How business insights fuel success

The Power to Change

This communication is provided by Advent Software, Inc. (“Advent”) for informational purposes only and should not be construed as or relied on in lieu of, and does not constitute, legal advice on any matter whatsoever discussed herein. Advent shall have no liability in connection with this communication or any reliance thereon.

In this white paper we look at why today’s wealth managers need better insights into their businesses, how the flexibility and freedom to experiment can drive profitability, and how leveraging the right technology infrastructure can translate into client acquisition and retention.

Adapt

2 | The Power to Change

Domestic and international regulatory frameworks are being reshaped. Industry participants are merging or exiting the business. New competitors are entering the fray. Activities are increasingly globalized. Fees and costs are under pressure. And client service and communication expectations are being radically revised in a fast-moving digital age.

Wealth management has always been a relationship-driven business. What distinguishes the best wealth managers is the level of service they provide, and the degree of value and sense of trust clients feel they obtain. But increasingly it is technology that provides the essential support to those relationships. Without a technology infrastructure that gives you the flexibility to grow and adapt you will struggle to survive.

Challenges and Risks in a Changing Landscape

In today’s increasingly fast-paced, globalized, and competitive landscape, wealth managers must move with the times. The changes and challenges—and associated opportunities—are all-pervading, and in many cases gathering speed.

RegulationIn its most recent Global Wealth and Asset Management Industry Outlook1, Ernst & Young highlighted the pace and globalization of regulatory change taking place. In Europe, it noted, the combination of UCITS, AIFMD, EMIR, FATCA, MiFID II, FTT et al will create a “complex and concentrated period of regulatory reform in the region over the next 3-5 years and beyond.” A similar regulatory overhaul is taking shape in North America.

This potent cocktail of national, regional and international initiatives will give wealth managers a major headache for years to come. Getting investor and regulatory

If change is the only constant, then having the vision and flexibility to adapt to changing circumstances is critical to success. And the wealth management industry is certainly undergoing rapid change.

Moving with the Times

1 Global wealth and asset management industry outlook 2014, Ernst & Young

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What distinguishes the best wealth managers is the level of service they provide, and the degree of value and sense of trust clients feel they obtain.

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disclosures right is especially crucial, and challenging. Given each country’s local reporting particularities, the devil really is in the detail. Worse, it is impossible to predict what new rules will emerge as regimes evolve.

Do you have the information to meet your regulatory responsibilities? Just as important, can you access, collate and manage that information efficiently to cope with ever-tighter investor and regulator timeframes, and stop your costs from ballooning?

Client Expectations Clients’ service expectations—and the resulting demands they put on wealth managers’ operations—are another area of rapid change. Competition is fierce among financial firms, and the client experience wealth managers provide is being constantly compared against their peers.

According to the Ernst & Young report, wealth management firms’ success will be based on “their ability to clearly define in the client’s mind a ‘unique value proposition’ that differentiates their brand identity from that of other players in a

very crowded market.” It goes on to note that the ability to personalize services for specific clients—or, at the least, to offer personalization for specific client segments—will be essential, especially for mid-sized firms where competition is most intense.

Better client service takes a multitude of forms, but the key elements are:

1—Excellent Client Communication Wealth managers need to provide clients with fast, easily accessible, and more relevant and transparent information about their portfolios, and do it for less cost and with fewer resources.

Digitalization is central. Most clients expect digital access to their accounts and investment activity, so it is imperative wealth managers have a clear digital strategy.

In part, that requires a multi-channel deliv-ery mechanism—spanning the web, mobile phones, tablets, etc.—that can provide clients with the flexibility to access infor-mation and communicate with their wealth manager or advisor in the way they desire.

Communications also need to be flexible. Some clients may only require a regular overview of their account holdings and movements. Others will want a more detailed drill down, for example into the performance of specific assets. Transparency into the exact fees paid, and performance attribution to demonstrate the performance value achieved for those fees, is another powerful trend.

Do you know which clients want what? Do you have the infrastructure and operational flexibility to provide it?

Mobility is an important related requirement. Advisors need the freedom to meet prospects and clients where they want, and have the tools on-hand to onboard clients, provide advice or discuss their investments.

Mobile technology can enhance the impact and personalization of those client meetings as well. Instead of spending two hours collating data and information in preparation for each meeting, what if your advisors were equipped with tablets that can generate relevant custom reports on the spot with real-time portfolio and

According to the Ernst & Young report, wealth management firms’ success will be based on “their ability to clearly define in the client’s mind a ‘unique value proposition’ that differentiates their brand identity from that of other players in a very crowded market.”

