Video Roundtable Explores Wealth Advisory, Fee Models

Tom Burroughes Group Editor 21 May 2019

Video Roundtable Explores Wealth Advisory, Fee Models

This publication has held a video roundtable in Switzerland to explore wealth management business issues. Sponsor firm EPAM also recently issued a white paper about how technology should be used to unlock scale and efficiency in the sector.

WealthBriefing hosted a recent video roundtable in Zurich under the title of Are new advisory and fee models making a positive contribution to wealth management? Participants were Mathias Wyss - swissQuant; Roman Mayer - Union Bancaire Privée; Alessandro Caironi - Deutsche Bank and Christine Schmid - Credit Suisse. (Details about viewing the video are below.)

The event was sponsored by US-based software engineering and digital platform services firm EPAM, which also recently issued a white paper about how wealth managers should use technology to "industrialise" how they serve clients, build scale and also retain a personal touch at the same time.

EPAM argues that technology's potential to scale up wealth managers' offerings and contain costs is not fully realised. Instead, a great deal of wealth management technology focuses on the colourful end: lots of apps, clever-looking websites on clients' mobile devices and talk about the promise of AI, Big Data and crypto-currencies. 

Heiko Sundermann, head of asset and wealth management at EPAM, who spoke to this publication in a recent call, says that wealth managers need to change their tech mindset.

“Due to various challenges for the banking industry – margin pressures, rising and changing client expectations, regulations – they need to adjust their business models," Sundermann, who has been at the firm for the past 18 months, said. 

“The industry is struggling in providing and proving a value proposition,” he said.

“We believe that industrialisation is made possible by the portfolio-based approach,” he said, referring to tasks such as rebalancing and monitoring clients’ money. 

EPAM recently issued a white paper, The Transition to Fee-Based Advice: Building a Compelling Value Proposition & an Industrialized Advisory Process, in which it that said wealth managers must rexamine what it is they do that really adds value. Tweaking fees and superficial appearances is not enough. 

The paper comes at a time when the rise in regulation, such as the European Union's General Data Protection Regulation, MiFID II, and legislation such as the post-crisis Dodd-Frank package in the US, has weighed heavily on wealth managers' margins. Compliance has often snaffled IT budgets, leaving little spare for growth investment - a common cause of complaint in recent years. (However, there are some signs that IT budget priorities have started to change, so industry figures tell this publication.)

“Many banks have shied away from changing how they do investment and making these changes because it fundamentally changes the role of the client advisor,” Sundermann said. “They aren’t Warren Buffetts any more….they need to be more like investment educators.”

“Any value-add capabilities that fuel this client experience, such as stress tests on portfolios, portfolio analytics and the ability of clients to see how ideas can change their portfolios…all these capabilities have been neglected," he said. 

The "I-word" 
This publication asked Sundermann if the very word “industrialisation” was a bit of a problem in a sector that typically likes to make out it hand-crafts services and products for clients. "We really should have a better word for it," he replied.

A way to think about what's needed is to consider a parallel with the world of modern IT and smartphones: mass produced and huge economies of scale but with clients able to get fine-tuned, tailored choices at the front end. That's what wealth firms should aim at, he said.

To some extent the “penny is dropping” for firms about this industrialisation process, Sundermann said. Even so, too many firms haven’t made the move yet. 

“Many will have a chief investment officer without a quantitative way of thinking,” he said. For all too many portfolios, volatility in them is “shocking”, he continued.

In its white paper, EPAM said: "They [firms] need to make the leap from today’s predominantly manual, hand-crafted advice generation to a completely automated, flexible process. To use an analogy to car manufacturing, private banks need to move from manual, piece-by-piece car construction to a fully automated, highly flexible manufacturing line, leapfrogging the conveyer belt industrialisation that the car industry went through when Ford built the Model T directly to today’s flexible, automated manufacturing lines."

"An industrialised process will reduce the marginal cost to serve and allow front-office staff to focus on finding the right investment strategy for the client instead of worrying about manually minimizing the tracking error of each client portfolio against the agreed strategy. Sticking with the car analogy, Tesla is currently showing how important and difficult this step is. Having a product that clients want is not good enough – you need to be able to produce it en masse at reasonable costs to make a successful business. For banks, this means investing more in their IT infrastructure and finally viewing it as a key differentiator," it continued.

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