This publication spoke to some of the world's top consulting firms to gain their views on likely trends and issues for the wealth management industry for the years ahead.

The past 12 months were hard for some parts of the wealth management industry – but much brighter for others. The next year will be at least as challenging, although professionals in the sector will hope for finer economic weather. With conflicting pressures of rising client expectations, tougher regulations and revenue-hungry governments, this industry faces the need to keep its business models ruthlessly relevant to clients. So as 2013 got under way, this publication spoke to some of the consultants who track the fortunes of this industry and proffer solutions to clients. Not all of the organisations we approached were able to talk or willing to do so on the record but this publication is nevertheless most grateful to those individuals who have taken the trouble to see out their views on an industry that runs around $19.3 trillion of client money worldwide (source: WealthInsight).

Each organisation was asked to give a view on a single topic, although several chose to be more expansive. The second half of the responses is published today. To view the first part, click here.

Key take-aways:

-- It is more necessary than ever to understand what clients want;

-- There are moves to codify the client experience and produce usable data;

-- The industry has not yet fully adapted to a world of very low interest rates;

-- Business models must be re-thought to cope with regulatory, other pressures;

-- Social media should be used intelligently – these are not gimmicks;

-- Fostering a culture of quality service and attention to clients takes time but can be done;

-- A new area of concern is “conduct risk” – made very real by regulatory crackdowns.

Ernst & Young

Matt Hancocks, director wealth management, Ernst & Young

Simon New, director wealth management, Ernst & Young

Over the last few years we have seen a lot of movement in the wealth management industry, driven by client expectations, media scrutiny, and the regulatory environment. However, at the centre of this has been an industry-wide shift towards greater transparency, reflected in UK-specific regulatory initiatives such as the Retail Distribution Review and Suitability.

Much has been done to meet these standards of transparency, with particular attention given to technical requirements. However, meeting technical requirements should not be confused with the need to address the cultural aspects of the industry, or, to quote Hemingway, “never confuse movement with action”.

Culture can be defined as the day-to-day experience that clients and employees have of working with, or in, an organisation, and is shaped by the leadership, values, and ethics of the organisation, and the performance management and reward structures. All of these shape the attitudes and behaviours of employees.

Most organisations have diligent and honest employees, documented policies and procedures, value statements and ethical codes, but a disconnect can still occur between these and what people do in relation to compliance and regulation, e.g. record-keeping. Ernst & Young believes that engaging with leadership and employees and addressing the culture of an organisation is central to solving this problem.

It starts with purpose, followed by the regulatory requirements in terms of both spirit and substance, a clear articulation of the values and ethics that originate from this, and finally an exploration of the behaviours necessary to underpin it. Reinforcement through performance management and reward systems crystallises implementation.

As in sport, a well-disciplined team that focuses on their technical ability and their attitude and behaviour, dominates the top of their league. The same is true for wealth management firms - it is the fusing of the technical, the behavioural and the attitudinal, that makes for a great business. This requires action not just movement.

Boxwood

Matt Malone, director of financial services

“Banks are not serving the real economy as they should and trust in them has plummeted. There has been a culture of recklessness, and often wrongdoing, which has done great damage.”

Andrew Tyrie's Financial Times article in October (Tyrie is chairman of the House of Commons Treasury Select Committee) sent another tough message to the industry - reset your moral compass now. Things are beginning to change: Antony Jenkins has set out his stall at Barclays and other banks will follow.

But trust, a precious commodity in the business of wealth management, has been lost.  Both clients and employees have become increasingly disengaged. Added to this, the Retail Distribution Review has left many players questioning the viability of their business models. Reputations are in tatters, trust has evaporated, fear and uncertainty abound - the perfect conditions for value destruction.

The scale of the challenge for leaders is daunting. Most are focused on cutting headcount, appeasing regulators and improving technology. Based on our experience and conversations, a vital perspective is being missed - that of the emotional impact on front-line relationship managers and on clients.

This is driven by underlying assumptions in the culture of certain firms. We interviewed a senior executive at one of the UK's largest banks recently. His view – “the leaders of this organisation don’t really believe that if we allowed our colleagues to truly put clients first the financial rewards will follow”. The contrast between leadership rhetoric and the day-to-day experience of employees and clients is stark.

