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Recalibrating wealth management through 4 Ps - products, platforms, participants, principles

2020 has been a year fraught with a wild goose chase for fiscal sanity. As the global economy grapples with a massive instability owing to the Covid 19 pandemic, the Financial Services (FS) sector, in particular, seeks to trudge off the beaten track to rediscover value and substance. Leading banks around the world are undertaking restructuring and cost reduction exercises in the same vein as they are dabbling with innovation, more so, along their customer facing promenades. Unsettled by disappearing footfalls in branches, the high street presence is nixed as banks look at all avenues to cut corners in order to be financially viable. With customers seeking to place a premium on all things digital / omnichannel, it has become an existential necessity for the industry to move away from archaic business models and explore the immersive realms.

A segment considered quite complex and unpredictable within FS is the wealth and asset management arena. The classical model of wealth management advisory paired the rich customers with their personal relationship managers (RMs) and advisors feeding on the staple diet of trust, secrecy, orthodoxy and personalization of the highest order. The last decade had seen this sector blazing a trail with significant investments to herald new age portfolios, innovative digital technology and niche customer segments.

A primer on wealth and asset management

The terms “private banking” and “wealth and asset management” have been used interchangeably. While the former entails provision of personalized financial and banking services including investment advice to the upper class clientele, such as the High net worth individuals (HNWI) and Ultra high net worth individuals (UHNWI) for a fee, the latter is dedicated to optimizing the client portfolio (HNWI / UHNWI) through both advice and execution of investments, also for a fee. In both cases, the fee income earned by the players which involves substantial sums even as a percentage of the total assets under management (AUM), running into billions, provides a safe harbour for their upkeeping. The illustrious clientele (HNWI / UHNWI), have a typical net worth ranging between a million USD to 5 million USD, where in the million mark serves as the quintessential eligibility cut-off for prospective clients. Wealth management products  / services include brokerage, core banking-type products (including deposits / payments), lending (cards, mortgage, private jet finance …), insurance / protection plans, funds (mutual funds, exchange traded funds, unit investment trusts …), discretionary / advisory assets (real-estate, commodities, wine, art …), asset allocation, wealth structuring, tax, trusts, planning (inheritance, philanthropic, pensions), private equity, venture capital, family dispute arbitration, concierge services (yacht broking, art storage, real estate location, hotel / theatre booking …).

The wealth and asset management sector typically hosts three broad categories of players.  Universal banks (HSBC, Credit Suisse, UBS, JP Morgan, Barclays, Morgan Stanley, Citibank, Goldman Sachs, RBC, BNP Paribas …)  call the shots through their dedicated wealth and asset management practices. Then, there are a host of pure private banks and boutique wealth managers (Coutts, Julius Baer, Charles Schwab, Lombard Odier, LGT, Pictet, St James Place, T Rowe Price, Vanguard, J. Safra Sarasin, Vontobel …) that specialize in providing turnkey investment advisory and portfolio solutions. Finally, a league of fintech roboadvisors (Wealthfront, Betterment, Personal Capital …) dot the perimeter relying on their AI / algorithm backed modelling capabilities to offer smart wealth advisory.

According to various estimates, the global management wealth market had inched closer to $500 billion at the end of 2019, at a +6.5% CAGR since 2015. Though the events of 2020 have thrown a spanner in the works, the associated contraction (between -7% to -9%) is expected to be countered effectively in 2021 (between +8% to +10%), when the industry sees a strong revival to push the valuations upwards. While retail, corporate and investment banking bore the brunt of the pandemic due to a marked decline in front office activities, wealth management, primarily, as the result of being a niche, brokered and insulated segment has experienced a moderate impact. As per various consultancy reports, the total AuM at the end of 2019, ranged between $75 – 90 trillion, having grown by as much as 15% from a relatively underwhelmed 2018. The gap between retail and institutional clients narrowed considerably with the former managing an impressive 40% – 42% basket share ($30 - $40 trillion), which signifies an accelerated growth in wealth driven by factors such as globalization and regional powershift.

