Solving the scalability challenge
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- Firms in the wealth management industry face challenges in scaling their operations to meet growing assets under management, increasing regulations, and rising client expectations. - Most firms plan to increase technology investment over the next 3 years to gain efficiencies and support scalability, but cost efficiency alone is not enough - revenue growth through improved client acquisition, retention, and experience is also needed. - A client-centric, strategic approach is required that leverages omnichannel delivery and a hybrid human-digital model to enable firms to scale and meet the needs of diverse client segments now and in the future.
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Solving the scalability challenge
- 1. iress.com 1iress.com Solving the scalability challenge
- 2. iress.com 2 Regulation TechnologyMiFID II RDR CASS FAMR Rising expectations Disruptors & start-ups Digital adviceLegacy systems GDPR The cost of service is high…
- 3. iress.com 3 %of firms envisage growing assets under management between 30% to 90% in the next 5 years Source - Compeer Compliance report 2016 …as are industry targets
- 4. iress.com 4 Revenue Costs A growing need for scalability Stabilising costs | Driving revenue
- 5. iress.com 5 How is the industry responding to the challenge?
- 6. iress.com Investment in technology Source - Compeer WealthTech 2017 70% firms to increase technology investment over next 3 years 0% 20% 40% 60% 80% No change Increase by 0-20% per annum Increase by 20-50% per annum
- 7. iress.com 7 Efficiencies being gained Source - Compeer Yearly Review 2017 StaffCosts 3.70 3.80 3.90 4.00 4.10 4.20 4.30 4.40 4.50 4.60 4.70 4.80 2012 2013 2014 2015 2016 (£M) Down 2%Flat at 0% 0 5000 10000 15000 20000 25000 30000 35000 40000 Number of staff 2015 2016
- 8. iress.com 8 What about revenue and growth? Cost efficiency is only half of the equation. Revenue Growth Customer retention Customer acquisition
- 9. iress.com 9 Minimum level of investible assets Women of wealth Future wealth ‘High net worth’ ‘Ultra high net worth’ EntrepreneursHENRYs Accumulated wealth International wealth Source - Compeer Front Office 2017 Different segments = different needs and expectations What is your growth strategy? A client-centric approach
- 10. iress.com Client expectations Clients are demanding more 86% of clients would pay more for better CX* 70% of businesses say improving CX is a top priority** *Oracle ** Forrester
- 11. iress.com 11 What is the solution?
- 12. iress.com 12 Think strategically • “Where does my firm need to be 5 years from now?” • It’s not about plugging gaps and automating manual processes • Don’t build your next legacy system • Build a foundation which enables scalability
- 13. iress.com 13 Account for the opportunity cost of not building a scalable model ‘Old and reliable’ but...
- 14. iress.com 14 Omni-channel delivery • Highly scalable • Significantly reduce staff:client ratio • Service all client segments • Meet digital service expectations • Mass personalisation
- 15. iress.com 15 People vs and robots • Don’t underestimate either • Be a hybrid
- 16. iress.com 16 Thank you @iressuk iress.com #jointhemovement
Editor's Notes
- Investment firms have been navigating a hostile environment for a long time. Foremost in everybody's minds is, no doubt, MiFID II and its impact to their businesses. Suffice to say that everyone in this room has it taken care of it and are read to take it on in the new year! Right? Each firm represented here also has FAMR and GDPR well and truly under control and are able to focus on growing their business and servicing clients. Right? Lastly, each firm has technology taken care of, and are on the latest, fastest and most efficient platforms available? You’re all engaging with your clients in a personal but efficient way, giving them the service they deserve, at a price you are happy with. Of course we all know that this is not the case – there is lots to be done, and not enough time to do it - Regulatory pressures alongside changes in technology have been pushing the cost of service up and up and up.
