As the economic crisis intensifies, wealth advisors should use software-driven technologies to cut burdens of coping with an expected surge in regulations while also clarifying the risks in complex financial products, according to a report by European financial technology firm Odyssey, WealthBriefing can exclusively report.

Odyssey’s study on the wealth management industry and the credit crisis, authored by Didier Pitton, product marketing director, makes a number of recommendations to private wealth managers after researching views of more than 130 of its client firms operating around the world in 230 sites.

The credit crunch has put a fierce spotlight on the need for clients to have accurate and prompt information about their investments, particularly the risks to which they may be exposed and how to plan ahead, the report said. The financial crisis also threatens to pile more regulations on the financial services industry, which has already been digesting regulations such as last year’s European Union MiFid rules on brokerages and other market players.

“Greater transparency is urgently required and it is likely that governments, forced by the crisis to become shareholders in their own domestic banks, will impose statutory limits to restrain the excesses of some financial engineers,” the report said.

Advisors must streamline processes for setting up a client with an account, because the chore of checking a client’s finances, risk tolerance and objectives is likely to be made even more onerous by new regulations stemming from the credit crunch, Odyssey said. According to a survey by IBM Institute for Business Value, account opening represents 20 per cent of the total manufacturing and processing cost base at financial institutions. Odsyssey said technologies can speedily take a client through the process of setting up an account by dealing with complex issues without having to bother a client.

In other recommendations, the firm said wealth managers should make discretionary portfolio management systems available to a wider variety of clients via greater use of technologies that can rebalance portfolios and guide asset allocation. “The current reality is that only a relatively small part of the private wealth management clientele really benefits from a structured asset allocation-driven approach,” the report said.

Mr Pitton said: "The clients have declined to pay a fee for advice as financial institutions have not been able to convince them of the added value of this service. Most often this is because financial institutions have failed to scale investment advisory service to a higher number of private clients."

He added: "To overcome this limitation, financial institutions should define a service-level agreement associated to structured asset allocation advice, and invest in business technology to equip their client advisors with the tools that enable them to provide efficient advice while respecting commitments to clients."

Wealth managers should also improve risk management and give clients access to more details about the risks they run, such as enabling people to know how much money will be lost in a given market drop, known as “value at risk”. Odyssey also called for more transparency and clarity in structured products, a sector that has been hit by events such as the recent bankruptcy of US investment firm Lehman Brothers.

Odyssey, which is headquartered in Luxembourg, is one of the world's biggest providers of systems for portfolio managers, financial advisors and risk managers. This year, it acquired the Toronto-based technology platform business Xeye, which operates the system “WealthManager”. So far this year it has sold the product to firms in locations including Dublin and Spain.

“It is encouraging that we have taken a product in North America into Europe in a matter of six months,” Mr Pitton said.