The cyclicality of economic oscillations, with a few recessions thrown in, had ensured that sovereign wealth kept changing hands and global regions. The bygone era of globalization had ensured that much of the enormous chunk of global wealth from Europe and North America crossed the high seas to arrive at the Asian “off-shores”, most prominently in China and to some extent in India, as the two economies laid claim to the global manufacturing and software supremacy, respectively. China and India were home to 1300k+ and 263k+ HNW (individuals) at the end of 2019, clocking impressive annual growth over the previous years. The numbers dim, if viewed as a proportion of their national populations, but look many shades better, when played alongside the globalization story, thus creating a very strong and symbolic narrative for the journey of wealth.

The digital backstory of the last decade

The early part of the decade (2010 – 2015) had seen a string of digital innovations undertaken by the players. The wealth sector always had a relatively lower digital maturity than its retail and corporate counterparts, with issues related to trust and integrity factored in. Anchored to the domain of the HNWI – advisor personal relationships, it took a while before the efficacies of digital transformation could be embedded constructively into the customer psyche and ensure a strong business case for adoption / consumption.

This can be explained through a rough sketch of the wealth management customer journey. It all starts with research and subsequently the sales process, resulting in client acquisition and onboarding, followed by portfolio management and advisory. Execution of transactions follows while relationship management, reporting and value-adds round off the rest of the stages. All the while the customer has several touchpoints with the systems, across physical (branch, face to face) and digital channels (customer support, web, mobile, social media).  In the ensuing journey, the customer has historically experienced inflection (pain) points in the research, sales, onboarding and relationship management stages tempting a switch to a better provider. Customer experience scores stutter when customers don’t receive personalized updates, go through painful onboarding, are not well informed about the proprietary products and services before the buy decision, have channel induced trust deficiency with RMs and are dissatisfied with the value-adds.

Some players had been quick to diagnose and take remediation. What had transpired from the stables of innovation in the last decade within these firms are the following:

-  All-in-one portfolio management and reporting solutions backed by omnichannel propositions

  • Credit Suisse offered dynamic access to global markets through the “Direct Net” platform with all round interactivity, “Fund Lab” was a digital aggregator of fund information based on market dynamics
  • Morgan Stanley facilitated integrated visualization of client finances through its “OneView” portal
  • Raymond James hosted “Advisor Access”, a fully integrated advisor desktop solution as a central interaction point for all advisors and  had also launched a goal planning and monitoring solution with gamification, social security optimizer and a series of realistic stress tests, the firm had simultaneously engineered “FolioDynamix” to transform investment proposal generation, client acquisition and onboarding

-  Deployment of innovative research, knowledge sharing and idea exchange platforms

  • RBC had deployed “Springboard” to help the advisors share knowledge through short videos and collaborate effectively
  • Coutts had put in place “Knowledge Exchange” to enable its clients to effectively create thoughts and deliberate around contemporary themes
  • E-MERGING from Lombard Odier connected buyers and sellers of businesses and facilitated M&As, deal identification and finalization through the social network

-  Intuitive mobile apps for faster access to information, transaction processing and authorization

  • J.P.Morgan had deployed versatile smartphones apps for clients to perform transactions and access market intelligence
  • Mobile apps from Pictet provided interactive charts, dynamics fund information, customized filters to help the clients remain updated

-  A dash of “premium” personalization and value-added services to enable seamless client experience

  • Barclays Wealth had introduced an innovative client experience tool for its HNW segment through the “Little Book of Wonders” online portal that let the clients browse ideas for exceptional events and experiences
  • Morgan Stanley had designed an online advisor locator mechanism that let clients track the nearest available advisor / wealth manager
  • “Co-Browsing” from Merrill Lynch acted as an interactive experience optimizer between the clients and the online technical service associates

-  Entry of robo-advisors and digital aggregators leading to disruptive propositions for the incumbents

