The firm sees unprecedented collaboration between WMs and their providers. In the face of difficult market conditions, wealth-management firms of all sizes and stripes have an urgent need to "transform their fragmented business infrastructure into an integrated, global relationship-oriented model" if they hope to establish themselves as trusted advisors and wealth-service integrators to an increasingly finicky client base.

So at least says Oaks, Pa.-based manager of managers and investment-process outsourcer SEI, which is out with the first part of a white paper on the topic called The Transformation of Wealth Management.

New world

The number of people around the world with financial assets of at least $1 million increased at a compounded annual rate of 7.6% to 8.7 million between 1996 and 2005 while their collective wealth grew by 8% a year to $33.3 trillion, according to Capgemini's and Merrill Lynch's 2006 World Wealth Report.

But, as witnessed by sharp pullbacks noted by Capgemini and Merrill in 2001 and 2002, financial markets are vital engines of global wealth creation.

And right now many analysts think long-term market returns will be significantly lower than they have been for a generation. James Peterson, a v.p. of manager research at Schwab's Center for Financial Research, sees an average return of 8.2% a year on large-cap stocks over the next 20 years, down from 11.1% a year between 1970 and 2007, and an anemic 4% average annual return on bonds, down from 8.5% a year over the last 37 years.

Co-sourcing

Though the prospect of subdued returns is offset somewhat by the sheer demographic weight of the baby-boom generation, a more somber market heightens the need for wealth-management firms to identify and implement business processes that help them connect with clients by addressing their individual requirements and aspirations.

For SEI this means shifting from a product orientation to an advice-driven service orientation. And the key to this, adds the outsourcer, is something called "co-sourcing" -- "a highly collaborative, strategic, flexible partnership" with vendors that is "designed to achieve sustainable growth by enabling critical capabilities."

Joseph Ujobai, executive v.p. of SEI's private-banking division, says that old-line outsourcing -- which he defines as "the purchase of necessary products or services from an outside provider in order to increase efficiency" -- simply doesn't meet the needs of the wealth managers in today's market.

Co-sourcing "involves an unprecedented degree of collaboration, sharing and learning, not only between the wealth manager and their client, but also in the partnerships of wealth management businesses themselves," says Ujobai. "There is a need to look at whole processes rather than discrete functions."

SEI administered $424 billion in mutual-fund and pooled assets and managed $185 billion in assets at the end of March 2008. -FWR