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The future of wealth management
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The future of wealth management

Understanding changing client needs, leveraging digital technology vital to success in new, dynamic environment

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The Bahamas Investor Magazine
July 23, 2015
July 23, 2015
Andrew Hamilton and Robert McGraw

The wealth management industry is undergoing fundamental change across the globe. Changing investor demographics and servicing needs, increased competition from local and global providers, and escalating costs to comply with industry mandates–such as Know Your Client (KYC) and the US Foreign Account Tax Compliance Act (FATCA)–are making it more challenging to deliver sustainable and profitable growth.

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The impact of these changes is even larger for offshore private banks as FATCA is levelling the playing field in attracting global investors across many jurisdictions.

While there have been several high-profile market exits by global wealth management organizations, there are still opportunities for significant growth for firms that can adapt to change and deliver stronger value propositions. This is an opportunity for firms to re-examine their business models and service delivery capabilities to attract and better serve high-net-worth (HNW) and ultra-high-net-worth (UHNW) investors from traditional markets across North and Latin America and from higher growth markets in Asia.

Key success factors
There are a few key factors that should be considered to be successful in this changing environment:

Understanding changing customer needs
Customer behaviours and expectations from a wealth manager are fundamentally changing. As a result, HNW and UHNW investors are expecting a more personalized approach to understanding their needs; and a servicing approach that reflects regional, cultural, gender, source of wealth and generational differences.

Delivering stronger customer value propositions
Assuming some form of second citizenship or dual passport legislation materializes in The Bahamas, some wealth managers can position themselves to offer a broader array of services to help individuals relocate business operations or invest in local businesses. In other cases, stronger value propositions could be constructed by extending the range of services offered to individuals directly, or through a network of alliances and service providers.

Scale will matter
Many global firms can leverage a global brand and distribution network to attract HNW investors in growth markets such as Asia. These firms are financially advantaged to make significant platform investments. Smaller wealth managers may find it more effective to compete by specializing in fewer areas and relying on a broader ecosystem of third party specialists to fulfill the client’s other wealth management needs.

Leveraging digital technology to strengthen the client relationship
Many wealth managers are in catch-up mode in harnessing the full business potential of a digitally enabled customer service offering. The importance of having an engaging and interactive digital service offering to support the need for anytime/anywhere access and virtual private banker collaboration is growing in importance in acquiring and retaining client business. When executed well, the digital channel can serve as a way to strengthen the overall relationship between the client, the private banker and the firm in delivering a more integrated customer experience.

Getting digital right
While the direct to investor “robo-advisors” and advisor-assisted digital upstarts in North America and Asia are making inroads in the mass affluent space, these firms are not likely to become a direct competitive threat in serving the needs of the HNW/UHNW private banking client. They are, however, making a direct market impact in other ways: firstly, they are putting pricing pressure on investment advisory fees and secondly, they are re-defining customer experience expectations from traditional wealth management providers. While their product and service offerings and business model is not as robust as full service firms–they have mastered the art of streamlining key customer experience events, ranging from client on-boarding to delivering outcomes oriented advice and client reporting.

It is not too late for traditional wealth management firms to learn from these business models and apply leading practices for customer engagement to deliver a seamless customer experience.

Key principles behind an integrated digital wealth offering for private banking are centred on delivering a very strong “Digital Core” that addresses key customer experience priorities and strengthens the overall relationship between the firm, the client and the private banker.

The Digital Core is becoming the new baseline set of customer experience expectations moving forward across different wealth segments and business models.

These capabilities include:

• Streamlined client on-boarding to reduce the cost and complexity that has emerged with compliance to KYC and FATCA;
• Virtual collaboration capabilities to link private bankers, tax and trust professionals and clients in a secure manner;
• Integrated advice;
• Portfolio analysis and rebalancing; and
• Balance sheet reporting (assets and liabilities held by the firm and with third parties)

Where we see wealth management firms differentiating is in the outer layer (segment specific differentiators). This is where firms can leverage their unique brand and areas of specialization to compete more effectively and leverage digital as a way to improve service, address a broader set of investor needs and reduce operating expenses.

Organization implications
A digitally enabled customer strategy needs to be sponsored by senior business leadership and requires a dedicated chief digital officer to drive the strategy and execution. This is essential since a digitally enabled client experience strategy requires orchestration across all facets of the organization–marketing, product, advisors, operations, technology.

In many cases, organizations may need to bring in new talent to lead the transformation and infuse leading practices honed from early adopters. Finding an executive with the right balance to successfully shape the operating strategy and integrate into the culture of the firm is often the most challenging aspect in finding the right leader.

For smaller private banks, it will be important to partner with the right firms to operationalize the customer strategy. Selecting a firm that can serve as a business and technology integrator is essential to delivering the right skills from initial service offering concept and vision through to a successful launch. These skills can include support around customer strategy, segmentation and insight development to define the right customer value propositions, streamline key customer experience journeys, and leverage digital design expertise to integrate private bankers’ and HNW investors’ emotional and behavioural characteristics. Of equal importance is finding a partner that can bring the right technology and operations and core systems integration expertise to accelerate speed to market.

Opportunities for growth
Over the next three to five years, the private banking business will dramatically change, creating new opportunities for forward looking organizations to capitalize on new opportunities for growth. Competition for HNW and UHNW investors will become much more global in nature and the marketplace will reward the firms that can clearly differentiate in the marketplace. A digitally enabled service model can serve as a point of differentiation to attract and retain global investors.

Embracing these market and customer dynamics and identifying new sources of value creation is an important first step in positioning for the future. Opportunities to grow will only be realized when firms integrate strategy with rapid execution as many jurisdictions are vying to attract the same global investor base.

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