In part one of a two-part commentary, JHC Systems explores how its software is addressing some of the most urgent challenges in wealth management.

(An earlier version of this item appeared on WealthBriefing, sister news service to this one.)

In an exclusive interview, senior executives at JHC Systems, the providers of the FIGARO investment management platform, explain how their software developments are addressing the most pressing problems facing wealth managers today. 

Attitudes towards technology continue to shift rapidly in wealth management; increasingly it is seen as a panacea for the weighty challenges facing wealth managers rather than a threat to its traditional service values, where the personal touch is paramount. But while it is easy for fintech firms to speak of providing technology “solutions”, what is required today, as explained by senior executives at JHC in a recent interview, is a laser-sharp focus on the industry’s problems and being closely in tune with its ongoing evolution. 

John Blackman, chief executive of JHC, and Steve Smith, product manager for FIGARO, spoke to WealthBriefing ahead of the first product release on Element, a new software platform designed to work in tandem with the firm’s core platform and which forms the foundation of its next-generation product suite. JHC has committed a significant amount of investment into the application platform, which is the product of extensive market research to pinpoint wealth managers’ most pressing needs. So what are the real “pain-points” and how is JHC positioning its products to address them?

Two of the big pressures facing wealth managers are increasingly cost-conscious, financially savvy and demanding clients, and the expense associated with heightened regulation. These challenges have made leveraging technology to “do more with less” the industry’s mantra as firms work to protect profitability, improve efficiency, reduce risk and save time.

While wealth managers are certainly seeking efficiency gains throughout their operations, for most this will boil down to finding more efficient ways of servicing clients and managing portfolios, and therefore making significant man-hour savings across their advisor force. Correspondingly, JHC’s research identified several key areas where wealth managers really need help in their quest for scalability.

Where does it hurt?
The first key area identified, Blackman explained, was client onboarding. One of the first experiences a new client has with their chosen wealth manager is the way in which the new firm handles the adoption of their existing portfolio. The wealth manager wants to create a good impression with a quick, smooth and efficient take-on of the client’s assets. For some firms, the absence of digital data capture has resulted in backlogs of paperwork stretching back over several months – not a good first impression for the new client. 

A greater challenge is the lack of automation in the portfolio review and rebalancing process. Monitoring portfolios against their mandates and rebalancing them effectively and efficiently is clearly a high priority, with investment suitability top of the agenda.

Hefty fines continue to be meted out against firms failing to demonstrate appropriate suitability procedures, even in the absence of any client detriment. Meanwhile, recent research from Scorpio Partnership has revealed that close to a third of younger clients feel their wealth manager’s investment recommendations are misaligned with their risk tolerance. For those without the right systems, particularly those managing burgeoning books of clients, the task of portfolio monitoring and management can be onerous, time consuming and prone to human error. 

As Smith points out, many wealth managers suffer from a lack of automation and systems integration, so portfolio monitoring and rebalancing still requires a lot of manual work. “This is a huge part of investment managers’ day-to-day job, cycling through their clients on a typically monthly basis,” he said. “Some extract data to then work on it in Excel; realigning portfolios to models, sometimes reclassifying stocks, and even generating orders manually. All of this can and should be done automatically within the system, with a full audit trail being captured.” 

Proactive approach
In addition to addressing the issue of manual intervention and relying on spreadsheets and other external tools, there is a growing need for real responsiveness to issues within clients' portfolios as they arise, Smith continued. 

“Investment managers need a system that will proactively alert them to problems as soon as they occur, without waiting for a monthly review,” said Smith. “The system must tell the investment manager what’s going on in their portfolios, for example where an asset tolerance has been breached or a cash deficit is imminent, so they can either fix it through rebalancing or accept it and capture their decision in an auditable form.”

Clients using model portfolios or funds to achieve economies of scale, and perhaps to reach a wider demographic, are reaping significant gains through using FIGARO, Blackman explained. Managing a large number of clients against the same asset allocation models (if not the same underlying instruments) opens up huge potential savings, he noted, but only if replication of work is eradicated and all possible efficiencies are aggressively pursued, and the firm really makes the system work for them.

Editor’s note: John Blackman, chief executive of JHC, will be speaking at the WealthBriefing Operational Strategy Summit on 1 October 2015. To register to attend, click here.