A New Era In Global Wealth Management

By M. Isi Eromosele

As a result of the current geopolitical reality, significant economic uncertainty and profound change in the regulatory and consumer environments, many high net worth investors are struggling with the reality of the new normal, ever increasing change and uncertainty in the global markets.

In an Oseme Group analysis of the private banking and wealth management sectors, we found that tougher clients, the impact of regulation and the need for greater efficiency are leading to performance challenges for the industry.

The pace of change is also faster than it has been historically and organizations’ ability to adapt and change is now critical as cost income ratios remain stubbornly high.

The above and other factors provide a backdrop to several of the main drivers that has herald in a new era in the global wealth management industry.

New Client Evolution

Today’s wealth management clients are cautious, smarter, less trusting and loyal and now demanding better service and clearer value. They are taking nothing for granted and are probing the fundamentals of their advisor relationships.

They ask questions such as “Do you really provide an added value to me?” and “So why exactly should I be loyal to you?”

Increasingly, clients across the entire wealth spectrum are taking charge and articulating a view that private wealth products and services should be simpler, more transparent and deliver clearer value.

The private banking and wealth clients of today have far higher expectations in terms of both performance and service delivery. To succeed as a truly trusted advisor, successful organizations will have to upgrade services they provide and value delivered.

The Impact Of Stricter Regulation

A much more demanding regulatory environment is amd will continue to challenge existing business models. Regulation continues apace and the financial services industry is clearly under intense scrutiny.

Regulation has profound impacts and consequences for all business models in the industry. This will only accelerate as regulatory developments continue coming hard and fast.

The industry needs stronger risk management infrastructures, particularly in the front-office and around client interaction to cope with current and future regulatory initiatives which strive to protect consumers from the organizations or professionals they turn to in safeguarding their wealth.

Business models will need to evolve dynamically in order to keep pace as strategic directions change in reaction to the implementation of fast moving regulatory rules..

Operational Excellence

Far greater operational efficiency and effectiveness are required in the current market environment. Never before has identifying and delivering excellence in terms of operational and systems efficiencies been so important.

Shared services, outsourcing and new technologies are gaining traction. The real challenge is not just delivering efficiencies and cutting costs, but also improving the overall quality of the client experience.

This means doing it all at the same time. The industry is now entering an age when only those who can genuinely deliver transformative change on a cost-effective basis will lead the industry.

Constant Change Is The New Reality

Standing still is no longer an option.  Being able to see beyond the pressures of today and implement effective changes for tomorrow is now a critical success factor. The industry’s track record on executing complex cross-functional change has not always been good.

The sheer enormity of change driven by the still evolving themes taking place within the global wealth management industry is vast. However, it is equally clear that the status quo is not an option anymore, either for profitability today or survival tomorrow.

Leading a private wealth management business today is a challenging experience and is becoming even more so. Institutions need to chart a clear course and direction to come to grips with how they approach barriers and challenges to change.

Barriers span right across the industry, at every wealth client segment and every business model and type. Industry leadership, for a variety of reasons, may not truly be focused on innovation and the investment necessary to effect transformative change.

Whether this is temporary, a legacy of the global financial crisis or a consequence of the weight of regulatory compliance, it is clear that mastering transformational change across all its dimensions will be an essential characteristic of those institutions who will be the future leaders in this industry.

Client Relationship Managers And Human Capital

Top quality people are becoming more valuable, more difficult to source and more expensive to train. Institutions must work harder to leverage their human capital investment by supplying their Customer Relationship Managers with appropriate tools and technology.

People value propositions are now more essential as client relationship managers have reduced in record numbers. The industry is getting better at institutionalizing client relationships with organizations.

Linkages between performance and pay are becoming critical.

Operations And Technology

Cost pressures are severe and much more effective approaches to cost management are required. Wealth management organizations are at different stages of their operational evolution.

Many continue to run legacy systems and manual processes. Technology budgets are being directed to better support client relationship managers and the front-end client experience.

Risk Management And Regulation

Managing risk is central to reputation. Risk management systems and processes are being upgraded to provide integrated approaches to better align risk and value.

Cross border standards, customer protection and transparency are anticipated to impact the front-end client experience in particular and profitability in general.

Organizations continue to be concerned about the impact of increased regulation on operating costs.

Revenue Growth And Cost Containment Challenges

The dominance of existing players is being challenged, with new players emerging. Business models need to adapt to a more demanding generation of clients andregulation. Those that are agile and manage change effectively will be tomorrow’s industry leaders.

With tougher growth challenges, there is a need for stronger profitability management. Achieving both revenue growth and managing the bottom line is now more essential.

Wealth managers are experiencing varying degrees of success in dealing with today’s challenges with fewer than a third achieving cost-income ratios below 60 percent.

Real challenges are focused on these top three strategic areas:

• Acquisition and retention of new and existing clients
• Transforming the business model to meet the challenges of the external environment
• Sustainable revenue growth

Additional areas include achieving greater operational synergies and integration across the wider organization, acquiring talent, retaining key staff, improving profitability and meeting the new regulatory burden.

In such a challenging environment, it is not surprising that the sector’s historical leadership ranking is changing. The traditional order is now changing and interestingly, size does not necessarily bring success but rather leadership, client focus and the ability to implement change now confer competitive advantage.

Some non-traditional competitors with these capabilities have leadership status in some markets.

Wealth management as a business remains profitable and the industry anticipates profitability growing in spite of considerable change and new regulations. Organizations earn an average gross margin of 72 gross basis points (bps) on their assets under management and they expect this will increase to 78 bps over the next two years.

Moving clients up and down the wealth pyramid in terms of service level and attention is going to be a new differentiator for successful firms in the future. Balancing profitability with long-term relationships across generations will also be important.

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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