The biggest challenge for wealth management firms today revolves around reducing cost and building customer trust. Firms are working to improve their operational efficiency and business models and come up with a comprehensive business and service model that caters to customer demands and enhances service offerings. The key to success is to strike a balance between client satisfaction and operational efficiency for the firm.

This paper seeks to explore the top trends in wealth management in 2010 and discusses the technological implications brought about by these changes.

Trends in wealth management and IT implications

Global regulations: The wealth management industry is highly regulated. Post the 2009 financial downturn a focus has developed on introducing new regulations to ensure that financial services firms remain healthy and robust.  Firms need to comply with all global and local regulations such as KYC (Know Your Client), anti-money laundering, trading regulations such as MiFID, bank regulations such as Basel-II, and other country and domain specific regulations. They must do so to make their operations transparent and mitigate the risks of malpractice and default. In 2010, wealth management firms will make use of several technology initiatives to comply and meet regulatory requirements.

Technology initiatives to support regulatory compliance

You can set up a web-based KYC and AML system at the front office level itself to automate the client onboarding and document management process. This will not only improve efficiency but also provide greater credibility to processes and reduce the risk of default.

WM firms should use technologies such as Business Process Management (BPM) rules engine to cater to country and domain specific regulations. This ensures that any changes/ additions/ omissions in the rules are easily incorporated without extensive changes made to backend systems.

Wealth management firms should institutionalize online auditing and surveillance systems to ensure policy guidelines are met at each stage of the wealth management value chain. This helps ensure the generation of alerts or warnings each time there is a policy breach, which can be then validated and examined further.

Use of ready to use IT solutions such as TIBCO workflow tools, balanced scorecard solutions, business objects reporting, iLog Rules Engine, are just a few that can be integrated with the legacy systems. These ready made solutions would reduce lead time and enable the firm to quickly adapt to the latest regulations.

Changes in the customer demographic profile

A recent United Nations’ population study predicts that the size of the European population aged 55-64 would grow 35 per cent by 2025.

The US Census Bureau estimates the number of people above the age of 65 in the US will more than double from 35 million in 2000 to 80 million by 2040. Increasing life expectation is an opportunity for wealth management firms to offer products specific to this segment (such as retirement accounts, estate planning, business succession planning, reverse mortgages, among others).

Technology initiatives to overcome the retirement crisis

Use of sophisticated CRM and data warehousing tools, supported and enabled by IT can help gain a 360 degree view of the client. A complete and accurate understanding of the client profile also facilitates the creation of retirement solutions which best match the client’s needs.

Trust and capital preservation are key drivers of retirement planning.  Use of Instant access technology can provide the client with 24*7 real-time account access and thus, foster transparency and trust.

Technology should be used to have a single view of the client at enterprise level. This unified view can be then be leveraged to up-sell and cross-sell retirement solutions to the existing clients. Firm can make use its understanding of the customer’s profile from other engagements to ascertain the retirement solution fitment and thus improve the proposal acceptance rate.

Focus on Emerging economies

 As traditional markets saturate and competition increases, firms are looking to enter a thriving emerging market that witnesses annual growth rates of four to eight per cent. Economists estimate that by 2015-2020 China's upper class will be larger than America's middle class. Growth in countries such as the BRIC economies (Brazil, Russia, India and China) will ensure that the family office format of wealth management services will continue to grow in popularity in the next decade.

Technology initiatives to propel growth across geographies

Installing Flexible and agile IT would help define automated rule-based engines so that the technology is relevant in all regions. These will future-proof technology for the firm.

Wealth management firms could look at SaaS (Software as-a-service) and services on demand as they position themselves for growth. This will help the firm function effectively with lower ‘start-up’ costs and access to good quality services. Furthermore, software-as-a-service allows firms to have a centralized control of the applications, whilst at the same time it allows them to cater to the needs of global customers (both internal and external i.e. investor as well as the advisor).

An enterprise level IT implementation will take care of region specific product preferences and diverse needs of customers worldwide.

Greater need for product innovation

Clients are increasingly becoming more sophisticated and proactive. In addition, they are globally aware, mobile and appreciate advanced financial products like structured products and Unified Managed Accounts.

Product mixes offered should be more robust, flexible, and customizable for all client needs and adaptable to market changes.  Firms need to look at new investment avenues and normalize stock market dependence, with due focus given to other organized and OTC markets.

