Bridging the Wealth Management Gap Think


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Bridging the Wealth Management Gap Think

  1. 1. IBM Financial Services Bridging the Wealth Management Gap Think
  2. 2. Contents 1 Introduction 2 Definition 3 The market 4 The response of suppliers 4.1 Wealth management market map 4.2 The economics of wealth management 5 The wealth management gap 6 Looking more closely at customer needs 7 The family office 8 The “wealth management loop” 9 Essential wealth management capabilities 10 New competitors and potential threats to financial services organisations 10.1 Lifestyle managers 10.2 Product and account aggregators 10.3 The revised wealth management market map 11 The future of wealth management? 12 Conclusion 13 Appendix 1 14 Appendix 2 15 Appendix 3 16 Appendix 4
  3. 3. 1 Introduction 2 Definition This report examines the early history A recent paper by one of the of a new phenomenon – wealth authors of this report, Professor management. It discusses whether it Merlin Stone, explored the state of really is new, and how much of what wealth management defined in terms we are seeing is a case of, “the of the management of discretionary emperor’s new clothes”. It explains and free financial assets i.e. those why the phenomenon has become assets which a customer can set so important to financial services aside for longer term purposes.1 companies and what they are doing The paper explored the extent to about it. Finally, and perhaps most which customers were paying high importantly, it discusses the real charges for performance, which was changes that customers are no better than if they invested in a expecting and should expect in the “lightly packaged” service. However, services, that they are being offered. since that paper was written, our research indicates the need for a The feeding frenzy of financial broader definition – the nature of services companies is evident, which has been explored in depth but consumer enthusiasm is not. in a recent IBM paper.2 In the latter This is, we believe, because of the paper, we took a view that wealth restrictive definition of wealth includes a lot more than assets, management adopted by most of and could even be extended to these suppliers, and the lack of include current and predicted well clear benefit for the consumer. being i.e. health, and the financial products, which underpin it. In this report, we first define the idea of wealth management. We then review the well-trodden ground of the evidence of market size. We then discuss the concept of the family office, which is the nearest we have seen to comprehensive wealth management and go on to suggest what kind of company is likely to lead the wealth manage- ment market in the future. 1 Merlin Stone, ‘How stealth charges destroy wealth’, Bristol Business School Research Paper, October 2000. 2 Kevin La Croix and Merlin Stone, ‘Managing Wealth? Are you? Really?’, IBM Business Innovations Services, May 2001
  4. 4. 3 The market Every day in 2001, 1,265 new high • Lower interest rates and inflation have net worth individuals and 3,340 new made it harder for individuals to fund mass affluent individuals will be their retirement by buying property on a created in 10 European countries. mortgage – they now need to get a real Every hour in 2001, 53 new high net return on investments worth individuals will be created. • The government has promoted the (Source: Datamonitor, April 2001) introduction of a range of more complex, tax-efficient savings products In this climate of growing affluence, a • State provision being replaced by combination of factors has increased self-provision, with particular emphasis the complexity of customers’ affairs, on retirement planning. The already making management of wealth more complex regulatory environment is due important than ever. These include to change. The current polarisation rules, the following: which dictate that regulated product sellers must be either ‘tied’ (selling only • More inherited wealth – trillions of their own products) or ‘independent’ dollars of wealth will be transferred (selling the products of any provider) between generations over the next few are being reassessed. A new category decades. In many cases, this is the first of ‘multi-tied’ providers may emerge. substantial, inter-generational transfer for the family As the complexity increases, wealth • Increasing disposable income continues to be created in the • Changing world of work (greater job economy, and the market opportunity mobility, more self employment etc) is still growing rapidly, driven by • An aging population – by 2030, 25% of market performance and GDP Europe’s population will be more than growth, increased share ownership, 65 years old employee stock options, and inter- • Changing gender roles, with women generational wealth transfer. playing a much more active role in long-term finance Globally, an estimated 7.2 million • The changing structure and roles of people hold over $1 million in financial households and families. Divorce rates assets, totalling approximately $27 remain high and women are having trillion. By 2003, 25 million investors children later, extending the period for are expected to manage $1.9 trillion which households have to maintain online, generating approximately $20 high incomes billion in industry revenue. Few organi- • Wealth increasingly concentrated sations have been able to ignore the among upper-middle class – money scale of this opportunity and a huge begets money number have turned their attention to • Consumer behaviour becoming more the wealth management market. complex and less homogenous. Custo- mers have become more demanding, more sophisticated, less trusting, keener to manage their affairs themselves, less loyal, more interested in wealth and how they should be managing it
