Many wealth management firms must take a long, hard look at the way they approach their relationships with clients if they are to stay ahead in an increasingly competitive and cost-conscious industry, senior wealth management executives heard at the latest Breakfast Briefing event in Dubai.

Sponsored by Advent Software, this event saw a 60-strong audience of wealth management professionals gather to see industry luminaries share their thoughts on the subject of “Improving Client Service In A Cost-Conscious Industry.” And the message on client service couldn’t have been clearer: shape up or lose out.

Kicking off the panel discussion was prominent consultant to the wealth management industry, Bruce Weatherill, who pointed out that giving clients excellent service and thereby improving retention rates actually has a massive impact of profitability and as such is a key part of a firm’s revenue models. According to research, validated by work carried out by Weatherill’s consultancy, pushing up client retention rates by 5 per cent results in the profitability of those clients soaring by 70 per cent – compelling figures indeed.

A serious disconnect

While the need to provide excellent client service might seem obvious in what is by definition a high-end, luxury industry, Weatherill notes that there is often a disconnect between the experience clients actually have and the experience private banks think they have, and therefore firms should be doing more to accurately assess the service they provide.

The industry, according to Weatherill, should concentrate on “experience management” as much as relationship/wealth management, and as such needs to be more proactively focused on clients’ perception of their service experience. Responsiveness – dealing with things quickly, particularly when things go wrong, – is a top concern for clients, and therefore should be for firms, he said. This emphasis on responsiveness as a Key Performance Indicator was echoed by John Wright, managing director at Credit Suisse in Dubai, who noted that “time to contact is really important.”

Firms need to “measure the client experience”, according to Weatherill, but the problem facing some firms is that they have never carried out such a review. The fear then, he says, is that a thorough and frank assessment is “maybe not something you want to hear.”

As many in the industry have noted, after the financial crisis (and the associated losses sustained by many clients), wealth managers are increasingly under pressure to ensure that clients feel they are really getting quality service in exchange for their fees. Firms may be confident they are giving clients value for money, but are clients themselves?

For panelist Khurram Jafree, director and head of Investment Advisory for Barclays Wealth in the Middle East and North Africa the issue boils down to two key words: “relationships” and “advice”. And in order to deliver on these two commitments, firms are going to have to develop a whole new level of really knowing clients and their needs to demonstrate that their service offering does represent a “value-add.”

Behavioural finance

Jafree, and indeed the other expert panelists, were united in thinking that the fast-growing area of behavioural finance may be a key means of improving client service. Firms are of course particularly looking to use insights into how behavioural and psychological factors influence clients in the area of risk tolerance. Again, in this area the financial crisis acted as something of a “wake-up call” with many investors finding that they had in fact been exposed to what was really an unacceptable level of risk in their portfolio. Regulators – the UK’s Financial Services Authority being one very prominent example – are now as a result much more concerned that investors aren’t pushed into buying too risky products.

On this topic, Martin Engdal, director of business development and product marketing at Advent Software EMEA, extolled the virtues of “thinking outside the box” and suggested that in fact increased regulatory scrutiny might be opening up opportunities to enhance the client experience right from the start. Perhaps, he said, we should think about bringing compliance and risk officers in earlier in the conversation – at the onboarding stage.

Continuing with the theme of behavioural finance, Mohammad Iravani, head of investments at Emirates NBD Private Banking, echoed Jafree’s point that top-level client service depends on not only truly understanding clients’ needs and financial aims, but also delving deeper into the non-financial liabilities such as the emotions involved – something all too often overlooked.

In an example given by Iravani, one part of a client’s portfolio might look perfectly liquid, but may be in reality an illiquid holding because of the emotions associated with the investment, if for example the securities were bequeathed by a relative. As such, although there is naturally an increase in costs associated with implementing systems such as behavioural finance assessments, firms “must think of such technology as an investment” which will pay real dividends, Iravani said.

An eye on costs

That said, true to the theme of the event, the panelists were in no way advocating indiscriminate spend: leanness in today’s environment is key. As Stephen Richard Evans, head of the West region at Standard Chartered Private Bank, comprising India, the Middle East, Africa, Europe and Americas, pointed out, wealth management “is a high-cost industry, so if you’ve got a low cost base you’ve got an advantage.”

However, he emphasized the importance of correctly balancing the need for cost-consciousness and the perils of cutting corners with client service. Research suggests that a client who has had a bad experience will tell twelve other people about it, he said, and as “the cost of a bad experience for a client can be massive… you need to extract that from your business.” Key to this, in Evans’ view, is first-time resolution of when things go wrong – “fixing things on the spot” and making sure clients don’t have to argue with their provider.

As watchers of the wealth management industry will be only too aware, firms are now in the difficult position of wanting to control costs, but still needing to make strategic investments in areas such as technology. Evans noted that we are returning to the “funny money” stage as, with business picking up, people start again to bid up the cost of resources. Therefore, he says, firms need to keep a close eye on three key drivers of cost: people, premises and process.

This is of course easier to address in some areas. While the first two of these three “P” drivers are perhaps less controllable, being more dependent on market forces, the overwhelming message to emerge from the Breakfast Briefing was that processes are one area where firms can really take the initiative to balance the twin concerns of cost-consciousness and providing top-flight client service. What firms must search for is a maximisation of efficiency while still demonstrating truly client-centric service. To conclude, in the words of Wright, true client service is “about partnering with the client”, getting them to interact and being “committed to giving them what they want.”