by Katharina Mohr
The banking world is facing unprecedented upheaval. Given evolving client needs, profitability issues, regulatory pressure and market disruption, banks and wealth managers have been distracted from their core purpose, write Olivier Grandjean.
Orbium’s C-Level survey highlighted the fact that future wealth management business models will need to be more balanced and integrated if organisations are to prosper. Not only will it be important to further industrialise Operations and IT – going forward – leveraging new capabilities will also play a key role. Digitalisation is foreseen to enable client service differentiation and strong relationship manager tools, as well as unlocking efficient customer-to-bank interactions. Sourcing will speed up standardisation of systems, data and processes while opening up additional delivery options.
Driving the shift in wealth management business models is the looming challenge of serving five generations of clients, including millennials and baby boomers simultaneously. Many of these clients have become increasingly accustomed to instant feedback and 24/7 accessibility, whilst also demanding transparent costings for transparent services. This shift in client needs provides the perfect opportunity for a review of the wealth management model. Wealth managers are pressed to challenge established assumptions underlying prior successes and to stress-test current business models against a rapidly moving market context. In addition, rival firms and new entrants are adapting and embracing digital banking technologies – at an unprecedented speed – creating even more disruption to traditional models.
To flourish in these circumstances, high performing organisations need to refocus on their core business, be clear on their strategy and redefine it. Both in terms of value generated and the means by which this value is delivered to both clients and financial intermediaries. Finding a unique and sustainable strategic positioning across traditional and new services is vital. This position implicitly defines the future business model, service offerings and the necessary cultural and operational changes needed to support it.
To cater to the pace of change and disruption in the market, financial institutions are forced to stress-test(1) their existing business model. This would not only entail relying on qualitative feedback from current business line structures and workforce, but also using quantitative analysis of trends ranging from help desk FAQs, system incidents, inter-department communication, volume evolution, through to the underlying reasons for newly introduced workarounds. These non-traditional measures are often enlightening in terms of identifying unanswered needs and requests from both clients and RM’s.
In a stress-tested scenario, forecasted revenue from traditional models indicate whether the financial institution can transition (i.e. focus on optimising current operations, digitising existing processes and interactions) or if it needs to transform its offering to match newer client segments and emerging market strategies.
Beyond digitisation, another element of future business models is digital delivery – leveraging digitalisation of traditional services or roles to support newer channels. Banks are increasingly forced to embed a functional digital vision which goes beyond the necessary focus on aesthetics such as web design or appealing user interfaces. A digital vision may include offering new products (crypto equities), handling process disruptors (smart contracts) and monitoring social impact (building transparent sustainable index benchmarks).
The challenge for banks today is that there are few stress-test examples or statistics available, and even fewer successful models to aspire to. Bank executives struggle to decide the degree of innovation required to remain relevant. Following established industry sentiment, cost reduction and industrialisation are at the forefront of their minds and IT or business process outsourcing take precedence in their agendas. Without aligning and synchronising their ultimate objectives, outsourcing initiatives can become obstacles, delaying or putting innovation at risk.
Rapid innovation requires the flexibility of both IT systems and operational teams, whereas traditionally outsourcing identifies ITO or BPO opportunities to accelerate process standardisation and deliver existing offerings at a lower cost. In the future, an organisation’s success (or excellence) will be determined by its effectiveness in surfing this ‘outsourced innovation paradox’. New, integrated business models of high performing firms will be characterised by an agile organisation that:
1) Supports core client propositions & services
2) Outsources non-core propositions and partner services
3) Achieves a seamless integration in a unified digital delivery model embedding the necessary regulatory compliance frameworks.
The envisioned balanced and integrated business model becomes the central decision criteria for initiating long-term investments and innovation. Banks must innovate their offering while developing a vision and culture that supports digital transformation. By successfully leveraging disruptive technologies, organisations can outperform both peers and new market entrants.
Client behaviours and needs – as well as market trends – confirm that digital innovation and next generation models will out survive traditional delivery models.
This article provided insights into how a traditional wealth manager’s success will be determined by their effectiveness in addressing the ‘outsourced innovation paradox’. In our next article, we will detail the characteristics of a future-proof operating model, highlighting why business excellence – or success – is not a tangible outcome but a way to drive change within the organisation.