  5. 5. 4 The response of suppliers Many different types of financial In the top left hand corner are the They evolved largely to cope with the institution are trying to capitalise on investment banks and asset man- complexity of the market, created by the opportunity by stretching their agers companies such as Goldman past regulation about what is pos- offerings and capabilities. Sachs, Merrill Lynch HSBC, and JP sible, poor regulation in the area of Morgan Chase. They too are seeking clarity over charges and an over- There are examples in all the to broaden their base, but have real- complex industry structure. However, categories shown in Figure 1 of ised that in order to help the new they are starting to respond by put- organisations trying to adapt their wealthy manage their assets prop- ting greater focus on efficiency and current business models, existing erly, they have to offer advisory by becoming tougher with their sup- brands and offerings to capture the services. Their problem is similar pliers. Mergers have also increased wealth management market. The to that of the private banks – how their average size, facilitating this result has been a lot of ‘noise’ in to offer these advisory services application of pressure. this wealth management space and cost-effectively. confusion over what wealth manage- At the bottom left of the diagram are ment really means. At the bottom right are IFAs, ranging the new entrants (e.g. Egg, Virgin, from the one-man band to companies Using direct marketing and There has also been much neglect such as Hargreaves Lansdowne. Web technology, they are aiming to of the fundamental management Responsible for the wealth of very capture more of the assets of the principles, which many financial large numbers of mid-worth indivi- wealthy through efficiency. services companies are still getting duals, they are under threat from all to grips with: the other institutions, partly because of the commissions they receive for • Targeting the right customers their work, which consists largely of • Understanding real customer needs configuring highly complex products • Developing the right tools to simple needs (see earlier report). and capabilities. 4.1 Wealth management market map Figure 1 Wealth management market map Figure 1 shows two key dimensions of the wealth management market High – customer behaviour i.e. need for depth or quality of advisory service Investment banks/asset and amount of customer wealth that managers Private banks these services are targeted at. Wealth Customer wealth Those in the top right corner are insti- management mid-market tutions that deal fully with the very Small niche ( 15 trillion of players wealthy – the private banks, such as assets under Crédit Suisse and SG Hambros. They management New in Europe) are starting to target the next layer banks down of the wealthy (the affluent), IFAs Portals but because of the high costs of their advisory services, they are also Retail banks having to strip down these services to achieve cost levels that their new Low Customer behaviour target customers can afford and that Self directed Requires direction are economically viable.
  6. 6. Just to the right of these are There are a number of reasons why The JP Morgan data in Figure 2 the traditional retail banks (e.g. a retail bank would want to move into appears to demonstrate that the Barclays, Lloyds TSB), which are the wealth management market: need for products grows with wealth: trying to spread their influence in all directions (though some of • It’s big – total assets under management • About 40% of private clients hold four or them also own companies that of $27 trillion in 2000 and expectations more products, compared to 6% of basic work elsewhere in the diagram). of $40 trillion in 2005. Revenues (retail) clients represent about $100 billion p.a. • Private clients are typically 22 times Somewhere in the central space • It’s growing – 10% CAGR for whole more profitable than basic clients are niche players, such as Close market, with even faster growth in the • A private client with four or more Wealth Management, who offer onshore European market – 12% products will generate profit of highly efficient discretionary services • It’s profitable (see ROE figures in approximately 868 p.a., compared to and which provide comprehensive Table 1) – very high returns compared to 162 p.a. for two or less products. advice and education upfront. other markets, driven by low regulatory capital requirements and annuity-based All of these players have been commission income attracted to the wealth management • It’s fragmented – the top five private market by the financial opportunity banks in the world hold about 5% they perceive there. market share between them (UBS, Crédit Suisse, Merrill Lynch, Deutsche 4.2 The economics of wealth Bank, JP Morgan Chase, CitiGroup) management • It’s low risk – private banks carry The key driver for organisations few assets, so little asset risk. moving into the wealth management Most risk is operational. market has been the attractive economics illustrated in Table 1 by the return on equity achieved by different types of organisation. Figure 2 Product holdings for different types of customer Table 1 Average ROE Private Private Bank 87% Type of customer European Universal Bank 22% Affluent UK Retail 30% US Commercial 29% (Source: Morgan Stanley Dean Witter – Basic Private Banking in the 21st Century) 0 10 20 30 40 50 60 70 80 90 100 Percentage of customers with number of products >4 Products 3 Products <2 Products Source: JP Morgan – Online Finance Europe-Invasion of the Customer Snatchers – September 2000
  7. 7. Unfortunately organisations have Different types of financial institutions responded to this by throwing more had different expectations when products at the wealthier customer, entering the wealth management seeing the opportunity for cross market. Most of the institutions selling. This misses the key fact that expected to leverage their existing as they get wealthier, the complexity capabilities and customer base in of customers’ lives also increases order to gain market share and and they need more help. grow profits. In addition, external factors, such as shrinking margins It is these economics that seem to and increasing competition have have motivated all of the competitive pushed financial institutions in the moves demonstrated in Figure 1, directions shown in the wealth market not customer needs. map in Figure 1. However, noticeably absent from the list of drivers and expectations, is any mention of cus- tomer needs. This is because of the different views of wealth management held by financial institutions and by the customer.
