by Olivier Grandjean
Where does investment advisory fit into a general wealth management offering and how do you approach the technology it needs?
Demand for advisory services – where a wealth manager helps plan and manage a client’s investment portfolio – has been on the rise for a number of years, mainly driven by low interest rates and stagnant returns from traditional investments. The global coronavirus pandemic has only further fuelled demand.
The distinguishing feature of advisory services is that they usually focus more on the client’s own personal values than traditional investment management services can. This results in a more personal investment approach, one that can strike a balance between a client’s various life, social and environmental objectives (including ethical or impact investments).
The rising demand for such services can be seen across all three of the wealth management sector’s main categories – affluent and mass affluent; private banking and high net worth; and ultrahigh net worth clients. The graphic below shows how changing client needs could open up opportunities for WMs around advisory services. Across the US, Europe and Asia, several successful models for advisory services exist on a local level ranging from improved ad-hoc customer-centric investment reporting to robo-advice. Many WMs are also growing their businesses by moving into new geographies, wealth segments and products, partnering locally with banks, vendors or companies that provide other financial products. However, we have not yet seen a model in the industry that is able to truly provide what regulators would call “suitable advice” across various jurisdictions around the globe.
The challenges for banks
While the idea of growing advice is enticing, many WMs are being held back by their legacy infrastructure. They would need to build an advisory offering in a scalable, cost-effective way with the goal of having stronger client relationships to offset revenues lost from providing traditional services (e.g. shares or forex trading). And they want to become more efficient and use more accurate publicly available market data. They want all of this and at the same time, need to limit the cost implications of changing operating teams, processes and technology when introducing advisory services for clients.
Fertile ground for risk based advisory offerings:
As products and offerings get more complex, the need for a robust technology solution underpinning those new services grows. This opens up the opportunity of working with external third parties to help develop an end-to-end offering around advisory services and simplify ways of monitoring products on a larger scale.
The opportunities and scope of an advisory solution
A common issue we have seen in the market when implementing the underlying technology is to think too narrowly about an advisory solution as being only about making suitable periodic investment proposals. In fact, any solution should include far more. From client prospecting to portfolio monitoring, it also needs to take into account customer/adviser interactions, the management of investment ideas and monitoring proposals through to execution.
The key to getting any solution right is being able to identify new clients, spot opportunities and model potential financial objectives in order to map out a plan. The huge variety of available investment strategies and how best to match them to different customer profiles only increases the complexity and needs to be taken into account when formulating any solution.
Once a strategy is established, it is time to think about data: how to aggregate and leverage important customer data, enrich product data and access it in-house to research and select products. Marketing – and in particular digital marketing – has to play a central role in understanding and linking product analytics to customer analytics to generate bespoke customer-centric campaigns, for example.
What is my share of wallet and how do my products differentiate? What, when and how does the client generally buy and why do they buy? What are their current life challenges?
As well as monitoring a portfolio, the way in which a client is contacted and informed needs to also be part of the picture. Questions that might need to be asked when selecting a solution include:
We have seen many advisory projects in the industry focus primarily on generating a suitable investment proposition and improving risk analytics. But this might only build some additional constraints onto an already siloed workforce. While an advisory solution does require unique additional features, it should be developed in lockstep with all other bank’s processes, from social marketing to client onboarding and reporting. Focusing too early on a few pain points only is expected to ultimately lead to the creation of others down the road.
Understanding the overall advisory journey and where it integrates with other customer, investment and support processes is also a critical initial step. The primary goal of a fully mature advisory journey should not be to create the proposition itself, but to increase the efficiency of delivering that proposition, building the required capabilities and channels to shorten the “time to yes” from a client.
Starting a successful integration project
Choosing the right technology programme is also often the first challenge. Driven by business change functions, technology selection generally focuses on core capabilities and solving current pain points only.
Many software vendors provide full services for wealth advisory. During an evaluation process, it is important to identify their primary strengths as well as their shortcomings for each wealth segment in terms of business (specialised products, customer structures, decisioning and distribution channels) and technology (infrastructure needs, integration technologies, resiliency and response time) in order to make the right decision.
The current advisory vendor leaders have evolved from their primary market by emulating established core strengths and closing the gap to raising wealth advisory needs with different level of success:
A vendor’s current functionality is important, but when selecting a solution, there are other aspects to consider helping to ensure a seamless integration for customers and advisers:
Before embarking on an implementation and integration journey, it is vital to have a comprehensive understanding of the capability and any potential operational gaps between the selected vendor system and the bank’s current ecosystem. Failure to do this might reduce the benefits and simply increase team sizes, the number of workarounds and process disruptions.
Providing advisory services to clients is a combination of processes that have traditionally been siloed. Bringing them together enables the internal adviser to manage many mandates in a regulatory-secure/compliant and client-suitable framework – aligned with a WMs values. A comprehensive advisory proposition should sit across business process implementation and therefore, requires a strong commitment from the bank as it needs to be combined with programmes to improve process efficiency and modernise IT. When this is done correctly, it could help ensure advisory is sustainable at an organisational level.
Various vendors offer wealth advisory products, each with their own strengths. Potential buyers should understand their own ability to support products as well as the suitability context required for private clients. Selecting the right software partner can reduce risk and the overall implementation time for setting up an advisory offering.
Finally, anticipating integration challenges, understanding long-term evolution gaps and designing a flawless integration within a bank’s ecosystem and processes are also crucial aspects for a financially sustainable offering.