- Research which Compeer conducted a short while ago highlighted that 89% of firms envisage growing their assets under management by a rather significant proportion over the next 5 years. And so we find ourselves in the eternal state of purgatory where we want to grow, but we have all sorts of other things to worry about! Jeff Bezos, the acclaimed CEO and founder of Amazon, once famously told his marketing or sales team that as long as they can spend less than $36 to bring in a client, they have unlimited budget to go forth and acquire these clients. He had done the sums, and knew what his breakeven was, down to the client level. Jeff Bezos, from a client acquisition perspective, knew what his cost vs income payoff point was. And this allowed him to scale his business. Jeff also said that used well, their scale enables them to build services for customers they could not otherwise reach. He went on to say that if they were not vigilant, and thoughtful, their size could slow them down. So how does that translate in our worlds? In the parallel industry of retail sales, Jeff Bezos was able to understand the cost of acquiring a new client, and work out what his breakeven is. He also understood, that scale enabled growth, but if not managed correctly, it would slow them down.
- Wealth managers, like any businesses, need to create a scalable business, which essentially widens the gap between their revenue and their costs. Wealth management firms need to be able to stabilise costs: costs of mifid, GDPR, technology, clients demands, and focus on generating revenue, acquiring clients and executing strategy. The important thing to note is that there are two sides to scalability – stabilising the costs, while driving the revenue.
- So lets take a look at how the industry is responding to the challenge:
- 70 % of firms are going to invest into technology over the next 3 years. There is also a wide double in the amount by which firms are going to invest, somewhere between 0 and 50% increase by value. It is encouraging to see that the value of technology is being realized – I certainly hope that they are investing in the right technology and not simply plugging holes. In dealing with some clients it is fairly common to hear about money having been wasted on piecing together an automated solution, something which has been designed, spec’d, built, and hosted by the firm, only for them to realize that that they now need to support and continually evolve this piece of software! The costs, unintentionally sky rocket, and the firm, at some point realizes that the costs are far higher than they previously budgeted for. Additionally, in many cases, the industry has already solved the problem, in an elegant, scalable way.
- The good news though, is that efficiencies are being gained. According to the compeer research - This year, and last, we can see costs leveling out. It would be interesting to under stand what this is a result of? Staff levels are down 2%, again it would be interesting to understand further what this is as a result of.
- So, as we have established, costs are one side of the scalability equation, these are being incurred through, inter alia, Investment into technology and regulatory pressures and it is comforting to see that some efficiencies are also being gained. What about the other side of the equation: Firms still need to drive revenue, growth, customer retention and customer acquisition. Wealth management firms, still want to drive growth, as a key outlook for the next 5 years. Remember that 89 percent of firms want to grow their Assets under management by 30-90% over the next five years.
- In Compeer’s Front Office research, firms were asked to detail their growth strategy. Many identified specific target segments. Some of the differing segments were for example a level of minimum investable assets, High net worth, women of wealth, or a new term which has come up recently, the Henry’s or High earning, not rich yet. Firms wanting to target the different segments, even if just one of these segments, need to cater for differing needs and growing expectations of these different clients. It was clear that a single one-channelled approach is not suitable. Targeting these clients, requires a more client-centric solution to service each group appropriately, considering their individual needs and expectations. Technology-driven scalability is required to make this possible.
- While firms are wanting to achieve growth, clients are expecting a better experience from service providers – businesses from all industries are responding to this, and the rest of us need to engage, we need to be deliberate around our approach, if we want to succeed. In a recent study, it was revealed that 86% of clients would pay for a better customer experience, and businesses are responding to this, measured by the fact that 70% of businesses are treating CX as a high priority. Client expectations are changing and will continue to change – and so they should. The benchmark is being pushed relentlessly upwards, and accordingly, so are clients expectations - the expectations of the level of service they expect, and also the different ways they engage with an organisation. It is clear that what we cannot conceive of now, will be readily and widely available a few years from now. If we distil it down to its heart, has the core message to a client changed? It probably has subtly varied, but comes with a few key themes which you will know far better than me, for example, good returns, trust, sound advice, ethical investments and so on. But has the method of engagement changed, has the method of transporting this method changed over the last few years? Absolutely. Web portals, mobile apps, wearable technology, audible and verbal instruction and social media. The list goes on. Looking at the industry in this way, allows us to propose that the back bone of your firms, should provide the foundation upon which you are able to quickly move to the changing environment, remember that what we can’t conceive of now, will be readily and widely available a few years from now.