  8. 8. 5 The wealth management gap Organisations define wealth manage- This means that there are two Customers are: ment as a very wide range of products very different definitions of wealth (see Table 2 below), all broadly in the management now in existence: • Frustrated by having to re-establish area of advice, relationship manage- themselves for each product business, ment or financial planning, rather than 1.Supply side – providers push e.g. providing the same personal details a comprehensive service for custom- product based offering over to different parts of the same organisation ers. Relationship management tends multiple channels • Frustrated with low levels of resident to be fragmented and focused on knowledge in traditional channels, where 2.Demand side – customers want advice can be poor or inappropriate one or other of the individual services. someone to help them achieve • Tired of constant changes in advisors This has become the traditional view their life goals. and providers, which makes it difficult to of the wealth management market. establish a long-term relationship The result is that that there are a No company has really created a • V sceptical of promises – high quality ery number of ways in which customer truly comprehensive service, though service cannot be sold; it must be expectations are not being met, some would claim to have done so. demonstrated while other service characteristics Instead, they have tried to create • W of poor advice, bad investment ary are irritating and frustrating to some wealth management by adding performance, high charges, lack of customers. Many customers are services, which essentially help transparency etc. simply confused. them to sell more products. The definition of wealth management Most suppliers seem to define wealth that customers have on the other management as clustering products hand, revolves around, “making the around generic financial needs and right decisions about my life, my pushing these through different finances”. They: channels – mainly the Internet. This leads to customer dissatisfaction. • W to be recognised as valued customers ant • Believe they have more sophisticated needs than their providers recognise Table 2 • W empowerment, help, information, ant Banking Current account, money transmission, bill payment suggestions and attention Brokerage Research, advice, trading, settlement • Prefer to make their own decisions, but Lending Mortgages, credit cards, loans need help understanding how different Personal trust Estate asset management, trusts, foundations, solutions might affect them individually. charities, agencies Customers are crying out for some- Mutual funds Research, trading, settlement, valuation, record keeping one to get wealth management right, and if a provider can, the benefits to Investment management Research, advice, trading, settlement, management them will be large, simply because Tax Personal finances, offshore, tax advice, of the volume of business that will tax preparation, wrappers be available, and the marketing and Life and pension Life, home, travel, health, retirement service economies. Customer needs are rarely met at the moment, hence the emergence of the Wealth Man- agement Gap, where the greatest opportunity now lies.
