated and unnecessary pitfalls. 
Entrepreneurs from all countries are looking to have a presence in another
jurisdiction whether that is a move west or a move east.

For the wealth advisors this means that there is a need to
ensure that they clearly understand the drivers and objectives of their
clients. Different jurisdictions are at different stages and there needs to be recognition
that people need different advice at different times delivered in different
ways.

Sebastian Dovey, managing
partner, Scorpio.

On the positive, there are some exciting new evolutionary
elements in the wealth industry that are capturing our imagination. These
include the concepts of client activism, the recalibration of the relationship
model, the emergence of new gateways to wealth management, the rising
importance of client data analytics, and, in our words, the codification of the
client experience. The latter is a very big issue in our view. As many
followers of Scorpio partnership know this has been an ideology of ours from
the 1990s but it is fantastic to see how many industry operators are beginning
to grapple with the concept.

On the negative, we are now entering the fifth year of
sustained low growth in new assets for the industry coupled to increased cost/income
[ratios] which presents some stark challenges to the various business plans
many firms are committed to. The strain on the traditional model of this being
a people-based business is at a breaking point - how much longer can the
industry wait before it addresses the big issue - are many of the advisors
today delivering against their costs and, if not, how much longer can this be
endured?  

So, looking to activities in the 2013 calendar in our view
the industry is going to see some more revolutionary thinking about how to
delight clients and how to reconfigure the entire relationship model. This will
be supported by a lot more data and insight providing the evidence for decision
making. The work is going to the heart of the matter – is wealth (management)
worth it?

PricewaterhouseCoopers
– Jeremy Jensen and Ian Woodhouse.

Jeremy Jensen, leader of EMEA global private banking at the
firm, observes that success in 2013 and beyond demands that wealth managers
transform themselves. Historically siloed business models and poor
infrastructures must be adapted to be more integrated and agile or
organisations will face the ultimate consequences of underperformance.

Continued volatility and uneven growth rates across the
global macroeconomic environment, together with client demands for better
performance, service and solutions, against the backdrop of unprecedented
regulatory upheaval, is driving model shift. If players are to achieve
sustained growth, protect and grow margins, reduce high cost-income ratios and
meet their increasing compliance obligations then for most C-level executives,
the requirement now is how to manage all of these weighty demands.

Ian Woodhouse, director, at PwC’s EMEA global private
banking practice, says the need for model change is partly due to the
significant volume of regulation in the areas of client protection, (conduct
and suitability) and tax transparency, such as RDR, Mifid 2, FATCA and DTTs.
Coping with these regulations places considerable demand on the change capacity
of traditional models and there is an increased risk of failing to keep pace
and effectively interpret the regulatory agenda. Woodhouse sees the traditional
approach of tackling each regulation in isolation being replaced with a need to
work across a more integrated portfolio of regulatory change to avoid overlaps
in key areas and to better manage interdependencies and resource issues.

Woodhouse also points out that the historical approach to growth which
looked at multiple geographies, client segments and product and services in a
fragmented way will need to be more focused around specific markets,
particular client segments and supporting products and services, and will need
to be delivered in more integrated and collaborative ways. It is not possible
to be all things to all people.

Jensen says the historical legacy of fragmented and siloed
approaches to operations and systems, with associated complexity, cost and the
inherent "change challenge", will shift to future models which are more agile
and productive through adopting leaner processes and technology enabled to
deliver lower-cost, and better-controlled, infrastructures. Further
opportunities include creating more integrated centres of excellence for
operational activities such as securities processing and centres of product and
advice expertise.

According to Jensen, changing the business from the old to
the new is hugely challenging, but necessary, and ultimately rewarding. It
requires recognising new realities, the ability to articulate the future state
model and an execution roadmap to sequence the journey as well as driving the
changes to both the business and culture at sufficient pace. Several players
are already moving towards adopting more integrated and agile business models
through change programmes. Others are choosing non-organic routes to help shift
the model, while other players may decide the challenge is just too great.

RFi Research - Alan Shields,
managing director, Australia
and New Zealand.

The world is caught up in a frenzy of social interaction and
new technological developments. People the world over are sharing thoughts and
experiences with consummate ease: with friends and strangers; with colleagues
and potential employees; with siblings, parents and grandparents. And they are
doing it via new devices. The ubiquity of brands like Facebook, LinkedIn,
Twitter and YouTube in today’s world is hard to ignore, with these brands
practically redefining what is meant by the term "household name". Add to this
the advent of tablet and mobile device ownership and capabilities and it is
unsurprising that organisations such as banks are seeking to capitalise either
through mass access to new potential audiences, or through efficiencies in
channel mix and communication.

If a bank is truly interested in its relationships with its
clients, as any private bank must be to succeed, it must listen to its clients.
The point of a private bank’s social media activity and technological strategy
should not be to monetise the client base directly, but to cater for the client
first and foremost.

Add to this the fact that each client’s needs are different,
and a one-size-fits-all method of social media presence and channel delivery is
unlikely to work well. It is not sufficient to provide clients with iPads and
set up a Facebook page. However, if a private bank is familiar with the current
usage and propensity of its audience then it should be able to adapt to
clients’ needs and enrich the private banking relationship.

It can be challenging to cut through the hype surrounding
social media and new technology and see "value" in clear terms. There are
benefits to implementing tools which enrich interactions with clients, however,
in relationship-based banking services. "Everybody else is doing it" may not be
the best reason for a bank to change the way it relates to its clients.

RFi research has also provided insights into the way private
banking clients use social media. One interesting revelation is that private
banking clients of all ages and professions use social media, though not all in
the same way. For instance in Australia
more than a quarter of all HNW individuals use LinkedIn, but they tend to be
older clients with more extensive executive networks. Another interesting point
is that some clients who use social media don’t think the sites they use are
relevant to them, or at least not relevant to them in a banking context. These
clients might not engage with these sites productively, or even frequently.

A good example is Facebook, which is used by more than two thirds
of HNW individuals in Australia
but in many instances is just for "keeping in touch" with widely-dispersed
families. RFi’s research highlights the need for private banks to listen to
their clients’ preferences and to use social media as part of an adaptive
strategy, not to assume that because a client uses a particular site that they
want to engage there.

When well-informed about the nature, propensity and relative
comfort of clients towards social media and technology, private banks can
create tailored solutions for each client, where appropriate. They can ensure
that RMs are well-educated in social media and communication etiquette, while
ensuring that they are flexible and able to adapt to changing client needs and
constantly evolving technologies.