A simple truth – namely, that wealth management is a people business – penetrates deepest into the heart of performance, is the central message of Boston Consulting Group’s 2007 Global Wealth Survey. The report found wide variations in performance among relationship managers catering to the same markets and regions, which suggests that most players have potential to grow by getting more from their people. Although a player’s size, business model, and region may contribute much to its performance, found the report, the most decisive factor will be its assets. Human assets can have a particularly strong impact on organic growth, which is a chronically underappreciated lever for performance. “Human assets are half the cost of a private bank so the only way to increase profitability is to improve productivity by increasing revenue per relationship manager,” said Christian de Juniac, co-author of the report and a BCG senior partner. “Revenue per relationship manager is the best definition of productivity,” he told WealthBriefing. “It is not just a function of net new assets and new clients acquired, but of greater penetration of existing clients and client retention.” Three critical activities will help wealth managers make the most of this opportunity, finds the report. And just as important, taking those actions will ensure that organic growth is achieved profitably. Firstly, wealth managers should improve sales force productivity by making performance more transparent, introducing a coaching culture, and managing referrals. Secondly, they should reinvigorate and broaden the role of the team leader, helping to manage the cultural change that accompanies productivity improvements. Thirdly, they should manage and develop human assets by recruiting and training relationship managers, managing the transition of clients to new relationship managers, and implementing performance-based compensation. “The best way to get new assets is by teaming,” said Mr de Juniac. “To use a Stone Age analogy, you don’t send one man and a spear to hunt a mammoth. It is better to have a team of three to four RMs sharing a common base. This will give them better client coverage and also creates better linkage between the bank and the client, which will improve client retention.” The aim of performance transparency, says the report, is to identify gaps, define clear measures of improvement, and allow RMs – with help from their team leaders and coaches – to unlock their full potential. To maximise organic growth, performance transparency must be implemented across all RMs, teams, divisions, products, and clients. Like performance transparency, coaching is an essential management tool that can support nearly all other initiatives designed to improve the productivity of RMs. But a coaching culture has an unsurpassed ability to motivate individuals. Several players have established sales force coaching programmes, but most have not yet recognised the potential of systematic coaching. One of the most important benefits of a coaching programme, according to the report, is the way it improves productivity without imposing rigid practices or standards. Relationship managers can work with their coaches to address shortcomings, but they can retain some discretion over how they meet certain targets and how they work with certain clients. A coaching programme should be implemented across every level – from divisional and regional heads all the way down to team heads and individual RMs. Such integration will ensure that the approach becomes deeply embedded in the organisation. Coaching must be an ongoing, rather than a one-off, initiative; if successful, it leads to the type of cultural change that is necessary to make individual productivity an overriding priority. “Managing RMs can be a very difficult part of the private banking process,” said Mr de Juniac, “and particularly bringing the younger RMs on. Operating as a team means there is better mentoring of younger RMs. It also allows the bank to allocate specific responsibilities, such as for property or equities, so that RMs can develop real expertise in their field. “Furthermore, a team provides a sense of hierarchy. RMs working on their own often feel they have nowhere to go within an organisation and that the only way to get on is to move on. High staff turnover can be one of the most damaging factors for wealth managers, and teaming can be effective in reducing it.” Wealth managers, on average, gain about three-quarters of their new clients through referrals, found the report. Referrals, it says, should therefore be a clear priority for management, but many wealth managers lack both a system and the incentives to manage and facilitate referrals. Even though many RMs find it difficult to approach their own clients for referrals, existing clients are still the most prolific source of referrals, accounting for about 40 per cent of referrals on average. Intermediaries such as external asset managers, lawyers, accountants, and real estate firms are the second-most valuable source of referrals. The wealth manager’s broader organisation provides a third source of referrals. In large banking groups, different divisions – such as investment, corporate and retail banking can generate referrals. Wealth managers can also generate referrals between their onshore and offshore operations. “Referrals are absolutely critical to any wealth management business, but many of the wealth managers we interviewed have no structured process for managing them,” said Mr de Juniac. “Do you follow a warm lead that is medium-sized, or a larger, cold lead? You have to