The growing complexity of portfolio management is placing increasing pressures on private banks. While the front office graples with the need to effectively manage the client relationship, the back office seeks to streamline the processing of the transactions and lower its total cost of ownership. Marc De Groote, CEO at Callataÿ & Wouters, navigates a course through the obstacles and opportunities these challenges present and looks at how banks can achieve competitive advantage through the integration of their IT.

As the amount of information on which to base investment decisions continues to proliferate in the market, private banks must meet the ever-growing demand from clients for real-time analysis and advice, and tailored products. This is even more the case with the rise in popularity and widespread availability of alternative assets such as structured products and hedge funds, where risk must be carefully assessed and managed.

To respond to this need, banks must equip relationship managers with the tools to adopt an effective, advice-led approach to sales. However, outdated or fragmented core systems prevent the bank from achieving a 360-degree view of a client’s portfolio, creating an obstacle for the front-office to manage customers effectively and maximise revenues.

In addition, the bank is faced with a high cost of ownership in the back office and inflated risk due to inconsistencies and breaks across its IT infrastructure. This leads to resources, which could be better spent on servicing the customer, being dedicated to the ongoing maintenance and development of applications.

A Holistic Approach to IT
To overcome these obstacles, banks must look at their IT across the business as a whole, from the front through to the back office. Typically, back office services are considered a commodity. While efficient processing is critical to the successful running of a bank, including the management of its product portfolio, it is the front office that provides real opportunities to achieve growth through competitive advantage. However, it is only through the effective integration of the two that banks can achieve real operational efficiencies and act in the best interest of the client.

To effectively support the front office and to achieve these efficiencies, banks must look to centralise and integrate the back office systems as a first step.

One approach is the outsourcing of the complete back office process, including transaction processing, risk and product management, allowing the bank to focus on its true business of delivering private banking services to the customers.

The emergence of Software as a Service (SaaS) across Europe is providing one tool for banks to optimise their systems, allowing them to access a complete hosted core banking application remotely. The SaaS delivery model enables banks to not only benefit from a secure technical infrastructure, but also a business continuity programme and helpdesk support, all in a single package. With the technological foundation in place, they can then look to improve service levels across other, more added-value areas of their operations.

Creating Visibility of the Client Position
Central to a private bank’s operations is active portfolio management, including the allocation of assets, balancing risk and building models of investment. This must in turn be aligned with each client’s individual portfolio to generate simulations and make informed and timely investment decisions.

Typically, a private bank’s back office processes and evaluation tools are geared towards traditional investment products. As the appetite for risk increases, so too does the diversification of the portfolio, and banks face the task of putting in place appropriate risk management capabilites to accommodate this trend.

In addition, with activities along the processing chain linking back to the customer and the portfolio, information is dispersed across all levels of a bank’s IT infrastructure. Banks running multiple systems must address inconsistencies across the different environments as the process of building the customer and portfolio data and achieving a globalised approach can be a costly exercise.

To overcome this, banks must adopt an integrated approach that automates the entire portfolio management process, providing relationship managers with a complete view of the client’s position and activities.

Managing the Relationship with the Client
A further critical factor in the front office is the effective communication between the private banker or relationship manager and the client. To execute operations on behalf of their clients, managers must be able to quickly collate and analyse market information and achieve the fast turnaround of decisions. This involves delivering alerts to the client in real-time, advising them of investment opportunities and the associated risk. In the case of MiFID, this is particularly important as banks must continually prove that investment decisions are made in accordance with the clients’ best interests. It also requires clients to have secure access to their portfolio 24/7 to remain continously up to date.

By deploying Web-based user interfaces, both clients and relationship managers can have a consolidated view of the relevant portfolio data, regardless of their location and at any time. This is particularly pertinent for private banks as they strive to find new ways to improve services and achieve competitive advantage. With a robust remote connection, relationship managers can meet with clients, whether at home or in the office, and have access to the data at their fingertips.

To further support client relationships and the active management of their portfolios, banks must cope with a broad range of products and classifications. This includes innovating and rolling out new products to the client in a short timeframe in order to capitalise on opportunities in the fast-moving market.

In addition to flexible and integrated back office applications to support this, banks need connectivity in the front office to financial information providers, not just for quotations, but also for ratings, corporate actions and tax specific alerts.

As the management of high net worth individuals’ portfolios becomes increasingly complex, private banks must look at operational efficiencies across their entire infrastructure. It is only through the successful integration of the front- and back-office that banks can respond effectively to market developments, continue to innovate and meet clients’ ever-expanding requirements.