  9. 9. 6 Looking more closely at customer needs For the customer, wealth manage- Different people may have different ment is not about buying financial priorities, but basically all human products. It is about meeting their beings have the same emotional emotional, lifestyle needs. The needs, around which the key life range of these needs is illustrated events and goals can be grouped. in Table 3 below. This is a perspective that, almost without exception, organisations have Customers have a personal mission not recognised in designing their statement (although many have not wealth management offerings. identified/defined it), which reflects their emotional needs, such as, “I want to retire at fifty and live my life to the full”. Table 3 attempts to provide a blueprint of all the major emotional needs. Our hypothesis is that these emotional needs do not vary with wealth level, although the ways of satisfying them might. Table 3 Customer’s mission statement Emotional Secure my future Give me peace Help me enjoy life, Simplify my life Save me time needs Reduce my risks of mind achieve my aspirations Retirement Job loss Cars Transport Transport Birth/adoption Property loss Charity Shopping Shopping Business start-up Death Birth/adoption Vacations Business start-up Child care Birth/adoption Wedding Home Home Needs Divorce, separation Home Furniture/consumer goods Child care University education Illness Family celebrations Sports, hobbies Arts/entertainment Luxury goods Vacation
  10. 10. 7 The family office So far, we have only encountered Convenience services/ one business concept, which personal service, for example: does recognise the full range of wealth management needs as • Bill payment described above – the family office. • Travel planning This is a single entity that provides • Administrative support advice/oversight/aggregation over • Property management a full range of all financial assets • Domestic service management. (Source: Family Office Exchange) and liabilities, regardless of the product provider. The strength of this model lies in the The sorts of services routinely range of services that it can provide provided by a family office include: – an aggregation capability, third- party sourcing and advisory role. Asset enhancement services/ The model is completely customer- strategic advisory, for example: focused – i.e. actually designed by the customer for the customer. • Ownership Most financial services organisations • Structure would claim that they are customer- • Wealth/estate transfer planning focused, but how many have • Investment policy actually been designed by their • Trusteeship customers? • Asset allocation • Philanthropy The family office concept is • Financial education. entirely relationship-based and as a consequence, the costs Risk management and cost control associated with delivering this services/compliance and overseeing, type of service are high. However, for example: we believe that through using technology, the concept of the • Customised financial reporting family office can be applied to • Investment manager research the lower end of the market. and selection • Investment performance monitoring Because they are created by the • Trust accounting and reporting customer, family offices are focused • Tax planning and compliance on translating customer needs into • Cash flow management exactly those value elements, which • Budgeting and financial planning reflect the added value sought • Custody oversight and by customers and they build the securities settlement capabilities they need to provide • Insurance coverage and claims this value. • Charitable foundation administration.
  11. 11. 8 The “wealth management loop” This process of translating a customer’s emotional needs into Figure 3 The wealth management loop value elements (which are then delivered by a series of capabilities, which, in turn, satisfy the emotional 1 Emotional needs around wealth needs) is encapsulated in the model illustrated in Figure 3. This shows how each of these elements are which will satisfy the are translated into related to each other and are part of an iterative process. This model reflects the notion that: a) wealth management is 3 Set of 2 Identified about more than just financial capabilities customer services, and value elements b) for that reason, existing financial services organisations cannot just which are delivered by stretch their current business models – they need to understand what customers want and develop organi- sational capabilities accordingly. agents, and provide them with a – flexible options, financial planning). To illustrate the range of a short list that actually reflects what Once the size of the mortgage is customer’s emotional needs, they are looking for, (Emotional need: decided, they need to decide on the consider the following scenario: save me time – value elements: best mortgage product and how to non-financial needs, prompt service, increase their life cover. (Give me Oliver is 35, married with two convenience, one stop shop. peace of mind – best of breed children, aged 8 and 10. He is a Emotional need: secure my future products, transparency of charges, lawyer in Leeds and has just got a – value elements: lifestyle needs, a de-mystified guidance. Save me new job with a large London law home), and then to arrange visits time – convenience, one-stop shop. firm, which means uprooting his over one weekend. They also need Secure my future/reduce my risks family and moving to London. The a trusted advisor to examine their – financial planning, security, job is a big step up for him, with a financial situation and honestly tailored products). large salary increase that will enable advise them on how big a mortgage him to buy a bigger house. His they can afford to take on, bearing Once they find a suitable property, needs go far beyond a bigger mort- in mind the higher cost of living in they need someone to handle the gage though. As his wife also works, London. (Emotional need: give me purchase process (conveyancing, time for organising the move is at a peace of mind – value elements: including dealing with the estate premium, and neither can afford the trust and integrity, de-mystified guid- agent, arranging the new mortgage, time for frequent trips south to house ance. Secure my future/reduce my finalising dates, booking the removal hunt. What they really need is some- risks – long term relationship, life- company, arranging for utilities to be one to go through the vast number style needs, life stage needs, finan- connected, insurance etc.) as well of house details that they are bomb- cial planning, a home. Help me as organising the sale of the prop- arded with by unscrupulous estate enjoy my life/achieve my aspirations erty in Leeds. (Save me time –
