Despite the uncertainties that are manifesting themselves in other areas of financial services, the wealth management industry is experiencing unprecedented growth. As the global number of wealthy individuals and families rises, and the rich become richer, the demands on the organisations that service their wealth are becoming increasingly complex.

Many wealth management firms are finding themselves in a bit of a quandary. How can they take full advantage of these upbeat market conditions and pursue growth strategies, while increasing the level of service that they currently deliver? Choosing the right strategy is not easy, and there are many factors to take into consideration.

Two key challenges which need to be thoroughly reviewed are, firstly, ways in which a firm can streamline its operations to manage more business; and secondly, how the relative supply of qualified wealth management professionals could potentially affect a growth strategy.

Firms need to implement strategies that will enable their current staff to take on more business, and reduce their dependence on a finite pool of wealth management talent.

There are few that would doubt that technology is going to be a key component of any sensible business strategy. However, private banking and wealth management organisations have been slow in adopting appropriate technology. As the wealth management sector is becoming increasingly important, visible, and competitive, this situation is starting to change, however.

Knowing that technology is important is one thing, but demonstrating a return on investment is quite something else. Many companies are faced with the situation where their portfolio managers are managing their assets under management quite effectively with spreadsheets. In fact, Microsoft Excel is probably the most prolific portfolio management tool available in the market today. And, while a fantastic tool, there comes a time when spreadsheets are simply not scalable enough to cope with increasing business requirements.

This is where portfolio management systems come into their own. Their raison d’être is to automate administrative processes, provide key client and investment information at the touch of a button, and enable more in depth portfolio analysis and modelling.  It all sounds great, until you hear how much it is all going to cost. It is not uncommon for organisations, particularly smaller firms embarking on their first major technology investment, to baulk at the costs of software licence fees, support and maintenance contracts, and any additional development required to make a system meet their specific requirements.

We understand how important it is to recognise the true value of a portfolio management system. Not just in terms of the upfront investment costs, but by providing a complete understanding of the benefits, savings and overall return on investment that can be achieved by successfully implementing this type of solution.

We have developed a simple framework for firms to be able to demonstrate their own return on investment. It looks at how much time portfolio managers are currently spending on day-to-day activities such as implementing changes to investment models, doing daily updates to positions and prices, assessing the impact of deviations from target and preparing client reports; compared to how much time you can expect them to spend on the same activities following the successful implementation of a portfolio management solution.

By applying some basic assumptions based on a model organisation we can demonstrate how an organisation can achieve 220 per cent growth in the number of clients that can be managed by each portfolio manager. Our model organisation has the following attributes:

- Client base – high net worth to ultra high net worth individuals with £500,000 ($974,833) to £5 million in investable assets;

- 1,000 clients following a standard portfolio management model across six broad risk categories;

- 10 dedicated investment portfolio managers managing 100 clients each;

- Total assets under management of £1 billion.

In our opinion, a well-implemented portfolio management solution should fulfil the following basic requirements:

- Portfolio structure – client portfolios should be easily viewed, grouped and managed according to your specific business model; 

- Instruments – the majority of instruments used to achieve risk and return objectives for clients should be managed such that minimal external valuation and trading workarounds are required;

- Risk assessment – basic risk parameters should be easily assessed within the system;

- Valuation & performance – reliable valuation data should be used to demonstrate accurate current exposure and historic performance;

- Reporting – structured output for internal management reporting and external client reporting should be automatically generated based on pre-defined business requirements;

- Interfaces – data that supports your business requirements should flow in and out of the application with minimal manual intervention.

The ability to increase your volume of business by a factor of three, without having to take on more staff, is a compelling reason for wealth management firms to undertake a serious review of their business operations. By automating previously manual, time consuming processes firms can choose to save time and money by increasing the ratio of portfolios per asset manager and providing investment managers with the tools and time to spend on more complex portfolio analysis, thus delivering improved levels of service to their clients.

Such software implementations are no longer the preserve of large organisations. Microsoft-based applications, with small technology footprints, have made sophisticated portfolio management solutions available across the board, from family offices and private client asset managers through to private banks and third party administrators.

The need to differentiate services to respond to more complex client requirements and gain competitive advantage while remaining cost effective, is forcing wealth management firms to reassess their internal operations and embrace technology solutions as a means of survival in an increasingly competitive market.

To request a full copy of the white paper upon which this article is base, please visit www.finobj.com/campaign/220percent/.