  • Robo-advisors like Wealthfront, Betterment, Personal Capital had launched online-only business models hosting tools on their websites to help the clients assess their investment appetite, as computer algorithms generated recommended customized investment models, these further diagnosed the clients’ investment appetite through a serious of digital assessment checks and prepared bespoke profiles for each scenario
  • Digital aggregators such as provided all-inclusive personal financial tools to let clients track, assess and optimize their portfolios autonomously

Trends and signals in the aftermath of Covid – 19

The aftermath of Covid – 19 has stunted the growth of front office personal advisor / RM activities with the players looking at technology to bridge the gap through innovation, optimization and security. As cost pressure mounts on the wealth managers, they will possibly look to recalibrate efficiencies across several frontiers, most notably across the 4 Ps - products, platforms, participants and principles


-  ESG making a strong pitch as an emerging asset class

Covid - 19 has hastened the imploration of environment and climate centric topics globally, as Environment, Sustainability and Governance (ESG) themes start taking centre stage in the boardrooms. Socially Responsible Investing (SRI) has found plenty of takers in the wealth management space. As the average age of HNWIs goes down, many Gen Y and Gen Z customers have started rooting for this as a strong asset class to be included in their portfolios. Research seems to indicate a strong positive correlation between stock prices and inherent sustainability practices within the firm, which is finding favour with leading wealth managers. While Morgan Stanley has floated an Impact Quotient tool to prioritize ESG considerations, Deutsche Bank continues to guide its clients on ESG-centric investment decisions effectively by harnessing MSCI’s investment decision tools. Robo-advisors too have joined the bandwagon, with Betterment offering SRI-focused ETFs and Personal Capital partnering with ESG rating firm Sustainalytics to screen and exclude “vice” stocks from the portfolio

-  Reprioritization of alternative investments asset classes

The pandemic has forced wealth managers to have a relook at the alternative investment asset classes. Heavy investments had been done in the yesteryears in areas such as real estate, micro finance, emerging technologies, corporate debt, buoyed by the valuation euphoria and economic glamour. While Covid -19 has taken the sheen off private equity and venture capital for the time being, wealth managers are expected to stay put till valuations recover and intermittently rebalance or reprioritize as per goal-based needs


-   APIs / Open banking conduits discovering robust synergies in the wealth arena

After gaining prominence in retail banking, APIs have ushered in remarkable usecases to be adopted and integrated efficiently in the wealth arena. As regulatory pressure builds through the Payments Service Directive 2 (PSD2), commoditized data exchange with fintechs and third-party developers is becoming a business mandate. Through a private API ecosystem, wealth managers can harness new business models and revenue streams by aggregating interconnected data and information pipelines. Key participants such as private banks / wealth managers, fintechs, custodians can assimilate new propositions to better serve the clients in the “Open Wealth Management” arena. Morgan Stanley is harnessing cloud APIs and has put in place an encrypted document sharing platform called “Digital Vault” to target remote investors. JP Morgan Developer is an open API tool providing access to JP Morgan’s data and analytics service.

-  AI and machine learning fuel a variety of futuristic innovations

As AI takes over the mantle of in-person, physical guidance in all spheres, the wealth management space has benefitted tremendously. With the new age HNWIs looking away from the traditional desktop advisory and RMs, AI fits the bill to serve the hyper-critical and autonomy-inducing aspirations of these customers. Machine learning algorithms can make the fund selection method bias-free and help in building a strong return / goal-oriented portfolio. The advent of the quasi-perennial social distancing norms has almost obliterated the branches. AI frameworks and machine learning avenues have been able to create an over-arching, cost-effective, data intensive and sophisticated platform for all forms of investment advisory and execution. Client onboarding, KYC authentication, trade execution, scenario modelling, fraud detection and many other use cases find strong consonance with AI, as the wealth players lap up the innovations.