  12. 12. convenience, non-financial needs, cannot provide a long-term, trusted one stop shop, prompt service. advisor-type relationship (with a Simplify my life – long-term human being!), trust is not built relationship, simple administration, up with the customer and he or banking services, product she will use other trusted advisors aggregators. Give me peace of (including non-financial), or multiple mind – choice of suppliers, trust product providers. In addition, the and integrity, best of breed products, commission-based relationship emergency and disaster planning. damages trust. Help me enjoy my life – performance and value for money, non-financial However, if an organisation is to needs, flexible options. Secure my successfully meet all the emotional future/reduce my risks – security, needs of the wealth management tailored products, lifestyle needs). customer, there is a very com- prehensive range of capabilities To deliver a full wealth management that are required. service successfully, financial institutions must possess all the capabilities needed to address the full range of customer value elements. There are many examples today of organisations not possessing the right capabilities, which illustrate the likely consequences for the customer: (i) Many financial institutions do not possess a ‘consolidated view of the customer’ capability. This means that because they are organised into product ‘silos’ (e.g. insurance division, mortgage company), every time a customer buys a new product, they have to deal with a different part of the organisation. If the customer buys an insurance product, the insurance division does not have access to the customer data held by other areas of the bank and the account opening process is effectively repeated. No one in the bank has a complete view of the customer’s affairs. (ii) Looking at relationship management, if a financial institution
  13. 13. 9 Essential wealth management capabilities The family office model is built upon Critically, it is not good enough just such a range of capabilities. to have some of these capabilities Appendix 1 provides an overview of – they all work together. So, for the full range of capabilities required example, you cannot provide really to meet the emotional needs blue- good relationship management if print already described (in Table 3). your relationship manager hasn’t got a complete view of all the customer’s At first glance, many organisations affairs. In addition, you cannot be that currently offer wealth a true wealth manager unless you management services would argue have the resources to manage that they do have such capabilities ALL of a customer’s assets. – for instance, a relationship management capability. However, To do that, the customer must trust when these are measured against his relationship manager, who must the benchmark of the family office, have a consolidated view, etc. they fall a long way short. Appendix 2 provides an analysis of some Appendix 3 identifies these key current wealth management players’ characteristics and provides examples capabilities. of providers whose current service displays the characteristic, if not the This analysis can then be extended full capability. by taking three of the most important capabilities for wealth management This illustrates the complexity and – relationship management, a sophistication required to meet the consolidated view of the customer complete range of a customer’s and true asset management – and needs, as well as illustrating why it identifying the key characteristics is not possible to leverage existing associated with them. These are financial services capabilities. perhaps three of the most common Clearly, wealth management is a weaknesses identifiable in existing complex business, which demands wealth management propositions. a broader view of customer needs.
  14. 14. 10 New competitors and potential threats to financial services organisations To achieve the holy grail of ‘true’ wealth management, financial service Figure 4 Development of the wealth management market organisations must develop new capabilities to meet the challenge Financial needs Wider lifestyle True wealth of addressing the broader needs of needs management their customers and to go further Family offices than just pushing products. As Figure 4 illustrates, the family office Economic success model represents an ideal, equating Future market to ‘true’ wealth management. In developments between that ideal and the prolifera- tion of financial services players in Aggregators the wealth management market, are two types of intermediate player who are well positioned to develop Lifestyle enablers towards ‘true’ wealth management. Financial These organisations are more closely service organisations aligned with customers’ emotional needs than the financial services Range of customer needs organisations in the bottom left corner, which will require the most trans- formation before they can hope to These organisations offer what is Other key features include: succeed. These players present a essentially an extension of the new competitive threat. They have concierge service, which has proved • They deliver value for money, because recognised that customers buy to very successful in the United States. their database of researched suppliers satisfy their emotional needs, such as They claim to go beyond concierge will never charge more than market rate ‘Save me time’ and ‘Simplify my life’. services, by providing a dedicated • The customer decides what services to relationship manager and building up use, and how much they want to trust 10.1 Lifestyle managers the organisation a trusted relationship, with only 20-25 Like family offices, the lifestyle • The limitation is that they don’t provide clients per manager. For an annual manager focuses on the lifestyle an advisory service. They will find an fee of between £1,200 and £1,500 needs of the customer, not on advisor, but will not provide advice. they will help ‘rebalance your life’ by selling products. They are becoming This is the key difference from wealth taking care of all those things that you increasingly popular in the UK management services don’t have time to do (they’ll find you and directly address the needs • They are completely independent and a plumber and then wait in to of the customer OUTSIDE financial source third-party products and services supervise the work; they’ll get you services. They promote their – unlike many financial organisations. theatre tickets; they’ll manage your services with statements such as: Their incentive is to retain the customer rental property; they’ll book you a holiday; they’ll find you a dog year on year. (Some companies have • “W will do anything the customer e psychologist!). Their charging policy a tiered pricing structure, so that as wants, as long as it is legal” is totally transparent, helping build customers trust the company more and • “Managing our member’s lives... a trusted image. use it more, they pay more). They are by building personal relationships therefore only as good as the suppliers based on trust” that they provide and so have a vested- • “Bringing balance to your life”.
