Wealth Management Industry Study

[Pages:20]Wealth Management Industry Study

The opportunity for bank wealth management organizations to increase their fee-based income while improving the client experience has never been greater. To capitalize on this opportunity, however, we believe that these organizations need to embrace, adopt, and implement significant changes.

Common traits of high-performing bank wealth management organizations

During the spring and summer of 2012, Wealth Management Solutions conducted a survey of senior leaders from a diverse group of North American wealth management firms to better understand how the industry is approaching these challenges.

What the research tells us Our research indicates that firms are struggling with ways to unwind decades of incremental process improvements and technology enhancements that have led to cumbersome, costly infrastructures with little buy-in and adoption from financial professionals. Portfolio managers and investment advisors have resisted evolving their roles in ways that would enable them to spend more time--and higher-quality time-- with their clients. Business leaders' aspirations for their investment professionals to allocate more time to clients are massively out of line with the current way of operating at most wealth management organizations.

While there's no silver bullet--it's not just technology, it's not just training, and it's not merely evolving how portfolios are constructed--leading wealth management organizations have several ultimate traits in common. They are developing a clear vision for the future; they are developing a plan to get there; they are creating a strong sense of urgency within the organization; and they are implementing metrics that help them monitor and adjust along the way.

The surveyed participants shared the belief that the status quo and complacency are no longer acceptable. The survey's findings revealed a series of common traits of wealth managers that addressed the key issues related to driving more profitable growth, as well as the consistent ongoing challenges standing in the way of business progress. We have summarized the common traits in five discrete themes:

1

2

3

4

5

Connecting people, process, and technology

Creating a more ideal client

experience

Delivering consistent

advice

Integrating the platform

Evolving roles and responsibilities

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Connecting people, process, and technology

Growing--and doing so profitably--requires a comprehensive and coordinated effort to develop talent, improve investment process consistency, and embrace a common value proposition across a firm's wealth management business.

Top priorities

A focus on sales, training, and improving market share were the top priorities identified to improve the opportunity for profitable growth. Leveraging technology, building out open architecture, utilizing the firm's investment strategy resources, and creating better ways to consistently deliver advice were other important and common strategic initiatives.

Priorities Sales and training

Growing market share

Leveraging technology

Enhancing the investment offering Delivering consistent advice

Representative survey observations

?Growing recurring revenue, controlling client retention, and new client acquisitions ?Increasing marketing, client appreciation events, and proactive client communications ?Adding to sales staff and greater portfolio manager involvement in the sales process ?Consultative training to institutionalize the client experience ?Cross-selling and referrals among wealth, insurance, and commercial banking groups

?A combination of organic and inorganic buildout of underserved client segments, including family office, private wealth/ultra high net worth, and institutional consulting

?Competitive recruiting via smaller firm acquisitions and wealth team liftouts

?Investing in new portfolio management platforms, integrating disparate toolsets, and building scalable infrastructure that can enable growth and improve productivity

?Capturing full client wealth picture via customer relationship management (CRM), data aggregation, and mobility tools

?More reliance on open architecture solutions ?Incorporating retirement income solutions

?Leveraging the firm's modeled investment solutions in more client portfolios ?Better alignment of portfolios with the firm's best thinking

Top priorities to improve the opportunity for profitable growth 3%

10%

11%

38%

15% 23%

n Sales and training n Growing market share n Leveraging technology n Enhancing the investment offering n Delivering consistent advice n Evolving pricing structures

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Wealth Management Industry Study

Growth and capacity

?Over half of respondents expect between 10?15% annual revenue growth. ?Comparatively, a recent Wise Gateway, LLC study found only 25% of firms expect annual revenue growth to

exceed 10%.1 ?90% of respondents believe their operating platforms can support a 10%?20% increase in accounts without adding

additional costs. ?With respondents indicating the need for improved sales productivity, better technology integration, and more

consistent service models, firms' confidence in growth and platform scalability appears overstated.

Annual revenue growth projections

Stock market impact notwithstanding, what are your organization's revenue growth projections for this year?

0?5%

6%

6%?7%

14%

8%?9%

25%

10%?15%

44%

16%?20%

11%

Confidence in current operational capacity If your firm grows accounts by 10%?20% over the next two years, do you believe it has the capacity and operational efficiency to bring those accounts on without adding commensurate costs?

10%

n Yes n No

90%

Waving the "magic wand"

When asked about initiatives to significantly impact profitable growth, respondents would solve for "improved sales productivity," "better technology," and a "more consistent service model" across client segments and business lines.

"If I could wave my magic wand, I could significantly impact profitable growth within my firm by solving for...

improved sales productivity

better technology and workflow

more consistent service model

regulatory requirements

4%

39% 33% 24%

Priorities

Representative survey observations

Improved sales productivity Better technology and workflow

More consistent service model

"C hange compensation plans, with a greater emphasis on direct sales results"

"C onsolidated profiling, proposal, account opening/setup, portfolio management, and reporting technology solution that bridges line of businesses and channels to better serve clients and share information."

"A means for leveraging the firm's `best thinking' across channels and custody platforms."