- So what is the solution? How do we address these competing agendas? If wealth managers are to achieve this growth, they need to be able to focus on growth! They need to be able to have a quick and easy way of implementing regulatory changes, and meeting client demands in a changing world. At the same time, they have escalating costs from regulation and changing client demands. Effectively, firms need to deliver substantially more, for substantially less. This is challenging, but technology makes this very achievable. I will run through 4 ways we at Iress think that wealth managers can best achieve this.
- I know this is obvious, all of us think strategically about our businesses, and I know I say this one a lot, but it is important, and you wont believe how often it is ignored. I could also say this as “think strategically about how you will scale the operations of your business in accordance with your business strategy.” So It’s not about plugging gaps and automating random processes. It’s not about taking a myopic view of what is possible right now. What it is about is thinking near, medium and long term from now. It is important to ask the question: Where does my firm need to be 5 years from now and how will I achieve that. Don’t chase the latest fad - build for sustainability, longevity and achievement of business goals. This does not mean you should ignore the latest tech, but rather that the firm should build a foundation which enables scalability and enables the firm to take advantage of the right opportunity when it comes along. Let me try give you an example of this. A firm, who uses one BPO, and acquires another firm who uses a different BPO should not be compelled to move all assets across to one or the other BPO. It should be entirely acceptable to make use of many BPO’s but for staff within the organisation to have the same software experience, and importantly for the end client, to be indifferent as to which BPO their assets are stored on. Similarly, for execution - the actual act of buying or selling an assets - a wealth manager should not have to worry about different forms and processes for different asset classes/geographies/prices/sectors or funds. The investment manager should be only concerned about providing the right service to his or her client, and let a rules engine take care of the rest and decide how best to execute. This would also help from a regulatory perspective on ensure best price for the client. The last example is that a front office staff member should not be spending time on on boarding a client. This should be quick, seamless and intuitive, and if multiple BPO’s are providing a service, the front office staff member should have the same process, no matter which BPO the clients detail are being passed to.
- Technology change is relentless, regulation is relentless, client demands are relentless and are changing and will continue to change. Position yourself to move, don’t limit what your business is able to do by not positioning yourself correctly. The adage of its old, but stable may work, and make absolute sense - but is the long term cost of not building a scalable architecture being properly accounted for. Ask the question: Are the income generating teams being given the best opportunity to do what they do, and if not, is the opportunity cost being factored into the ‘its old, but its works’ message? Playing catch up is difficult, but not impossible, and may be an integral part of your business plans. Just make sure that the opportunity cost of building something which is not scalable is being factored in.
- Omni-channel delivery is one of those often used terms. And can manifest in a number of different ways. Linked to omni-channel delivery is personalisation at scale, or, mass customisation, which we are well aware, is a contradiction in terms. A question which can be asked is: How do we deliver a bespoke client service / experience in a controlled and managed way – something that feels individual / personal to the client but efficient / cost-effective to the firm. Do I, the client, feel as if you – the WM – are treating me uniquely, be this through a: Flexible channel, providing me content, how I want it, when I want it and wherever I want it. Through a video conference function so that I don’t need to come into to your offices to meet, or through An engaging client portal, which is easy for me to use and access the data I require. Mass personalisation is about bringing the high end experience to mass/mid-market. This may for example be providing a value added service where everyone has to have an annual statement but would you (the client) also like quarterly? How would you like to receive this? Relating back to the previous points, nobody knows what will come next, position your firm to be able to provide the same answers through different channels.
- What would a yearly review be without a reference to Robo. The latest term I have heard for this now is Robotics. The topic is so broad, its difficult to talk about in 20 minutes, let alone a few days. Customers want to do business with providers that offer both digital, and face-to-face interactions. The degrees to which this blend manifests will evolve, and become something completely new over time, but investment firms need to be in a position to maximise their chance of success and move on opportunities when they are presented. Its not about people vs technology. Its about embracing technology to enable a scalable business.