  15. 15. interest in identifying and managing 10.2 Product and account aggregators good suppliers, something relatively rare Product and account aggregators in the financial world (although there are another type of new competitor are instances: IFAs, fund of funds). specifically addressing the cus- tomer’s need for saving time and Appendix 4 shows how it is that simplifying their lives. Product lifestyle managers meet many of the aggregation involves providing emotional needs that fall outside the different products from different traditional wealth space and the capa- suppliers to clients. For example, bilities they demonstrate to support from a client can trade the customer value elements. shares through an E*Trade or TD Waterhouse brokerage account, There are several key differences without leaving the site. between the services of lifestyle Account aggregation, which is par- managers and financial services ticularly popular in US and Australia, organisations: saves the customer time by remov- ing the need for multiple log-ons to • Few financial service organisations can different sites, using different user- demonstrate the sort of independence ids and passwords. Currently the required to truly save customers time. only example of this in the UK is V few people would take a first ery AccountUnity, but US players such opinion from any financial services as Yodlee, Kinexus, Corillian and organisation, without shopping around CashEdge are actively looking to to check that they were getting the best enter the UK market. price/performance/features etc. • If you compare the capabilities of the Table 4 below summarises the two types of provider, they appear to customer value elements and be very similar, BUT few banks offer capabilities of account and product ratios like 25 customers: 1 relationship aggregators. manager (even private banks rarely achieve less than 75:1. Family offices Product and account aggregation are more like 5:1); few financial services is still a very new concept in the organisations offer advice that is not UK market. Whilst there is clearly linked to a product sale/commission; a demand for it, many of the because lifestyle managers operate on issues presented by it have yet a fee basis, they have a stake in the to be completely resolved, recommendations they are giving. particularly in the technical, legal and regulatory areas. This unique combination of capabilities, and the fact that they are Table 4 not bound by selling products, means Emotional needs Simplify my life, save me time that the service lifestyle managers Value proposition Consolidation of information from multiple online provide covers a much wider range accounts on a single screen with one password of customer emotional needs. Value elements Convenience, product aggregation, trust and integrity, speed and ease of access to information Capabilities Security, alliances and integration with service providers
  16. 16. 10.3 The revised wealth management market map Figure 5 Revised wealth management map These new competitors are well positioned to successfully fill the High gaps in the market left by financial Investment Family banks/asset offices? service offerings not focused on managers customer needs. Private banks Figure 5 shows where these three Customer wealth types of new competitors will fit into Small niche the market. players Lifestyle managers? Family offices are common in the New US, and a relatively new concept in banks Product / account Europe (though many of the major IFAs Portals aggregators? European players – particularly private banks – have recently Retail banks developed, or are in the process of Low developing their own family offices). Customer behaviour They serve ultra high net worth Self directed Requires direction families, managing their wealth and the extended needs of their family. Generally they only serve families Companies like Tenuk Product and account aggregators with in excess of $25 million, (, Entrust are positioned lower down the hence their position in the (, Liberate affluent scale, as they do not charge top right hand corner. ( do not for their services. These companies Lifestyle managers target self- have any advisory services, but both serve the “self directed” and directed people. These people can locate advisors, if required. “requires direction”, as some of them usually know what they want, but They are located towards the upper offer advisory services. lack the time, or the interest, and left because the average annual fee is between £1,200 and £1,500 The advent of these new competitors would rather delegate as much as which is a significant outlay for most signals a challenging future for those possible to other people, without people, for the luxury of delegating financial services organisations that losing control over key decisions. everyday tasks. wish to capture a slice of the market.
  17. 17. 11 The future of wealth management? 12 Conclusion To achieve the holy grail of true The wealth management opportunity wealth management, there are a is still very much in evidence, but number of guiding principles that it appears that most organisations financial services organisations must targeting the market are failing to embrace. “True wealth managers” will: capture it. This is because no single organisation has managed to bridge • Be those organisations that can break the gap between its own product- out of the mould of just selling their own based view of wealth management financial products and customers’ lifestyle needs-based • Fulfil the position of trusted adviser by view. New competitors are entering taking a complete view of the customer’s the market and displaying the affairs and advising them honestly and capabilities that financial service independently on all their assets and organisations are lacking and the liabilities astute financial service provider will • Help manage a customer’s risks learn from the strengths of these new • Get to grips with the idea of entrants and build their own offerings customer emotional needs into the “true wealth management” • Develop the capabilities to serve service that customers are seeking. those needs • Look at the family office model and find ways of making it economic for the affluent market • Take the best of the models discussed here and achieve the economics of a private bank, BUT not be driven by this alone.
