The concept of open architecture at banks that have a private wealth management capability is not new. For a number of years now, private banks and larger, more universal banks have been offering their high-net-worth clientele the combination of a broad range of investment products, chosen from either an in-house menu or from the wider financial market, and personal advisory services. Today, high-net-worth and ultra-high-net-worth clients have access to a range of highly competent providers, willing and able to serve their needs via an open architecture platform.
Clearly, open architecture is what clients want, but at a time when there are so many skilled providers of wealth management services, and clients themselves have become increasingly more aware of the plethora of investment choices and products available in the financial markets, experts say that the business of managing private wealth on an open architecture platform is still challenging, from the point of view of both firms and clients. It is a process that continues to evolve as this business grows, and as it evolves, both firms and clients must learn to define their expectations, their capacities, and also their limitations.
While some firms are better on the advisory side, they might not be offering their clients the best possible investment products. Others might have the resources and the manpower to either search for the top-performing products in the market or to create their own in-house, but might not deliver the kind of individualized approach that many wealth management clients expect.
On the client end, many high-net-worth individuals might be seduced by the idea of having access to the benefits of open architecture, but, when it comes down to it, are not exactly sure what this signifies, and whether it will prove to be the correct methodology and approach for them. Many people are also reluctant to leave the long-established relationships they have shared with a financial advisor or a broker, and take up something new with an institution that offers an open architecture platform.
But even if clients are not completely sure about what they can get from an open architecture offering, most are sure that they want it, and in private wealth management, as in other businesses, the client is always king. For wealth management firms to compete in an open architecture world, each one must decide what’s right for them within the parameters of their business models and provide the highest level of service to clients at the most reasonable cost to all, says Andrew Hutton, CFA and head of asset management at RBS in London.
Indeed, wealth management firms need to figure out where their strengths lie and build on these, while getting out of areas that might not be their forte, agrees Ian Partridge, CEO of Geneva, Switzerland-based Loedstar, a firm that provides training and seminars to wealthy families across the globe. This is key to making open architecture work for all, and a principle all firms in the field need to adhere to, if they want to keep on appealing to an ever-growing universe of private banking clients.
“In today’s wealth management industry, we see two trends in client demand that providers find difficult to reconcile: The demand for objective advice and the need for product excellence,” Partridge says.
Open Architecture is Openly Defined
But while the jury is still out as to which players will be able to get the perfect combination of product offerings and advisory services, what’s clear is that private wealth management is a business many firms want to be in, and each one, be it a private bank or a larger, more universal player, has its own definition of open architecture and how that can serve the needs of private clients.
UBS, for example, has been cross-serving its clients by leveraging the vast amount of group experience the bank has in various financial markets, business areas, and investment products. By virtue of being a universal bank, UBS has a global reach, says Peter Wuffli, CEO of UBS, who spoke at the Annual Meeting of the CFA Institute in Zurich in May, and the bank has been able to extend this even further through both acquisitions and organic growth. The know-how the bank has in a range of areas and sectors can be used to serve clients in a variety of ways, in order to provide them with a wide-reaching open architecture platform.
The open architecture model is extremely important to UBS, says Stephen Roussin, head of investment solutions for U.S. wealth management at UBS in New York.
“For us, open architecture is a strategy, far more than a concept,” he says. “We believe that clients everywhere are looking for this, and we as a universal bank can provide that solution. Our approach is to construct holistic investment portfolios for our clients, with both in-house products and the best products from the outside world, in order to provide the best overall solutions.”
But while larger financial institutions undeniably have a broader platform of offerings and services, and can be more aggressive in providing clients’ access to both internal, structured products and external investment products, some argue that this creates a supermarket approach to wealth management that is not perhaps the most ideal one for private clients, particularly since wealth management at a universal bank is one among many business lines. On the other hand, smaller banks whose sole business focus is wealth management might not be able to reach such a variety of investment products, but they can offer a more customized solution to their clients, Hutton says. Instead of offering 20 equity strategies, for instance, a smaller bank could pride itself on selecting two well-tailored ones instead, he says, and this approach could be more appealing to the private client.
That is just what private bank Pictet et Cie. claims as its competitive advantage. Pictet has always been an open architecture firm, says Pierre Allan Wavre, who heads the Geneva, Switzerland-based bank’s family office, in that it does not make investment products but only invests money for its clients, and its sole goal is to cater to the needs and expectations of its clients, both in terms of delivering superior performing products and offering personalized advice. Over the years, Pictet has developed an expertise in a range of asset classes, namely Japanese equities and emerging market stocks and bonds, and the bank prides itself on selecting the best of the best in these as well as other investment areas, from the broader financial market, Wavre says.
The Pictet family office manages money for ultra-high-net-worth individuals across the globe, and such fortunes need to be managed on an open architecture platform, Wavre says, as clients must have access to the best products in the market. At the same time, the advisory role of a private bank is paramount, and incomparable to what a universal bank can offer. This is where Pictet’s forte lies. Indeed, personalized advice is very important to private clients, and Wavre feels a universal bank cannot ever hope to replicate this, by the very nature of its business model.
“The larger, more universal banks are trying to put across the message that they offer an advisory role in addition to the breadth of products that they have,” Wavre says, “and yes, this might be true, but what is their business model? It remains sales-driven, so in a large organization, the more products you sell, the better for you, and this is the bottom line.”