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5 Ways Wealth Managers Must Adjust With the Times

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Rather than acting as product providers, the wealth management industry is positioning itself as a source of financial solutions and advice, according to PwC’s 2013 Global Private Banking and Wealth Management Survey, released late Wednesday.

PwC surveyed 200 participants from 51 countries for the report. The majority of respondents were from Europe and the Middle East, but 18% were from North and South America. This is the 20th anniversary of the biennial survey.

PwC identified five areas where wealth management firms need to enact transformative change to be successful.

1. Markets and Clients

While emerging markets are growing faster than developed markets, PwC found that even within that sector, newly emerging markets are experiencing more robust growth than more “established” emerging markets.

Steve CrosbySteve Crosby (right), Americas leader for PwC’s private banking and wealth management team, said this “multi-speed market” means “different markets are growing, maturing and changing at different rates. In many cases, what used to be a correspondent institution may now be a local competitor.”

As the demographics of a firm’s client base change, wealth management firms need to stay “agile” in responding to their needs. For example, while women comprise a third of the client base, just 8% of firms have a specific strategy to meet those clients’ needs.

Furthermore, the third most common reason clients leave a firm is that they are next-generation investors who want to replace their parents’ advisor, the report found.

Crosby said that over time, firms have unintentionally “created models that seem to focus on the patriarch” and don’t include surviving spouses, children or charitable foundations that their clients would like to leave their assets with. “As a result, assets are flying out the door,” Crosby said. “If they address all the stakeholders, they would have a higher retention rate and they wouldn’t have to keep reselling the same” plan to the same stakeholders.

Crosby said firms need to communicate with next-generation clients the way they want to be communicated with. “The next generation is what we call ‘analog abhorrent,’” he said. “You have Facebook, you have Twitter, you have LinkedIn: You have different ways of communicating with the next generation. Most of the firms that are out there haven’t quite gotten up to speed yet.” 2. Risk and Regulation

The increasing cost of regulation is a significant challenge facing the wealth management industry, the report found. In fact, global respondents estimated that regulatory costs will consume 7% of their annual revenue in the next two years, compared with 5% today. Respondents from the Americas predicted an even higher increase to 9% of their annual revenue.

Furthermore, PwC noted that for global respondents, compliance replaced maintaining a positive reputation as the top risk management concern.

“The problem with regulation in most cases, aside from the tonnage, is the nature of how it is promulgated,” Crosby said, calling regulation “incomplete.” When regulations are passed they frequently take effect in several phases. “It’s hard to architect technology and business and solutions and people and everything else.”

Another problem with some rules is that they “require a single view of the customer. To get to a single view of the customer, people need to be able to focus on the data. They need to see everything they’ve got globally.”

3. Human Capital

Following the financial crisis, the wealth management industry took a major hit in clients’ eyes, and PwC found repairing that trust is a critical priority. Firm leaders are working to align incentives with ethical behavior and are “setting the tone from the top.”

Currently, firms want client relationship managers who can identify and respond to client needs, bring in new clients, communicate well and respond quickly to clients. Over the next two years, firms looking for talent will expect managers to be knowledgeable about in-house and external products, and have strong cross-selling skills, respondents said.

The report also found low levels of confidence among respondents about managers’ skills in several areas. Most were confident about their abilities regarding mainstream investments, banking and financial planning, but tax and retirement planning were trouble spots. 4. Operations and Technology

Almost half of respondents said they were investing in core processes, while 18% are still working with legacy systems. Those core processes are helping firms stay commercially successful as well as meet regulatory requirements.

In fact, the report found the top technology priority is to implement systems that address regulatory requirements.

“They’re going to have to have standards, reviews and control assessments, and in some cases they’re going to have to start using advanced technology in more of a clean-room environment,” Crosby said of how firms need to use technology to address regulations. As an example of “clean-room environment,” Crosby described a technology solution that enables firms to assign what types of files can be shared by email and triggers an alarm when an unpermitted file type is attached.

“That’s the emerging best practice, and you have to check that stuff constantly,” Crosby said. “There is no substitute for vigilance.”

Currently, telephone, in-person meetings and email are the primary ways firms communicate with their clients, but respondents expect use of those methods will fall in the next two years. Mobile technology, video conferencing and social networks will be used to a greater extent over the same time period.

5. Products and Services

The survey found asset management and similar services generated the majority of revenues for respondents. They anticipated that in the future wealthy clients will likely demand holistic financial planning and will pay for actively managed portfolios, not transactions.

Currently, most respondents are working to improve product performance, but over the next two years, improving transparency and information will define their product approach.

Two-thirds of respondents said they offer a mix of in-house and third-party products, and they expect that will increase to over three-quarters in two years.

“Most of these folks are running thin on headcount. Budgets are short. Good people are scarce. How do they manage all this change?” Crosby asked. “In the middle of all this we’re shifting from what I would call legacy transaction processing environment to more of a digital and data-centric environment.” Managers who were having trouble keeping up before have to contend with a new reality, he said. “Fortunately or unfortunately, it’s only going to accelerate potential acquisitions and changes in the market.”

Check out Speaking at Face Value: To Build Ties With Employees, Speak Honestly by Angie Herbers on AdvisorOne.


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