  18. 18. 13 Appendix 1 Organisational capabilities needed to meet customers’ emotional needs How capability helps in Value element Capabilities Simplification Enjoying life Saving time Convenience Empowered staff Fewer handoffs Shorter transaction time Physical presence Easy face-to-face access Easy face-to-face access Proactive service Range of needs Anticipation of needs Flexible robust processes Fewer errors Contact management Easy access to right people No need to repeat request Complete delegation of assets and liabilities Relationship management Trust, long-term relationship Better understanding, Act as integrator good customer care Contact management Easy access to right people No need to repeat request Independent experts Range of needs Quality advice Trained staff Better understanding Shorter transaction time Interpersonal skills Better understanding True asset management More time spent on personal things Product aggregation Access to customer data Quicker service Access all information in No need to use one place, single password different providers Third party alliances Broader range of No need to shop and sourcing providers, more options around Secure and safe Increased customer infrastructure confidence Cross-border agreements No need to deal with Range of needs No need to use different providers different providers Capture customer data Viewing the whole Shorter transaction customer picture time Consolidated Viewing the whole Includes non-financial, Shorter transaction customer view customer picture lifestyle products time Non-financial needs Contact management Easy access to right people No need to repeat request Third party alliances Broader range of No need to shop and sourcing providers, more options around Flexible robust processes Fewer errors Capture customer data Viewing the whole Shorter transaction customer picture time
  19. 19. 8 14 From the Back Page: Appendix 2 Out-takes and Closing Headlines Organisational capabilities currently displayed by different types of financial institution Whether players have it? Value element Capabilities Retail Insurers IFAs Investment Private Portals Niche banks banks banks players Convenience Empowered staff L L H M H L L Physical presence H H M M M M M Proactive service L L M M H L H Flexible robust processes M M M M M M M Contact management L L L M M L L Complete delegation of assets and liabilities Relationship L L M M H L H management Contact L L L M M L L management Independent experts M M H M M M M Trained staff M M M H M M H Interpersonal skills L L H M H L H True asset L L M M M M M management Product aggregation Access to M M M M M M M customer data Third party alliances L L L M M M M and sourcing Secure and safe M M M M M M M infrastructure Cross border M M L M H L M agreements Capture customer data M M M M M M M Consolidated L L L L L L L customer view Non-financial needs Contact management L L L M M L L Third party alliances L L L M M M M and sourcing Flexible robust M M M M M M M processes Capture customer data M M M M M M M Proactive service L L M M H L H Key H Full capability They have it and it is good M Medium capability They have it but it is not good enough L Weak capability They either have it but it is very weak or they do not have it
  20. 20. 15 Appendix 3 Key characteristics associated with organisational capabilities and examples of players that display them Key Relationship Successful Consolidated Successful True asset Successful capabilities management example customer view example management example Acts as integrator Yodlee, Kinexus, Single customer Charles Schwab, Management of full Pictet, Zisto, AccountUnity, database JP Morgan Chase range of all financial Bessemer, UBS, Cymric, Pictet assets and liabilities Merrill Lynch, Family Office Cymric Long-term Cymric Family Office, Channel integration Charles Schwab, Consolidation and, relationship Pictet, UBS, JP Morgan Chase management, re- Cymric Crédit Suisse gardless of provider Advice not com- uk, Contact First Direct Non-financial UBS, Pictet mission linked Close Wealth management asset management Family Office, Management (art, property, Bank of antiques, wine etc.) Bermuda Advisor has stake Tenuk, Pictet Access to third party Yodlee, Kinexus, Third party product Funds in advice Family Office information Zisto sourcing (best in supermarkets, Key Characteristics of Capabilities breed) Coutts, Bank of Bermuda Generates trust Pictet Family Office, Aggregation Yodlee, Kinexus, Wide range of Merrill Lynch, Bessemer Trust, Zisto, market/product, UBS, Crédit Suisse AccountUnity information Transparency Tenuk, Cymric, Pictet, Robust, integrated First Direct Performance Pictet, Merrill Bessemer, UBS, platform and management Lynch, Close Wealth infrastructure and measurement Bessemer, Management Close Wealth Management Advice reflects Pictet, Bessemer, Availability of data is Yodlee/Corillian Processes for Bank of personal UBS, Merrill Lynch, key to consultative managing external Bermuda, circumstances Cymric, Close Wealth relationship managers Inscape, Coutts Management Understands Pictet, Crédit Suisse, individual’s needs Bessemer, Close Wealth Management Willing to educate Charles Schwab, individual Cymric, Crédit Suisse, Close Wealth Management Has a track record Merrill Lynch, UBS, or backed by JP Morgan Chase strong brand Proactivity Pictet, Bessemer, UBS, Merrill Lynch, Cymric