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performance data? Fingertip access to clients’ investment and risk profiling information would enable advisors to offer relevant additional services and products too. The result will likely be more satisfied clients with a clearer sense of the value they receive.

Consolidated financial information is also crucial. Do you have access to external data—including where assets are held by multiple custodians—that will enable you to provide clients with a holistic view of their holdings? Wealth managers that can will not only look good in front of their clients, but gain insights into where opportunities exist to expand the relationship.

2—Delivering Risk-adjusted Investment PerformancePreserving wealth and/or achieving market-beating investment performance in the current low interest rate and complex macro environment is challenging.

As a Financial Times Private Client Wealth Management guide2 observed, although stock markets have delivered stellar returns in recent years, equities are often deemed too volatile for many

risk-averse investors, while rising price-to-earnings ratios have made them relatively expensive. However, given the decline in yields on low-risk investments, investors have had to move into higher risk assets, such as corporate and high-yield bonds, to meet their mandates. Many client portfolios have also diversified into a range of alternative asset classes, notably hedge funds, private equity, commodities and real estate, as wealth managers strive to balance safety with investment upside.

Fierce client scrutiny over portfolio performance is adding to the pressure on wealth managers to deliver. To demonstrate to ever more discerning clients that they offer value for money, wealth managers must justify the performance achieved by explaining how and why it has evolved over time, that the risk has stayed within agreed boundaries and reference it against relevant peer benchmarks.

Heightened CompetitionCompetition is intense and increasingly globalized. In its Wealth Management Centre Ranking 2015 report3, Deloitte noted that most international centres are struggling to boost new assets (net new

client assets were down 23% globally from 2008-14), with only Hong Kong and Singapore seeing cross-border client asset growth. For wealth management providers’ cross-border businesses, the story is one of falling revenues and profit margins.

In part this reflects the trend for private clients to repatriate wealth from international accounts to domestic providers, which have been working to improve their service offerings. It also highlights the shift from Europe to faster growing markets, especially in Asia. Many European wealth managers are trying to tap the emerging opportunities in Asia to attract new assets. However, Deloitte notes they are up against local providers that appear to be having more success.

How do you rate your ability to deliver the optimum reporting solution to your clients?

For more survey results, see WealthBriefing and Advent’s new research Help or Hindrance? The Link Between Technology Provision and Advisor Productivity.

21%

4%

31%

26%

18%

Poor

Average

Good

Very Good

0% 20% 40% 60% 80% 100%

Very Poor

2 Money Guide: Private Client Wealth Management, Financial Times, June 21 2014

3 The Deloitte Wealth Management Centre Ranking 2015: Capturing value in a shifting environment, Deloitte Switzerland

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In today’s increasingly fast-paced, globalized, and competitive landscape, wealth managers must move with the times.

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Do you know which clients want what?

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Scale is another factor. In its report, Ernst & Young notes that many large universal banks have merged their wealth and asset management divisions in a bid to generate better synergies. The goal is to help wealth managers differentiate themselves through personalized advice and “whole bank” investment advisory capabilities, while enabling asset managers to develop more customized products designed to meet high net worth clients’ requirements.

Wealth managers’ future growth and profitability will depend on clearly identifying their particular strengths and weaknesses, from where they can focus on maximizing their actual and potential competitive advantages. This will likely be a multifaceted approach that may include:

> Improving operational processes or restructuring the operating model to reduce costs.

> Enhancing staff productivity.

> Exiting unprofitable or low value client, market, and product segments.

> Increasing existing client profitability through upselling/cross-selling and servicing them more efficiently.

> Attracting assets and generating additional revenue streams by targeting growth opportunities, for example by developing already successful business segments, or moving into new client, geographic, and product areas.

Shifting Business OpportunitiesCompetition may be intense, but a range of opportunities exist for firms with the insights and flexibility to take advantage.

—Client Segments What is your client sweet spot and how is that changing? Can you break down your target market into segments based on age, wealth, risk profile, service demands, and investment objectives (capital preservation, legacy planning, growth, etc.), and identify their profitability and potential growth?