-  Personalization finds a new flavour and context

Far removed from the traditional approach in the earlier decades, a new momentum is brewing up on the personalization front. Gen Y / Gen Z customers are demanding autonomy and a bigger say in optimizing their portfolios, with the average age of millionaires seeing a drop at regular instances, the focus has shifted to personalized risk profiles, made-to-order portfolios, focused rebalancing criteria and contextual reporting. Covid – 19 has empowered the self-discerning customer and wealth managers must address each client differently. Wealth managers have gone as far as studying and embedding “emotional analytics” helmed by AI as a mean to better identify and respond to customer aspirations. AI powered digital assistants (such as IPsoft’s Amelia and Wela’s Benjamin) can study and assess the sentiments and motives of the customers during conversations and respond with the relevant investment advisory. Cetera Financial Group has embedded a behavioural assessment solution to investigate customer emotions as they watch videos and better predict the relevant scenarios.

-  A mega wealth-transfer wave spanning multiple generations in the offing

The baby-boomer generation (born around the 50s and 60s) has already started planning for legacy and wealth transfer to their wards (typically the millennials / Gen Y) is in process. Expected to last at least for a quarter, this +$70 trillion opportunity is expected to be a game changer for the industry. RMs are expected to encounter tricky situations aligning two radically different generations with a momentous gap in digital maturity, life-style approaches, risk profiles / appetites, goal planning and retirement aspirations. If that was not enough, more than 50% of the financial advisors in the US are closing in on their retirement ages and filling the void would be anything but easy. Digital transformation will play a big role, as robo-advisors may emerge as the frontline choice for the new age HNWIs. Wealth managers would be severely tested on their digital preparedness and agility. Among the banks, Citi Private bank has a time-tested next-gen preparatory program, for the wards / heirs of its UHNWI customers (networth > = $25 million). Through a digital upskilling program with Wharton school, the RMs are continuously groomed on the latest technologies to keep pace with the life-style of the heir apparent.  DBS had launched the DBS Treasures Private Client 2nd Generation a few years back to make the inheritance process seamless through induction (AI chatbot to help recruit new wealth planners), grooming (partnership with NTU’s wealth management institute for internship options for its wealth team) and education (digital upskilling program).


-  Regulatory compliance and Data / cyber security mandates starting to weigh heavily

In the wake of increased regulatory scrutiny following global / regional legislations such as PSD2, GDPR, FATCA, CRS, non-compliance will cost heavily as many wealth managers have realized from past instances. Compliance with the new norms will create strong credentials for the processes and the brand enabling the possibility of a new league of incoming customers as well as revenue streams. Technologies such as AI will come handy in pre-emptive diagnosis and remediation pertaining to instances of fraud, data breach and legal deficiencies

-  Disruptions to revenue streams and revamped distribution framework

One of the most prominent casualties of Covid – 19 has been the ability of wealth managers to sustain the fee income. Rising costs have brought down profitability significantly even though AuMs have grown, thus exposing chinks in the prevailing operating models. External factors such as maintaining glossy exteriors (high street presence), exorbitant compensations to fund managers, inefficient distribution models, revenue leakages, technology costs and ceding of territories to robo-advisors and fintechs have cost the wealth managers exceptionally. In the new post-pandemic world order, most firms would like to rearrange their fee structures, disintermediate the value chain by adopting a “direct-to-customer” strategy, focus on creating a cost-effective technology framework (APIs, AI / automation). Also, an attempt to reconstruct the minimum threshold for HNWI net-worth to be classified as a client has been happening for quite some time. Many global players have adjusted the upper limit by a significant margin ($5 million is the new entry criterion as opposed to $1 million for many leading players to induct new customers). At the same time, retail investors are actively seeking parity with HNWI clients as far as products, asset classes and investment strategies as concerned. Hence, a democratization of services across the full spectrum may no longer be an impossibility as banks struggle to stave off an existential crisis.

The wealth management sector is on the cusp of engaging with a radically dissimilar pattern, far removed from anything encountered before. Wonderful opportunities jostle with emerging complexities as HNWI customers increasingly demand hyperbolic attention to their fanciful aspirations amidst a barrage of evolving innovations. The wealth managers are gearing up to ace the economic recovery with an apparently firm grip on the customer psyche.



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