The New World of Wealth Management: Structuring Your Business for Competitive Advantage

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1 The New World of Wealth Management: Structuring Your Business for Competitive Advantage Wherever your company is on the wealth management supply chain advisory services provider, product distributor, manufacturer, even back offi ce service provider the future of your business is increasingly in the hands of the end client, the individual or institution purchasing wealth management services. Even if your customer is an intermediary, the end client s goals will drive your business decisions. If your offering doesn t help that client achieve his or her goals, directly or indirectly, you won t have a future in the wealth management business. COLLABORATIVE WHITEPAPER SERIES

2 A Fundamental Shift In the Balance of Power The balance of power is shifting in wealth management markets, and not necessarily to your advantage. The ultimate clients (we used to call them investors), whether individuals or institutions, have more choices, and therefore less need to include you in their wealth management supply chains. What Has Changed? Client-centric, not product-centric: The wealth management industry is undergoing a paradigm shift. Clients are focusing on their goals and needs, not on investment products. Businesses at every step in the supply chain have to do the same, structuring products, services and delivery models into solutions to clients personal and business goals. Clients empowered by technology: Thanks to the internet, the growing breadth and depth of online information, and increasingly sophisticated self-directed wealth management applications, clients have access to more information, more products and more resources than ever. They ll use that access to scrutinize the value of your services, and to fi nd your competition if they re not satisfi ed. New benchmarks: Achieving personal or business goals are the client s new benchmarks. Performance against an index isn t enough. Changing client expectations: The 2008 fi nancial crisis made clients wary of fi nancial institutions, including advisors, and more sensitive to risk. The trust gap that opened hasn t been closed. Transparency, accessibility, communication and client involvement are the new standards. That includes an information and product delivery model utilizing the media of the client s choice. The New Wealth Management Client Let s take a closer look. While different client segments demand different solutions, there are some common threads. The new wealth management client: Is goals driven Wealth management is a means to an end. Clients have life goals and life fears. They want help structuring and deploying their wealth to provide the funding that enables them to achieve those goals, and to protect them against the things they worry about. Demonstrating you understand their goals, and providing clearly communicated solutions that connect the dots between your recommendations and those goals, will be critical in attracting and retaining new business. Demands customized solutions Your business has to be structured to deliver. That requires the combination of expertise, enabling technology and business processes that provide access to a wide range of products and providers, so that you can construct the best solution for each client. Whether you re serving the end client or intermediaries, you ll need fi rst-rank relationship managers, with the expertise and interpersonal skills needed to listen effectively, along with powerful, objective analytics that help you understand the client and identity the best solutions. Is more engaged Increasingly, wealth management clients want transparency (including pricing), to be kept informed, and to be part of a collaborative decision-making process with their advisors. The new wealth management client expects proactive advisors, accessible 24/7, and communications in the media of his or her choice, including social media. Mobile platforms are a priority. Is skeptical of the fi nancial services industry Transparency, demonstrated objectivity, source-agnostic products and information, and pricing that aligns compensation with progress toward the client s goals will be critical in establishing a trusted partnership with clients.

3 The New Wealth Management Solutions Chain: Client-Centric, Goals-Driven The new wealth management solutions chain is client-centric. It begins with the end client, whose goals and needs drive products, services and delivery models at every link in the chain. The traditional wealth management supply chain was productcentric, beginning with the product manufacturer and pushing product through the chain to the end client. Product Manufacturers Product Distributors Advisory Services Provider Client Back Offi ce Service Providers Has access to competing resources and points of view Existing and prospective clients have online access to a growing array of independent information and analysis, competitive offerings, and self-directed wealth management platforms. They also have a wide network of peers with whom to compare notes. Has a more inclusive view of wealth and wealth management Clients take a household- or enterprise-wide view of their wealth, a view that goes beyond investable assets and addresses issues often ignored by traditional wealth management, including: Insurance, other bank accounts, etc. Wealth embedded in the value of a business Managing debt while building wealth a growing issue for young entrepreneurs Structuring For Competitive Advantage A New Mindset To remain a critical (and growing) link in the ultimate client s wealth management supply chain, every aspect of your business must be structured to deliver what that client needs and wants. Begin by adopting a new mindset: First, rethink the concept of the wealth management supply chain. Think of it as the value chain or, better yet, the wealth management solutions chain. Your link must offer solutions that solve problems and create opportunities. Wherever you are in the solutions chain, the ultimate client the person or business buying wealth management should drive what you offer. If you aren t selling directly to that client, you should be providing your client with solutions that help them sell to their clients. Expand your defi nition of structure. It s more than technology and an organization chart. It includes your products and business processes, your people and corporate culture, and how well they are integrated to deliver a singular, superior client experience. And think outside the functional silos. Every point of contact with your client, and every activity that supports that point of contact, is both an opportunity and a risk. Your back offi ce must deliver on what your front offi ce promises; your culture of client service can t be undermined by your technology, and visa versa. Look at end clients wealth the way they do across their household or business, and across multiple fi nancial institutions and asset classes. If you take a 360-degree view of their wealth, you will be able to develop better solutions, and more opportunities for your business.