1 Source: WISE Gateway, LLC, May 2012 presentation, By The Numbers: Leveraging Operational Benchmarks to Drive Profitable Growth

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Creating a more ideal client experience

To deepen client relationships, firms need to be more consultative and enable investment professionals to spend more meaningful time with clients.

Spending more time with clients

Firms believe that improving the client experience begins with increasing the time investment professionals spend with clients. However, investment professionals also require training to ensure that this time is spent productively. Even with excess capacity and better training, firms seek to improve technology to supply their staffs with tools to proactively communicate with clients at key points in the relationship life cycle.

?While respondents recognized the correlation between increased client activity and growth, their financial professionals spend only about one-third of their time in front of clients and prospects.

Allocation of investment professionals' time

19% 33%

22% 26%

n Client services & business development

n Portfolio construction n Portfolio implementation n Administration / compliance

Representative survey comments "An integrated solution that enables our high-value personnel to extricate themselves from lower-value activities."

"More focus on efficiencies for client-facing professionals to spend time on growth and retention."

"Evolving portfolio managers to become more engaged with clients and less focused on stock and bond selection."

A commitment to training

?Training financial professionals was cited as the most valuable use of a firm's budget, with a focus on financial planning and improving client-facing skills.

?Training proved to be a critical process rather than a once-a-year or twice-a-year event.

Top opportunities to use budget dollars* Training

Representative survey comments

59%

"Improve client-profiling skills and effectiveness."

Performance reporting

Portfolio management & trading

Research

44% 41% 34%

"Improving presentation skills to better tell our story."

"We are cross-training the portfolio management staff on the firm's full range of investment-related products and offerings."

Other

22%

*Not intended to total 100%. Respondents had an opportunity to provide more than one response.

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Wealth Management Industry Study

Bridging the gap

?Even with more client-facing time and a better trained team, gaps must be closed to improve the client experience. These gaps include a lack of robust reporting, inconsistent delivery of advice, and reactive communication combined with disparate systems.

Gaps between the "ideal" and actual client experience

24% 33%

19% 24%

n Improved client reporting n Consistent advice delivery n Better client communicator n Integrated advisor tool set

Representative survey comments

"My vision of the ideal client experience is one where client interaction is much more proactive as opposed to today's reactive and non-systematic approach."

"Ability to show clients that we have helped them achieve their individual goals and providing attribution for what we have or have not delivered."

Learning from the best

?Firms look to their top advisors to set the bar for their broader teams in terms of productivity and effectiveness. ?A s demonstrated by these role models, firms seek to consistently replicate best practices across their entire advisor

base.

Best practices of top investment professionals

Employing an investment consulting approach

More effective client communication

Improving client profiling skills

Implement a segmented service model Better sales effectiveness

9% 4%

Representative survey comments

"Our top advisors have developed detailed business plans,

29%

while our lesser performers are not as sophisticated or

strategic about their business."

29% "It's more about knowing everything there is to know about

29%

the client and being their trusted advisor."

"Movement toward investment relationship manager (manager of managers) versus portfolio manager (customizing every portfolio with their own thoughts)."

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Delivering consistent advice

Firms have made commitments--both financially and philosophically--to deliver their distinct investment advice across their client base. By leveraging centralized resources, adopting consistent processes, and closely monitoring customization, firms are delivering their "best thinking" in managing client portfolios.

Balancing consistency with customization

While firms strive to capitalize on the resources they have devoted to promote their unique investment strategy, a disconnect exists between the perception of consistent portfolio management and the reality of how client portfolios are managed. Better education and communication, as well as overcoming a firm's legacy culture, are the key ingredients required for greater portfolio management consistency.

?Implementing consistent portfolio management is important but remains a challenge. Only a little more than half (57%) of respondents indicated that portfolio management is being delivered consistently.

?Only one-third of portfolios consistently utilize a firm's model portfolio. ?These results can be attributed to clients' "need for" and portfolio managers' "bias toward" customization, and they

highlight the importance of adhering to a client's investment policy and monitoring that process. ?These results also prompt further inquiry as to why model portfolios are not used more consistently and how and

when portfolio customization is appropriate versus when it's not.

Slightly more than half believe there is consistent advice delivery...

"We have a consistent investment value proposition and deliver portfolio management consistently across our sales and investment staff."

43%

n True

n False

57%

...but only one-third consistently use firm model portfolios

Percent of client portfolios (asset-weighted) in a firm model/ guided portfolio:

1/3 7%

19%

31%

n 0?25%

43%

n 26?50%

n 51?75%

n 76?100%

Approximately 70% indicate a gap between the firm's advice and actual portfolios...

To what degree do you feel that there is a gap between your Investment Committee's/CIO's best thinking on portfolio construction and the actual portfolios across your account base?

3%

Approximately 70%

6%

25% n No gap n Very little gap n Somewhat of a gap n Significant gap

66%

...and portfolio managers tend to follow the firm's advice about 50% of the time

Where on the continuum do you consider your investment professionals?

52%

12% 6%

24% 6%

n 1. Driven by stock pickers/ portfolio manager

n 2. n 3. n 4. n 5. Driven by firm's "best

thinking"

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Wealth Management Industry Study

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