Strategy
WHAT THE CONSULTANTS SAY: PwC On Issues Facing Wealth Managers
Here is the latest in a series of commentaries by consultants on this news service about the issues facing the world's wealth management sector.
This publication has approached a raft of consultants
operating in the wealth management sector to give their views
about a range of challenges and opportunities for the industry in
different parts of the world. A number of articles are being
released in these pages in the coming weeks and we hope readers
find them stimulating. The articles have been sought by this
publication and also by Bruce Weatherill, of Weatherill
Consulting, and also chairman of ClearView Financial Media,
publisher of this news service.
Here are comments from Jeremy Jensen, PwC wealth management
partner and Ian Woodhouse, PwC wealth management
director.
It’s useful to reflect on the critical issues that wealth
managers face in 2014 and how leading players are positioning
themselves to capitalise. The challenge is to understand how best
to capitalise on the industry inflection point.
A combination of powerful forces - client evolution, changing
expectations, complex regulations, technology changes and more
volatile markets - are driving the wealth industry to an
inflection point. This is reflected in pressures to grow revenue
and contain litigation and compliance costs. PwC’s latest
Global Private Banking and Wealth Survey shows global
cost/income ratios at 65 per cent in 2013.
Typically, in an inflection point, traditional competitive
advantages come under pressure from new and disruptive entrants.
This usually results in industry consolidation and exits.
Subsequently, a new line up of industry winners and laggards
emerge.
This is a challenging time for wealth management firms, but can
also represent an opportunity for those organisations that can
understand the key trends, are willing to challenge the status
quo and who can capitalise on the inflection point.
Our survey shows a realigning of budget spend priorities.
Supporting and enabling business growth is now the main priority
for respondents, followed by cost reduction through enhanced
efficiency, becoming a more client focused organisation and
addressing legal and regulatory compliance also emerging as key
themes.
Supporting and enabling business growth
Significant growth differentials are emerging across markets and
client segments, and this drives a requirement for a more
granular approach to market and segment priorities. Many survey
respondents are now in the process of refocusing their market
coverage and client segment orientation.
Increased regulatory demands have led to advisor client facing
time in some countries reducing to just 40 per cent of total
time, which constrains service and selling time at a point when
client needs are changing and there is a much greater requirement
for client insight to create responsive propositions to grow
revenue.
Several wealth managers are improving how they undertake their
client research, engagement and survey insight programmes. These
now anticipate where client societal and behavioural changes are
taking place to inform approaches to exploit them. For example, a
decrease in client trust is fuelling competition from alternative
competitors, such as multifamily offices and private client
investment firms that are perceived to be more aligned with
client interests.
Digitalisation across the industry is causing significant
disruption as it spreads in a number of ways across different
segments, ranging from simple self directed and guided solutions,
through to approaches that complement the client advisor.
Emerging technologies, such as tablets and mobile devices with
rich interfaces and visualisation, enable clients to receive
information in real time, and with the advent of social
networking, big data, cloud computing and gamification, firms
have a host of new approaches to gain and use client insights
from both structured and unstructured data. These will enable
superior client insight, more personalised engagement and support
deeper interactions aligned across multiple channels to create
superior client experiences.
Although there remain numerous challenges associated with
digital, including cyber security and regulatory uncertainty, it
is clear that the nature of the traditional client and advisor
interaction models are changing and it will be necessary to
develop options for a digital strategy.
Cost reduction through enhanced efficiency
With sustained cost pressures, organisations are revisiting their
strategies across the business model of distribution /advice,
products and solutions and servicing and platforms. They are also
exiting some markets and rationalising their booking centre
networks.
Our survey indicates seventy per cent of participants are now
seeking more centralisation of activities through internal shared
services, sixty three per cent are seeking end to end process and
efficiency improvements and just over half are now using
outsourcing arrangements.
In outsourcing, more options are now available to address legacy
infrastructure such as software as a service and the adoption of
model bank approaches built around adopting common standard
processes leaving institutions to customise only where they can
really differentiate and add value. With this comes the need to
assure the additional outsourcing regulatory and risk
requirements and controls are in place in key areas such as
client data protection and resilience.
This requires skills in designing and implementing target
business and operational models which can anticipate the future,
manage the total cost of ownership (TCO) and have a more flexible
and modular framework and architecture to meet evolving business,
regulatory and digital requirements.
Becoming a more client focused organisation
We believe the industry’s overarching imperative is to become
more client focussed, delivering a superior client experience
which translates into good client and commercial outcomes though
loyalty, advocacy, and share of wealth.
Several participants are investing in their client engagement
programmes, but are finding that delivering an impactful client
experience requires excellence across a number of dimensions
within the organisation, including client insight, relevant key
performance indicators, effective channel and journey management,
and strong governance .It further requires evolution in an
organisation’s capabilities and a transition from being product
specific to becoming truly client centric.
We are seeing signs of progress across the industry. For example,
some firms are improving the key performance indicators on which
they focus by moving from a focus on complaints to tracking other
client outcome indicators, such as satisfaction, loyalty etc.
Others have appointed a head of client experience to ensure clear
organisational accountability for client focus.
Addressing legal and regulatory compliance
Responding to a fast moving, occasionally ambiguous regulatory
and risk environment, will remain a significant challenge. For
some players, there is the additional challenge of achieving
clarity across different jurisdictions and overlapping compliance
requirements. AML, tax transparency and integrity, security and
privacy risks will be at the fore.
Further challenges will come from conduct, reputational risk and
suitability, greater price transparency, the abolition of
retrocessions, together with the assurance of no conflicts of
interest, increased regulation on new products development and
testing and change to remuneration. These will increase pressure
on margins and make product and service innovation more
challenging.
Risk and compliance management functions will need to keep pace
with upcoming regulations and at the same time recognise that
they have now become core to strategic management with a need to
ensure robust risk frameworks and appetites which are embedded in
decision making and in the culture at all levels.
Responding to challenges and seizing the
opportunities
There is a danger that firms will underestimate the need to
respond to this collection of threats and challenges. In doing
so, they may fail to seize the structural cost, regulatory and
client experience opportunities of the industry inflection
point.
Management should be vigilant and challenge their status
quo by looking at which of their traditional advantages and
capabilities are now under pressure and what new advantages and
capabilities will be required, assess the likely impacts and
prioritise the best options to address both the gaps and
opportunities.
Successful implementation of the changes required will need
attention as many firms have a fragmented change agenda with a
lack of alignment across the business .This should be addressed
through providing better business design authority support and
through stronger delivery and risk management assurance of their
programmes.
The next few years will be challenging for the wealth industry.
However, there are many opportunities to capitalise from the
changes now underway. Executives with awareness who can respond
with a pragmatic and aligned approach to address performance gaps
and seize opportunities will lead their firms to become
capitalisers rather than laggards after the current industry
inflection.