The coronavirus pandemic appears to be triggering a rethink about business models and strategy among wealth managers (WMs).
Regional lockdowns, social distancing and civil unrest have made it far trickier to sign up new customers, especially where WMs operate across borders as they make remote international contact in particular more challenging. While domestic client growth can still be achieved, cross-border growth is currently much harder than before.
The timing could not be worse. Even before the pandemic, WMs were facing significant structural challenges, including margin pressure, increased competition, evolving client priorities, rising legacy IT costs and a shortage of advisers. As a result, the sector is now hard-pressed to secure a much-needed stream of net new money. Given the current circumstances, one of the best routes to this is through remote client/advisor interaction.
The pandemic coupled with the seismic social and economic upheaval has acted as a spur to accelerate much needed change. When we questioned the C-suite for the latest Orbium/Accenture Wealth Management Survey, only 22 per cent expected to change their business model. Now, in response to the new landscape, some wealth managers are developing new, more scalable and efficient models to meet changing investment trends and serve the next generation of wealthy clients.
Late last month, Credit Suisse, for example, announced a major restructuring.¹ The bank said it was creating a single, globally integrated investment bank to achieve critical scale. It also created a new sustainability, research and investment solutions function at board level and combined its risk management and compliance functions to put more focus on sustainability and unlock potential global synergies. The changes, it said, were “intended to improve effectiveness, drive efficiencies and capture future growth opportunities.” Effectively, the venerable bank is pivoting their model towards a more asset management style approach in contrast to the way a traditional wealth manager’s value chain has been run in recent years.
Such new models make perfect sense in a world where investments are increasingly global, sustainable and more sophisticated, but where client management and product distribution need to be local due to region-specific regulation and suitability requirements.
Meanwhile, NatWest, parent of wealth manager Coutts, recently announced changes designed to extend its WM operations by moving into the fast-developing affluent client segment.¹ It is offering an advice proposition targeted at helping clients make the best investment decisions from the early years of wealth creation right through to post-retirement. Part of this includes the wider use of technology to more efficiently scale the provision of this advice. At the same time, Deutsche Bank announced changes to combine businesses to scale its international private banking business to better address the shifting market dynamics mentioned above.²
But it’s not just a WM’s business model that needs changing to achieve growth. More than ever, wealthy clients want their advisers to be “more like them”. For example, if they’re interested in investments relating to ethical, social or corporate governance (ESG), they want experts in this field. Women may often want female advisers. And clients increasingly want to know that the firms they are working with share their values. This means recruiting and training not just more women or those with the right skills and ESG experience, but also ensuring these attributes are represented at board level.
Clients also want more timely, proactive and personalised advice with recommendations across both assets and liabilities at critical points in their family or business lives. The announcements above recognise these shifts and demonstrate the rise of next-generation, more connected advisor models accompanied by well- focused organisational and technology changes.
A proven framework and flexible model
What does this mean for the C-suite? It means a changing agenda to make the banks more dynamic, nimble and responsible. It’s about understanding and being able to respond to new market conditions and changing client demands. Only then can a WM be confident of attracting new money to grow and secure its future. However, getting the new model right and implementing it is a complex task.
Success depends on multiple variables such as designing and implementing new client engagement and servicing models, adopting new technology enablers and driving change in advisor behaviours as well as the timing and sequencing of change. In many cases, wealth managers don’t have the necessary skills in-house to assess where their key performance and opportunity gaps are. What they need is a proven framework to produce a phased road map for change that is specific to their circumstances. Such a framework allows that the focus falls on the right areas so all parties – the WM, the advisors and the clients – end up with the right scope of change, the project moves at the right speed and the outcomes can be correctly sequenced and scaled efficiently.
The process involves examining current versus required client interactions and channels, as well as products and solutions. It can also examine current and proposed models against those of peers to give a clear idea of gaps in the current model and how competitive the business outcome would be. Get it right and the resulting investment would lead to higher growth and lower costs. Missteps and mistakes will eat away at growth and returns.
As in so many areas of business and society, Covid-19 is accelerating an emerging trend: more wealth-management C-suites than ever are looking at their business models and finding them wanting. Those that use a proven framework to help them assess what needs to be done and how they should proceed in a phased way will likely reduce risk and get where they want to be faster.