4 Expand your sourcing horizons. Whenever you are in the wealth management solutions chain, you will have to offer access to a much broader range of products and services, and third party vendors may be able to provide non-core services that are better and more cost-effective than anything you can do in-house. Structuring For Competitive Advantage The Core Elements Emerging shifts in wealth management markets have major implications for those elements that have the potential to help you successfully differentiate your business. Let s look at them one-by-one. Your business strategy. Access to information and investment products no longer add the value they once did, nor do they differentiate. But while wealth management clients may have greater access and more choices, most of them still want someone to help them make sense of it all. An expert who can help them develop and implement a realistic strategy for achieving their goals, and help them respond effectively to the inevitable changes in the economy, the markets and their plans, adds value that cannot easily be duplicated. You have to build your business on a model that ultimately delivers client-specifi c insight, not information, and customized, integrated solutions, not products. Your business strategy should begin with a realistic assessment of the strengths and limitations of your business, and an equally realistic defi nition of your target market segments. What do you better than your competitors, and what do you have the potential to add to that list? Which market segments offer the greatest potential for growth and profi tability, and which are the best fi t with the strengths of your business model? People. The market segments you target should drive the skill sets you need. And skill sets go beyond expertise in particular markets or asset classes: Effective client relationship managers will be critical at every point on the wealth management solutions chain people who can understand the client s life or business goals, and who are good listeners and good educators. Ensemble teams of professionals can add value, enabling relationship managers and clients to draw on a broader, deeper pool of expertise. Your people must be comfortable interacting with clients in the venues and media of their choice. For some, that will be the traditional face-to-face meetings and calls. For others, that will mean social media. Focus on automating or outsourcing functions that aren t part of your core value proposition, and which don t have the potential to differentiate your business. Technology. The right technology can help make you more competitive on multiple levels: Sophisticated analytical tools, coupled with applications that let you fi nd, aggregate and integrate information, enable you to leverage your expertise to provide your clients with better solutions. Automating as much of your workfl ow as possible can make you more effi cient and productive, helping you keep costs down and keep your pricing competitive. Automation can also help reduce errors and ensure compliance in your increasingly regulated environment. The right technology can improve the client experience. Client web portals enable them to access information 24/7, and social media tools enable you to respond proactively to events and developments that affect a client s wealth or business. Data management tools can also help you aggregate and integrate information, and present it in a clear, unifi ed view that relates the information to the client s needs and goals. Sophisticated data mining tools not only enable you to serve clients more effectively, but can also help you fi nd new business opportunities, and new effi ciencies within your organization. Technology can facilitate transparency, a must for the new wealth management client. Effective integration is critical, particularly if you are using platforms and applications from multiple vendors or trying to upgrade proprietary legacy systems. Objective multisystem and multi-vendor expertise is must. Products. Tomorrow s wealth manager isn t selling products. He or she is selling expertise, insight and life- and businessdriven solutions, with compensation based on what is best for the client, not the product manufacturer or distributor. Access to multiple product sources, independent information, and an objective, product-and vendor-agnostic approach are the foundations of the new wealth management relationship. If you are selling to intermediaries, your products must help your clients deliver better solutions to their clients.

5 Pricing. Your pricing must be transparent, competitive, and structured to align your interests with those of your clients. Time and cost management applications can help you evaluate the true costs and profi tability associated with each client, enabling you to make better pricing and service decisions. Tiered pricing, with different service levels, may be a sound strategy. Demonstrating the value of insight and advice is always diffi cult, but analytics and presentation tools that help you clearly demonstrate clients progress toward their goals can be major client relationship and business development assets. Business Processes. Client service, effi ciency, error reduction and compliance should drive your business processes. Technology can play a major role, particularly in eliminating duplication, ensuring proper controls, and embedding standardized procedures and reporting in every process and transaction. Sourcing. For your non-core capabilities and functions, the best route may be solutions developed by third parties. This can involve onboarding platforms or applications developed by third party vendors, or outsourcing the function. Third-party solutions can enable you to take advantage of depth of expertise and economies of scale that you wouldn t be able to achieve otherwise. Outsourcing doesn t necessarily mean loss of control or degradation of service. With advances in technology and a growing awareness of some of the true costs of offshoring, domestic outsourcing has become an increasingly attractive and cost-effective alternative. Effectively evaluating third party solutions, and whether they are the best approach for your business, requires an objective, technology- and vendor-neutral approach, and comprehensive knowledge of technology and vendors in the fi nancial services space. The Bottom Line The new wealth management client is more sophisticated, more involved, more demanding, and more skeptical than his or her predecessors. Wealth managers and the companies that provide them with products and services have to continually deliver and demonstrate their worth. Every facet of your business must be carefully structured to add incremental value at each step in the wealth management process. Strategy, expertise, technology, and business processes must come together seamlessly to move clients closer to their life or business goals. Success in this emerging environment will require rethinking traditional assumptions, and relentlessly focusing on the goals and demands of the end client, because those needs will drive the wealth management solutions chain from end to end.

6 About Collaborative Collaborative Consulting s dedicated Financial Services practice helps clients in capital markets, banking and insurance gain competitive advantage and build brand value. Our customized, multidisciplinary solutions address product innovation, revenue optimization, risk and compliance. Collaborative Consulting is a leading information technology services fi rm dedicated to helping our clients achieve business advantage through the use of strategy and technology. We deliver a comprehensive set of solutions to our clients, focusing on business process and program management, information management, software solutions and software performance and quality. Our unique model offers both onsite management and IT consulting as well as U.S.-based remote solution delivery. To learn more on how we can help you align your people, business process and technology to achieve your business objectives, visit us at sales@collaborative.com or contact us at Copyright 2014 Collaborative Consulting, LLC. All rights reserved. This product is protected by U.S. and international copyright and intellectual property laws. WP.FS.125