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By M. Isi Eromosele
Rapid changes in asset allocation strategies based on a dynamic
market place have resulted in banks reviewing their product offerings and
offering innovations on current products, while trying to move client holdings
to safer investments.
Banks have realized that product range and features are key
differentiators in today’s fiercely competitive and largely unpredictable
market. The manufacture of products is not every bank’s strong point and the
‘gap’ in product offering is catered to by distributing products originating
from other issuers.
While manufacturing products is definitely the way forward,
distribution income continues to be a key revenue stream. The investment domain
spans across a wide range of products and there is a definite shift from
traditional investments in funds, equities and fixed income to alternate
investments like structured products, real estate, private equity and hedge
funds.
It is imperative that banks realize that there are benefits
to innovation in terms of product bundling and utilization of customers’
‘sleeping assets’. Loan products bundled with insurance, margin lending, self
funding installments to gain geared share exposure and bundling of banking and
investment products are some interesting products on showcase.
Strategic Business Model
On one hand, there are a small number of large global banks
that have implemented integrated business models spanning across typical
banking and investment products and services. On the other hand, there exist
specialized wealth management boutique firms providing sophisticated products,
specialized services and niche area services
for specific customer segments.
Both extremes showcase examples of successful high margin
and high growth players.
Specialized wealth management firms catering to the high net
worth segment have known for some years that one model does not fit all. Retail
banks pushing into the ‘wealthy segment’, a mix of the mass affluent and high
net worth, have to realize that it is almost mandatory to design a service
model flexible enough in architecture to accommodate diverse customer- and
advisor-centric models. It implies, in a larger sense that banks have to invest
heavily in the underpinning technology.
At a very high level the models that could be best deployed
are:
• Transactions
• Investment
management
• Wealth planning
Based on the conditions and the market environment, a bank
can choose to mix and
match these models.
- The transactions model includes pure play brokers who facilitate investments in basic asset classes and product experts driving transactions through sophisticated products
- The investment management model includes advisors and relationship managers who plan, determine and advise customers in the pre- and post-investment phase
- The wealth planning model offers holistic advice in accordance with client’s finances and goals. These could encompass arenas such as real estate, retirement and generational wealth transfer
The chosen model has a direct impact on the revenue model
for a bank in terms of fees
and commissions. The transaction model is typically
fee-based and moves towards
commission-based revenue for wealth planning.
Revenue Drivers
Retail banks are establishing themselves in a space
traditionally dominated by private
banks and niche service providers, in order to handle the
booming mass affluent segment and the lower end of the high net worth segment.
The typical model on view is the distribution model with end-to-end services
across the banking and investment domains.
Banks have identified key revenue drivers as:
- Revenue from distribution (third party products)
- Commission on transaction-based revenue (from execution broker)
- Revenue from advisory services
- Cross-sell opportunities to existing customers
Product manufacturing and revenue based on assets under
management and ROI (Discretionary PMS) would be the way forward for banks.
M. Isi Eromosele is
the President | Chief Executive Officer | Executive Creative Director of Oseme
Group - Oseme Creative | Oseme Consulting | Oseme Finance
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2012 Oseme Group
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