Driving Technology and Product innovation

Innovative products such as Sharia-compliant products, socially responsible funds, charity funds, bundled products, and investment or advisory services can be rapidly built and supported by IT. These can be then offered with geography, market and client specific elements.

Technologies such as BPM, Business intelligence, workflow tools and mashups can be used to define and streamline creation of innovative products. By setting appropriate parameters and variables, the flexibility and range of the system can be controlled. Moreover, the speed of development can be managed by putting in straight through processes.

Leading firms and RIAs (registered investment advisors) are looking at ‘alternative Investments” in non conservative fields such as wine banking, art banking, and hedge funds. Technology can be used to rapidly build platforms which connect these markets to the existing trade engines of the firm.

Customer Relationship Management systems and customer analytics tools can be scaled up to have sufficient  inputs  to predict the future needs of the customer; which  in turn can be used  as feeds for the product development process.  The focus here should be to implement these without disrupting the legacy applications.

Pricing pressure and growing competition

There are an increasing number of mergers, acquisitions and alliances in the wealth management industry. The need of the hour is a differential pricing model based on customer segments and employing technology that efficiently supports it. Firms need to establish a client relationship that not only adds value to the client but also provides them a good level of maneuverability, scope for self-governance and the right level of consulting.

Technology initiatives for cost reduction

IT can be used to adopt real-time, intelligent, analytics based goal-setting engine with utmost transparency to improve the customer experience.

Tools to efficiently operate complex Portfolio Testing scenarios such as back testing, stress testing, what If analysis and Monte Carlo simulation can be easily automated with IT.

Technological initiatives (cloud computing for example) should be used to reduce costs and the lead time for implementation.

Shifting from commission based to fee based pricing (taking hint from the growth in managed asset accounts) helps strengthen client relationships further, while safeguarding the firm’s revenue generation. Use of IT initiatives such as SaaS is a valuable option here. This goes a long way in ensuring greater share of the customer’s wallet for the firm.

Increased client expectations and changing role of advisors

Changing service needs and risk appetite of clients has shifted the focus from transaction/investment-based products to advice-driven services. Wealth management firms need to cater to needs of different segments of clients including the mass market, mass affluent, HNW individuals and ultra-HNW individuals and offer services best suited to them.

The risk appetite and investment horizon of each of these segments is vastly different from the others. The Pricewaterhouse-Cooper’s wealth management survey of 2009 shows that a whopping 40% of a financial advisor’s time is spent in maintaining and servicing existing client relationships.  

Clients are looking at a mix of discretionary (self-service type of accounts) and advisory services based on their needs. They expect their financial advisor to evolve into the role of a ‘life advisors’ and look after all their lifecycle financial planning needs i.e. taxation, retirement and investment planning along with the estate transfer and maintenance.

Technology initiatives to improve client interfacing and facilitate advisory services

Setting up of a “One Stop Shop” sort of online client portal catering for all aspects of monetary dealings and providing real-time data access. The need of the hour is to develop sophisticated, graphic rich and engaging portals which enhance the overall investor experience.

Enabling mobile capabilities for advisors and customers also goes a long way in helping continuity of business at all times. This is more relevant especially with devices like the iPhone, Blackberry and other “smart devices” gaining popularity.

WM firms should provide a unified platform where all specialist advisors and relationship managers can work on a client’s portfolio spread across various applications to manage and track conveniently. This unified view of the customer will help provide highly customized services and a minimum common understanding of the customer.

Adoption of collaborative technology and IT enabled social computing facilitates the sharing of knowledge among advisors and brings efficiency in client communication with the aim of improving the rate of proposal acceptance.

Provision for online training of advisors and continuous access to research and market updates on the advisors’ workstations. Use of cost effective social media tools to provide innovative services and improve learning within the organization.

Implementing technologies such as  IT open architecture and advanced planning tools that incorporate Web 2.5 and Service oriented architecture (SOA) technologies go a long way in integrating all client data available with the firm with the aim to build the foundation of an agile and adaptive platform for all future avenues for expansion.

Conclusion

Technology continues to play a pivotal role in facilitating wealth management firms to face their operational and business challenges. With clients having greater choice and higher levels of awareness, such organizations need to constantly come up with new and refined products and services which best suit their client requirements. To enable this, firms need to invest in business models, governance models and IT that foster and promote dynamic services to each individual client’s needs without compromising on operational efficiency and regulatory compliance.