Yet extensive research proves that businesses with highly-engaged employees and highly-engaged clients are, on average, over three times more financially effective than those with low levels of engagement. We have seen these kinds of effects in our work across many sectors. We know it to be true.

So the time has come to go beyond paying lip service to valuing clients and employees. The time has come to change tack.

Leaders need to rebuild the engagement of their front-line teams. They need to provide clarity of purpose and fair expectations - not just about performance levels but about the right behaviours. They need to give their people the autonomy necessary to get on with their jobs and to become masters in the arts of client engagement - being true trusted advisors.

Private bankers, in turn, must rebuild the trust of clients. Demonstrating real value throughout a client’s wealth journey must have primacy over meeting short-term sales targets. That will be tough, but perhaps not as tough as the job leaders now face.  They urgently need to rebuild the trust of their own people – and that is where change must really begin – right at the top. 

So, watch out for the leaders who both ‘care and dare’– they and their firms will be the stars of the future.

Robert Steedman,

Partner and UK wealth management lead, IBM Global Business Services

Wealth managers are entering 2013 with new business models and a renewed focus on growing client relationships. Many in the industry, however, must be wondering what will drive competitive advantage in this new environment. From IBM’s most recent CEO Survey we found across all aspects of the organisation – from financials to competitors to operations – CEOs are most focused on gaining insights into their customers.

Seventy-three per cent of CEOs are making significant investments in their organisations’ ability to draw meaningful customer insights from available data.

Without deep client insight and accurate data, wealth managers jeopardise the foundations of the advice and relationship led business model. Relationship managers miss out on new prospects and opportunity, provide sub-optimal service and at a practical level perform call backs on many client queries because they do not have the time to access multiple systems or trust in the completeness or accuracy of data.

Outperformers will excel at acting on insight.

Compared to their underperforming peers, outperformers have more access to data, greater capacity to draw meaningful insights and perhaps most important, a stronger ability to act on those insights. Essentially, they are insight-driven. Across the full sample in the CEO Survey, almost one-quarter of CEOs say their organisations operate below par in terms of driving value from data.

For wealth managers in 2013 this is significant. The pressure to demonstrate the value of advice through better insight has increased dramatically. In 2013 we will see a number of different industry responses:

-- Those who embrace the inherent competitive advantage that can be generated by client knowledge, a holistic customer view, powerful business analytics, integration technology and good data governance. They will build this capability in recognition it will facilitate business model flexibility, client experience and business performance;

-- Those who take a more opportunistic view and defer underlying investment in data by doing the minimum required to implement individual applications, platforms or channels. This approach stores up complexity and cost for the organisation to address at a future point;

-- And of course, there are wealth managers who have already invested heavily in getting data in one place, perhaps through a major core platform implementation and are now in the process of trying to turn data into insight so they can aggressively grow the business.

When the dust settles it is likely that many in the industry will have taken a much more positive step toward an insight-driven model to underpin the next wave of innovation, front-office digitisation and client experience.

KPMG

David Hicks, partner, risk consulting.

A key subject area gaining more attention, but still in early development, is what is called “conduct risk”. Hicks defines it thus: “The risk of causing harm to customers, employees, suppliers and other counterparties as a result of the actions of a firm or those within it.”

We see conduct risks in all parts of a business, not just at the point of sale of a product: it arises in the decisions on which markets to operate in, the product development process and market strategy, the distribution method and just as importantly the after sales-servicing of the customer. It goes far beyond the transactional element of the sales process.

Conduct risk can mean different things to different people. To get a handle on the situation. [KPMG] looks for certain red flags to see if there is a conduct risk problem. Red flags include heavy staff turnover, levels of complaints (especially from "vulnerable" customers; the remuneration structures of a firm, training regimes etc.

A key challenge lies is when firms grow through acquisitions….integration of a new firm is often more complex than originally planned, firms can also grow faster than their support infrastructure.

It is important to remember that there are many examples of good conduct as well as bad conduct.