focus on the warm lead.” “Warm referrals are very powerful. Out of 1,000 referrals, one of our clients succeeded in signing up 640. They said it was “like drinking from a fire hydrant”. Wealth managers that are part of a large network must learn to mine that network effectively. But without referrals you almost have to wrestle the client to the ground. Smaller private banks may therefore need to hire more experienced, more aggressive RMs.” When establishing a system for referral management, said the report, wealth managers should launch a programme to improve the management of referrals and make referrals a top priority for senior leaders. They should also document and publicise existing referral practices and results across the organisation. Internal networks should be created to manage referrals. Wealth managers should encourage RMs to develop contacts in parts of the organisation that might originate referrals. The more their colleagues know and trust them, the easier it will be for RMs to generate referrals. Wealth managers should try to expand local referral systems to other regions, accounting for any cultural differences, and should establish an incentive system to encourage people to seek and give referrals, and to build internal networks. “It is equally important to ensure better penetration of clients,” said Mr de Juniac. “The quality of the interaction between RMs and clients is generally very poor. We came across examples like that of a client of ten years standing who had not been seen by an RM for over three years. “How can anyone know what their clients really want without having a regular assessment? And older clients may represent 90 per cent of the AuM. There is lots of evidence that a structured process of assessment enables wealth managers to consolidate assets and improves client retention.” The report said that profound improvement in sales force effectiveness will require an equally profound – perhaps even jarring – change in sales force behaviour. Team leaders will need to play a central role in managing the change precipitated by productivity initiatives. Team leaders are in the best position to help RMs anticipate and manage the new demands and practices imposed by these initiatives. At the same time, wealth managers should refocus their team leaders on business development activities – for example, by directing them to work closely with their RMs to improve service to larger clients. Many wealth managers have been recruiting top-performing RMs whose success is gauged entirely on individual performance. These RMs have few, if any, meaningful links to a team, region, or division. In the short term, this approach seems sensible. It attracts talented RMs and motivates them to maximise performance. But it does little to build a collaborative culture or foster loyalty amongst RMs. Wealth managers have begun to move away from such models. Larger players are focusing less on hiring ready-made RMs, said the report, and more on building a culture of apprenticeship and investing in the personal and professional growth of RMs. Medium size players, which typically have not invested in training junior RMs, are now establishing wealth management academies and training programmes for graduates and RM candidates. Many financial institutions face a potentially dramatic loss of capacity as waves of frontline sales staff and senior and middle managers retire. Wealth managers are not exempt from this problem, but few have adequate processes in place to handle the internal transfer of client portfolios. To address these problems, wealth managers need to develop a clear transition process that is stringent enough to ensure smooth transfers but flexible enough to meet the needs and wishes of individual clients. It should include clear reallocation criteria, personal communication with the client, monitoring and incentives. Wealth managers should also adopt a more entrepreneurial approach to compensation by designing schemes that make a direct link between performance and pay, providing a strong incentive for an RM to improve productivity, while at the same time building team identity. Such an incentive system must be applied consistently across teams and individuals. Compensation must be tied to a few critical drivers of performance, and individual compensation linked to the wealth manager’s overarching goals. Bonuses should be fair, particularly in relation to an employee’s peer group, as should other integration-related issues, international staff transfers, and legacy issues. Another vital aspect of productivity, according to Mr de Juniac, is pricing because a wealth manager’s revenue is equal to assets multiplied by price. “Our analysis demonstrates that banks have poor control of pricing,” he said. “Clients generally negotiate directly with RMs to get a discount. That is a weak negotiating position. RMs want to be independent but clients can exploit that. A centralised system would give RMs a second defence and also help them to resist. “This is a big issue for banks because they are leaving a lot of money on the table. Even with identical portfolios, the pricing will vary and often there will be no logic. A client with £10 million may be paying more or less than one with £3 million. “Also banks seem incapable of thinking in units of less than 25 bps. What about using increments of 10 bps instead? RMs need to be made more accountable for their pricing. One of our clients, for instance, regularly publishes a “list of shame”. It is a further advantage of teaming that some RMs in a team will be much better at negotiating than others,’ said Mr de Juniac.