  21. 21. 16 Appendix 4 How Lifestyle Managers meet the emotional needs of customers and the associated capabilities Emotions Value elements Capabilities Simplify my life Convenience Relationship management Simple administration Third-party sourcing One-stop shop Interpersonal skills Product aggregators Consolidated view of customer Long-term relationship Capture and access customer data Save me time Convenience Proactive service One-stop shop Third-party sourcing Non-financial needs Interpersonal skills Consolidated view of customer Help me enjoy my life Lifestyle needs Proactive service Non-financial needs Interpersonal skills Performance and value for money Capture and access customer data Give me peace of mind Trust and integrity Relationship management Performance and value for money Third-party sourcing Best of breed products Interpersonal skills Choice of suppliers Secure my future/reduce my risks Lifestyle needs Relationship management Long-term relationship Proactive service Interpersonal skills Capture and access customer data
  22. 22. 17 About the authors Tamsin Brew Rohitha Perera Professor Merlin Stone Tamsin Brew is a consultant in the IBM Global Rohitha Perera leads the IBM Global Services’ Merlin is the IBM Professor of Relationship Services’ Wealth Management practice. She Wealth Management practice, working with Marketing at Bristol Business School – one of works mainly on financial services projects clients within the financial services the leading UK centres for academic research for companies in the UK and Europe, helping sector worldwide. into relationship marketing and e-business. them to develop their wealth management He is an Executive Consultant with IBM offerings. Her recent work has included Rohitha has worked with many of Europe’s Business Innovation Services, Finance Sector. designing clearly differentiated customer leading asset managers, retail banks and He is also a director of QCi Ltd., specialists in offerings to provide target customers with insurance companies to define and develop customer management consulting and assess- wealth management products and services their wealth management and personal ment and suppliers of CMAT – the Customer in a multi-channel environment. financial services programmes. Rohitha and Management Assessment Tool (software and his team have been particularly effective in benchmarks for assessing a company’s CRM Prior to joining IBM, Tamsin spent her career instilling customer-focused design principles performance), for which IBM is a leading agent. in the financial services industry, working for into the implementation of business and the Coutts Group, the private banking arm technical architectures. His consulting experience covers many sectors, of the Royal Bank of Scotland Group. She including financial services, utilities, telecom- has in-depth knowledge of wealth manage- Rohitha works with IBM teams and client munications, travel and transport, retailing, ment, particularly private banking and the groups, comprising marketing, operations automotive, energy and IT. His research is highly competitive market for affluent and technical staff, in order to deploy the published in a series of IBM-sponsored personal financial services. IBM wealth offering within the organisations. briefings, Close to the Customer, published The scope of his engagements cover business by Policy Publications. He is the author of strategy, operations and IT architecture design, many articles and eighteen books on marketing in addition to technical implementation. and customer service. The latest books are Up Close & Personal, CRM @ Work and Customer Before moving into financial services, Rohitha Relationship Marketing – both the latter two worked as a programme manager on major sponsored by IBM. Merlin is one of the infrastructure development programmes in authors of QCi’s report on the first two years the UK and China. These experiences have of using CMAT, The Customer Management provided fascinating insights into business Scorecard, published by Business Intelligence development and the rapid delivery of and sponsored by IBM and the Royal Mail. complex programmes. He co-ordinates the IBM-sponsored Customer He has a first class honours degree and Management Group, a club of large customer an MBA. database users, services suppliers and academics interested in this area. He is a founder member of the Institute of Direct Marketing. He is a Fellow of the Chartered Institute of Marketing and on the editorial advisory boards of the Journal of Financial Services Marketing, the Journal of Database Marketing, the Journal of Targeting, Measure- ment and Analysis for Marketing, the Journal of Interactive Marketing (the journal of the Institute of Direct Marketing), and the Journal of Selling & Major Account Management.
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