—Products In a 2015 paper, Mercer4 suggests wealth managers should “look beyond the traditional and consider less constrained funds or those with longer term perspectives.” One option is to consider whether alternative investment strategies could “reduce risk, enhance returns, or otherwise improve the

likelihood of realizing investment objectives.”

Alternative investments bring significant operational burdens. But having the infrastructural flexibility to support a diverse range of asset classes is increas-ingly essential. Without it, you risk miss-ing out on the performance a diversified, non-correlated portfolio can bring, and jeopardizing those all-important client relationships.

—Geographic Markets The flexibility to expand into new geographies presents further opportuni-ties. For example, Euromoney’s latest annual Private Banking Survey5 found the majority of banks plan to focus ex-pansion efforts on Asia (where the rate of wealth creation has been especially pronounced), followed by North America.

Communications also need to be flexible. Some clients may only require a regular overview of their account holdings and movements. Others will want a more detailed drill down, for example into the perfor-mance of specific assets.

4 10 priorities Wealth Management firms should consider in 2015 to compete in today’s environment, Mercer, 7 January 2015

5 Euromoney’s 12th annual Private Banking Survey

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But geographic ambitions bring challeng-es. Do you have the infrastructure capa-bilities to obtain a licence to operate in the market, and meet your ongoing, and often idiosyncratic, compliance responsi-bilities? Can you support clients with the breadth and depth of services they have come to expect from a local provider?

The key lies in having the flexibility to pursue strategic business growth plans. That requires the capacity to enter and operate in new markets without incurring huge costs, while being able to change strategy quickly as business realities dictate.

Fees and Costs Fee levels and tolerances are an ongoing issue. Wealth managers may have some scope to maintain and even raise fees and enhance margins. However, they need to be justified, especially with improved investment performance and/or service. Widespread investor demands and growing regulatory action aimed at full disclosure of fees and costs are exacerbating the trend. Scrutiny on fees, and the expectation of high quality services in

return, seems only likely to get more pronounced, particularly as competition increases and new entrants join the fray.

At the same time costs are on the rise. New and onerous regulatory requirements are largely to blame, forcing companies to invest in technology, additional personnel, and training.

Deloitte also points to the new invest-ments wealth managers are making in areas such as customer experience, digitalization and analytics. To offset these cost increases, said Deloitte, “wealth man-agement executives have been targeting improvements in the efficiency of opera-tions, from front to back office.”

By reducing their cost base, wealth managers will be better able to compete on fees and maintain profitability. The challenge is to reduce costs while still meeting your regulatory responsibilities and provide a high level customer experience. Increasingly, the answer to that conundrum lies in outsourcing non-core functions to a trusted service provider with a track record of success.

The Right Technology and How It Helps

More than ever it is the connectivity, efficiency and functionality of your technology that will set your firm apart. As Mercer notes: “Wealth providers can significantly enhance client satisfaction and better manage fixed costs with the adoption of smart technology, but this will require investment to stay ahead of the competition.”

So what does this “smart technology” look like?

6 To find out more on better data management, see our white paper Data Services: How to Keep the Lifeblood Flowing.

Which capabilities are most important in optimizing your performance as an advisor?

0% 20% 40% 60% 80% 100%

7%Being able to engage with clients and prospects via social media channels

20%Multi-channel access to portfolio information (including mobile)

22%Full multi-asset class coverage

23%Offering consolidated wealth overviews factoring in externally-managed money

28%Having detailed insight into portfolio performance and risk

For more survey results, see WealthBriefing and Advent’s new research Help or Hindrance? The Link Between Technology Provision and Advisor Productivity.

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Data ManagementHigh quality data management and analysis has become the single most important factor in wealth managers’ long-term health and success6. An automated, integrated and flexible data hub provides multiple ways to enhance your business:

> Regulatory Compliance—Collating and cleansing all the datasets within the platform ensures portfolio and client data integrity is maintained, while providing a single source of easily retrievable data, with a transparent audit trail, for efficient regulatory reporting purposes.

> Risk Management—Reliable and timely data inputs are crucial in feeding the evolving breed of risk analytics that are central to firms’ efforts to mitigate investment risks and enhance performance. Meanwhile, operating off an integrated data infrastructure, backed by a robust business continuity plan, reduces operational risk, as well as regulatory, legal and reputational risks.

> Cost Efficiency—Automating data collection and dissemination through a centralised data hub reduces reporting times and costs, and frees staff to focus on more productive tasks.

