Improving the wealth management client and advisor experience is a hot topic. The general need is to strengthen their asset-gathering capabilities, reduce costs, and—more importantly—improve efficiency. However, due to an increasingly high cost-to-income ratio, wealth managers need to increasingly generate more value, which can be done through more effective technology underpinning intelligent, more efficient operations. In short, wealth managers must address existing operational challenges by executing hitherto unprecedented and effective transformational change.
A growing opportunity
In the wake of the financial turbulence resulting from bank failures, together with the implementation of many capital adequacy and risk management regulations, many financial services firms began to seek business opportunities with low up-front capital requirements, minimal risk exposure, and a stable revenue stream. It didn't take long to recognize that the steady, fee-based wealth management business met those criteria. Additionally, in sharp contrast to the increasing cost of regulations on the institutional side of financial services, wealth management represented a more promising, unencumbered opportunity for steady growth.
In fact, the wealth management business has grown significantly in size over the last few years. In 2013, wealth managers saw assets under management rise by 11%, while revenues grew 8% globally, stronger than each of the previous two years. However, costs have remained pain fully high. In the most severe case, North American brokerage houses have acost-to-income ratio hovering as high as 80%, but the cost-to-income ratio industry wide is not an enviable one and leaves many participants susceptible to a slowdown in the equities markets. Regulations such as Dodd-Frank and Retail Distribution Review (RDR) in Europe, which focus on consumer protection and fee/commission transparency, are also increasing the pressures faced by wealth managers.
While the client base for wealth managers continues to grow, the shift from old wealth to new wealth is having a direct impact on the industry. Today's youth are technologically savvy, and the availability of information on the Internet has made them more confident in managing their own wealth. In addition, the rise of digital and mobile channels sought by financial services consumers has forced the wealth management space to become less relationship-centric and managers to invest more in technology. These next-generation investors want greater transparency and more control over their investments through new client portals. This, of course, raises another issue as wealth managers struggle to link legacy systems across functional silos with new multichannel front-end platforms.
Industrialized operating model scan be a viable option
From a business perspective, wealth managers are trying to squeeze costs out the back office in order to invest in new advisor and client portal technology. But cost-cutting can only go so far. To manage the new investments required to enhance clients' mobile experience and comply with new regulations, while trying to reduce the cost-to-income ratio, wealth managers are looking for ways to improve the efficiency of middle and back office operations.
A successful strategy often starts with the reengineering of operations, followed by the implementation of abusiness process management (BPM) solution to increase productivity. Firms are also realizing the advantages of a seamlessly integrated technology solution that enables better adoption of new requirements from consumers and regulators alike. This has driven many in the industry to look more toend-to-end platforms that not only streamline operations but also enable the use of analytics to analyze customer channel and product preferences to better target and generate higher returns from clients. In addition, wealth management firms—at one time averse to the idea of outsourcing—are now considering and benefiting from these partnerships. Putting all of these pieces together enables firms to achieve anindustrialized operating model.
Retooling current processes
By reengineering or retooling current processes to achieve efficiency, organizations can reduce costs, enhance asset utilization, and improve the quality of controllership. The first step is analyzing data from current functions to reveal areas of low productivity, long cycle times, and frequent errors. Then, comparing current process metrics to best-in-class standards isolates inefficiencies at a granular level, allowing for improvements that strengthen process effectiveness and generate greater accuracy.
By identifying areas of process improvement, a more efficient workflow and dashboard can be designed, for instance, to migrate to an integrated single-order management system with a centralized repository of multiple-asset class trades.
However, going further, wealth managers recognizing the greatest benefit from multi-year reengineering engagements on CRM have incorporated upgrades and migration, built state-of-the-art platforms to host FA applications, upgraded client-facing applications for improved user experience and mobile enablement, consolidated order entry systems to support multi-asset class-order capture, and built shared data engines supplying real-time portfolio and demographic details across applications.
Tackling data issues and legacy systems
Wealth managers need centralized access to various reports, projections, and data from external accounts to identify areas where a portfolio can be strengthened. Reports must be generated quickly and accurately with an intuitive UI, but the amount and various sources of data required for these reports presents a distinct architectural and design challenge.
However, designing and developing robust data applications and reports directly translates to better financial advisor (FA) productivity by:
- Adding rich UI elements with enhanced features to improve speed and functionality
- Creating an integrated, holistic reporting solution and dashboard
- Refining existing reporting application architecture for more agile report generation
- Enabling the use of analytics to handle large volumes of data, resulting in higher FA efficiency andproductivity, and ultimately higher returns on clients' investments
Eliminating informational silos and process redundancies around data reduces errors and drives down reporting cycle times and costs. Further, improving data tracking and access enables cleaner and faster close-to-report cycles and can reduce report delivery time. Examples of how wealth managers can use enhanced technology and analytics include:
- Supplying real-time portfolio and demo graphic details across FA applications through a sharing data engine
- Up grading client-facing applications to improve user experience and enable mobile transactions
- Integrating contact management with FA tools and mobile devices, providing a means to manage personal information, financial information, and investment objectives
- Creating a centralized database to manage periodic, trigger-based campaigns to identify new prospects
- Automating workflow through enhanced collaboration with upstream and downstream applications
Embracing technology and operations outsourcing as a catalyst of change
Leveraging a partner to industrialize parts of the operations can expedite the pace of change, inject best practices, enable scalability and access to talent pools, keep management focused on more strategic agendas, and provide interesting ways of spreading the cost of transformation over time—as well as, in many cases, benefiting from the economies of scale and consequent advantageous cost structures of those companies. Unlike other parts of the financial services industry, wealth management firms have been slow to adopt outsourcing, primarily due to concerns relating to privacy, data security, and loss of control. Many of these concerns have been addressed through better technology, process engineering, and, often, simply with more opportune definitions of the scope of work and division of roles. Evidence indicates that, when done right, outsourcing can save 20–30% of costs over a three- to five-year period.
Wealth management, building on the experience of other financial services areas, can benefit from the industrialization of business processes and the creation of truly intelligent operations that can sense, act, and learn from their actions to increase efficiency and effectiveness. The outsourcing of part of those operations can be a useful catalyst of that change, and can compress time to value—an all-important pillar of competitiveness in our volatile times.
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- Outsourcing in Wealth Management: A Growing Trend