A firm operating in the area of client onboarding and fraud prevention talks about some of the issues confronting wealth managers.

Taking new clients into a private bank can be a long process, sometimes lasting months. Bankers must weigh up the pros and cons of doing the necessary due diligence to ensure that clients’ sources of money are legitimate in case potential customers become fed up and walk away. With relationship managers under pressure to deliver results and keep pipelines full, this is not an easy balancing act. 

A number of firms have carved out a reputation for developing the business of onboarding (acquiring the necessary knowledge and skills to be an effective member of an organisation), to use that clunky term. A standout example in recent years has been Appway, the Zurich-based business and arguably the leader in its field, not just in Europe but internationally. (This news service worked with Appway on a major report on such issues, here.) Other names operating in the space – as well as doing other things - include Dorsum, Expersoft Systems, KlarityRisk, Profile Software and Wealth Dynamix. The proliferation of such providers highlights how banks and other wealth management organisations see technology as a way of trying to ease the onboarding pain without sacrificing standards. 

A firm that also operates in the space is NorthRow, the trading name of Contego Solutions, a UK-registered business that was incorporated this year but which traces its origins to 2010. In the following article, Paul Murphy, chief commercial officer at the firm, considers some of the challenges facing wealth managers. 

The editors of this news service are pleased to share these insights and invite readers to respond; they don’t necessarily endorse all contributors’ opinions. To email us, email tom.burroughes@wealthbriefing.com

Wealth Managers can spend a considerable amount of time and effort persuading various institutions of the unique advantages of their products and services. Once successful in signing up new clients, however, the amount of waiting time before value can be created has become incredibly protracted. It can be frustrating for both sides when the process of completing the onboarding is so laborious and time-consuming to complete. Statistics from Thomson Reuters research suggest that onboarding a new client takes an average of 26 days. Worse still, that is only increasing over time.  This hold up occurs at one of the most crucial times in a new client relationship. Almost a month of hiatus before the client can start to benefit from the newly-formed relationship and obtains value from your offering. Almost a month in which your administration and infrastructure risks appearing unwieldy and outdated. This is not a good customer journey by anyone’s standards.

Why is it taking so much time and effort for both parties to undertake these processes, and how can we address these issues with the aid of technology and intelligent processing?

Scoping the requirements
The prerequisite to a streamlined and effective onboarding process is a well understood and embedded CDD/KYC [customer due diligence/know your client] process which encompasses all of the multiple regulatory requirements. Covering the latest AML, Terrorist Financing prevention, FATCA, MiFID II and FATF recommendations involves a different kind of weight. A considerable volume of regulations, varying by region and changing frequently, needs to be analysed and applied in a coherent way to the specifics of the client relationship in question. 

The inevitable overlaps and variations can place a significant burden on both the firm’s experts and the supporting processes to define the requirements for each client and to apply these robustly, with supporting evidence. The risks entailed in getting this wrong, both to the firm, and in some instances, the individuals within the firm, are of course high, but at the same time firms are trying to hit a moving target. The challenges of trying to hit a moving target were recently illustrated in a recent Thomson Reuters report, which showed that only 27 per cent of investment managers surveyed said they had implemented the 2012 FATF recommendations by 2017.

Outsourcing the process can enable firms to leverage the knowledge and experience shared across users of the service, significantly reducing the time and risks involved in understanding and correctly applying the latest standards. These firms are increasingly recognising the benefits of this approach and relying on this additional external expertise. Outsourcing also brings a level of standardisation, which supports the streamlining of processes and changes designed to meet the latest regulatory and legal requirements.

Manual versus automatic
Most firms and providers rely on one source of data for their automated checks. Although this may be appropriate for simple UK retail client checks, it is unlikely to cover the requirements for institutional clients, which often extend across multiple locations and layers of information. Where the data source does not cover the requirements, firms then have to resort to manual processes to supplement their checks. Some level of manual processing is unavoidable - and even possibly desirable - as it enables flexibility in addressing exceptions and intelligent analysis to be applied to the process. However, issues arise when the balance is too heavily skewed towards manual processes because the automated processes are too limited in their scope.  Not only does this tend to increase timescales, it is also costly.

Research shows that, on average, firms are employing more than 300 people on CDD/KYC and onboarding. Unfortunately, this figure, and therefore the related costs, are increasing. Furthermore, this excludes the time spent by senior managers and those selling the services or managing the relationship, whose time could be more profitably spent on managing and building the business. It also excludes the clients’ time and effort in responding to these requirements.

The answer must be to first improve and extend automation by increasing data sources and the processes which can be automated. This is already being tackled by suppliers such as NorthRow, which pulls together a wide range of data sources from global hubs to cover all publicly available information on a near real-time basis. 

Outsourcing can also occur when manual processes are required, for example, the tracking down of information which is not publicly available or chasing postal responses. This enables wealth management firms to share resources and reduce costs, freeing up the time of experts and senior managers, who then only need to be focused on those situations which require relationship management and/or the application of judgement. 

Many contacts
Dependent on whose statistics you believe, onboarding requires an average of four contacts (according to the financial institutions) or eight contacts (according to the clients). Either figure is too high; both suggest that overlaps and duplication may be taking place, and that the requirements are not as clearly defined from the outset as they should be. This number can be multiplied many times over when we add contacts with individuals such as trustees or the controllers of the underlying entities.

The availability of comprehensive data sources for both individuals and corporations can significantly decrease the number of contacts required, supported by processes which clearly identify the totality of the requirements to be met at the outset. 

Better outcomes
The obvious advantages of the analysis, automation and streamlining outlined above can be illustrated by the fact that NorthRow’s experience with its onboarding process can reduce the average 26 days’ wait to seven days. Costs and resource requirements can also be assumed to reduce in line with this. 

The advantages extend through to processes which should be more robust and aligned to the latest rules and best practice, with the commensurate reduction in risks to the firm. Clients will be happier with an approach that starts their relationship with an efficient and well-defined process, enabling them to benefit from the services of their preferred wealth management company much sooner.

Finally, all of these processes can be used to support ongoing CDD/KYC checks, management of changes, checks and reporting for FATCA requirements, and checks on eligibility to invest in different instruments and territories. The opportunities to open up new business lines and markets could provide firms with significant competitive advantages on the back of regulatory processes - an opportunity that’s surely worth waiting for.