> Business Growth—Feeding sophisti-cated analytics with high quality data on client risk profiles, advisor interactions, fee structures, product margins, etc. enables firms to better identify and seg-ment their target clients, determine the best products to sell them and ensure they service them the right way.

Performance and Risk AnalysisIn an effort to provide market-beating performance while adhering to clients’ risk boundaries, wealth managers are routinely diversifying portfolios by investing in different asset classes, including various alternative products. But in doing so, it is imperative firms can correctly calculate and report on the performance of those assets.

A performance measurement engine that provides sophisticated performance attribution and analytics allows you to break down a client’s investment performance to determine, for example, how much of that comes from your stock picking ability or asset allocation skill, and whether the risk in the portfolio stayed within agreed limits. Armed with these figures, you can gain valuable insights into how to improve your performance going forward. Moreover, this transparency is vital in earning and maintaining clients’ trust, and thus sustaining the relationship.

Competition may be intense, but a range of opportunities exist for firms with the insights and flexibility to take advantage.

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What distinguishes the best wealth managers is the level of service they provide, and the degree of value and sense of trust clients feel they obtain.

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Multi-Asset Class, Global CapabilitiesGiven the trend towards portfolio diversification, an operational technology stack with multi-asset class support capabilities is essential. And as wealth managers seek out investment opportunities in international markets, and target new clients in different jurisdictions, the onus is on leveraging global platforms.

Consolidating the number of systems a firm uses globally assists with:

> Cost Pressures—having fewer systems requires less maintenance/R&D/licensing outlay.

> Regulatory Compliance—firms can more efficiently meet and have oversight of their regulatory responsibilities, and pinpoint any failings.

> Service Consistency—a standardised platform makes it easier to provide a consistent service experience to clients.

Client Communications Personalized communications, available on-demand and through multiple channels are central to the value you are seen to provide, and thus the strength of your client relationships.

When the respondents to Euromoney’s Private Banking Survey were asked what technology investments they saw as most relevant to their firm, phone and tablet banking capabilities came out on top. They were followed by data mining, use of social networks for clients to access the bank, and developing apps or capabilities for smart devices.

In the age of digital natives, formulating mobile strategies and policies for real-time access to data, portfolios and reports will help your firm stay ahead of the curve, championing relationships with clients and gearing up for the next big technological shift. Likewise, industry participants increasingly are turning to their IT vendors for collaborative, social media solutions that help them share information more efficiently and improve service levels.

Cloud ConsumptionGoing forward we expect to see greater adoption of cloud-based solutions. Some lingering concerns over security and control have inhibited cloud use to date, but the mood is changing in the face of its compelling business case.

The pay-as-you-go model eliminates the upfront investment cost and risk, and often provides sustainable cost reductions. The delivery mechanism means cloud solutions can be rapidly and easily deployed and updated, ensuring business continuity and access to sophisticated, integrated capabilities as they are developed.

The scalability and flexibility also gives managers the freedom to move in and out of markets in pursuit of growth opportunities. “Try and see” becomes a more commercially-viable option. In addition, users can more easily switch technology providers, outsource non-core business functions or undertake M&A activity, and remain focused on their core competencies.

Within technology investments, what do you see as being most relevant to your firm?

Source: Euromoney Research Group

■ Phone and tablet banking capabilities

■ Data mining

■ Use of social networks for clients to access the bank

■ Developing apps, or capabilities for smart devices

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Conclusion

Wealth management has been primarily a personality-driven business. That is changing. Detailed and timely knowledge —of your clients, your firm’s internal strengths and weaknesses, and the opportunities around you—will be fundamental to your future success. In this complex, fast-moving, data-driven world, only technology can provide the deep insights you need to compete and thrive.

As PwC predicts in its 18th Annual Global CEO survey7: “By 2020, technology will have become mission-critical to drive customer engagement, data-mining for information on clients and potential clients, operational efficiency, and regulatory and tax reporting.”

Increasingly, technology will be wealth managers value add. This will be the primary contact point with your clients, where interactions occur, the place where good or bad impressions are formed and sustained. Happy clients are more loyal clients, and loyal clients are more profitable ones. Technology is an investment, but in the battle to win and retain clients it is one that can reap massive dividends.

7 18th Annual Global CEO Survey, PricewaterhouseCoopers

In the age of digital natives, formulating mobile strategies and policies for real-time access to data, portfolios and reports will help your firm stay ahead of the curve.

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Putting it all together

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