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By M. Isi Eromosele
As firms enter the wealth management arena, they will have
to answer important questions about the methods they use to deliver their
unique value proposition to their chosen customers, the role of technology in
serving those customers profitably and their strategy for differentiating
themselves in a fiercely competitive market.
Opportunities to increase revenue are scarce in the current
economic environment, leading many financial institutions to contemplate forays
into wealth management as a way to generate new top-line growth.
Some firms already have an affluent customer base that they
assume can be easily converted to a wealth management offering, while others
recognize that they’ll have to attract new clients to their institutions.
Whether firms choose to set their sights on traditional or
new customer segments, creating a robust wealth management offering isn’t a
simple matter.
Successful firms will carefully analyze their target
customer segments, realistically assess their own strengths and weaknesses as
well as monitor and respond to actions of their competitors. Firms must also
consider how technology can lower the cost to serve previously unprofitable segments.
The number of wealthy Americans has increased substantially.
The recent global financial crisis notwithstanding, a substantial amount of old
and new wealth needs managing.
Factors like increased volatility and uncertainty, the
growing number and complexity of financial products available and increased
personal responsibility for retirement planning have made many previously
confident investors realize that they do, in fact, need advice.
This demand, along with attractive industry returns, has
many firms considering entering the wealth management space. However, a history of
impressive returns in the wealth management market does not mean that every
firm can play in it profitably.
Entry into the wealth management arena holds no guarantee of
high returns. If wealth management firms have traditionally targeted only the
wealthiest customer segments, it is because only the wealthy can afford the high level of
service traditionally provided.
High net worth individuals (HNWIs) demand a superior level
of customer service and expect their advisors to have specific and extensive
expertise; experienced advisors, in turn, expect their compensation to reflect
their abilities.
For firms looking to tap the existing wealth management
client base, this level of service creates customer brand loyalty that can be
difficult for even the most competitive firms to surmount.
If price were no object, everyone would welcome a financial
advisor. In reality, however, the cost to provide comprehensive financial planning and the
expected level of customer service that accompanies it is high. Firms must balance the
customer value proposition with profitability, delivering the right offering to the
right client segment at the right price.
Before embarking on an ambitious and expensive wealth
management effort, firms should carefully consider the needs of the customer
segment they are trying to target. Designing offerings that match the
competencies that attractive segments value to the firm’s capabilities is the
key to successful wealth management.
Looking Beyond Product And Services
Many financial institutions currently view wealth management
as an integrated set of products: cash management, asset management, protection,
credit, retirement, estate planning and tax planning.
While a product-centric approach to wealth management is
sensible in some respects (because products drive profit), this approach fails
to address a large portion of clients’ needs.
Given that most wealth management products are roughly
equivalent regardless of who offers them; clients are less interested in
product specifics, assuming they meet certain basic requirements than in the
elements of service that surround the products.
While firms target customers with a range of products as
solutions to individual wealth management needs, HNWIs see their personal wealth
management strategy as a lifelong endeavor that influences every financial and
practical decision they will make from the immediate to distant future.
Even HNWIs who fail to grasp their bigger financial picture
are driven by the need to plan for specific monetary events that will impact
their lives. In both of these contexts, superior customer service, sound advice
and an advisory relationship are valued features not easily copied by
competitors.
To enable firms to create sustainable competitive advantage
in attractive wealthy customer segments, the following are five competencies
they would need to effectively address customer needs.
Advisory Relationship
The core of any successful wealth management offering is the
relationship developed between the advisor and the client. Successful advisors
develop a relationship with clients by demonstrating that the clients’
interests are the advisor’s paramount concern. In the context of an advisory
relationship, the wealth management firm can work with the client to develop,
implement and monitor a comprehensive wealth management strategy.
Integrated Information
Very few HNWIs maintain all of their accounts with a single
provider; an integrated view of their overall financial picture is critical if
clients are to be able to make informed decisions. Advisors, too, should be
able to access and analyze customer data efficiently.
When information is automatically integrated across accounts
and across institutions, advisors can concentrate on helping customers make
fact-based and insightful wealth management decisions, rather than focusing on
more mundane tasks like assembling statements from multiple sources.
Multi-channel Access
Customers want the ability to access their account
information when they want, how they want and where they want. The combination of integrated
information and multi-channel access empowers clients by enabling them to access
constantly updated, accurate information, whether in person, over the
telephone, online or through mobile devices.
Perception
To win new customers and retain existing ones, wealth
management firms must be perceived as competent, dependable and empathetic.
Clients must also perceive that they are paying a justified price for the value
that they are receiving.
Client opinion is formed through a combination of personal
experience, word of mouth and marketing. To compete effectively, the firm must
have a brand that is firmly associated with the qualities demanded of a wealth
management institution.
Personalized Service
A major component of successful wealth management offerings
is the human touch. HNWIs respond to charismatic guidance and a high level of
attention; they feel valued when their queries are addressed promptly and
personally.
Firms that go above and beyond expected levels of service
will reap substantial rewards. The key consideration as firms extend wealth
management offerings to customer segments with fewer assets is balancing the
cost to serve with the revenue opportunities associated with a particular
client.
M. Isi Eromosele is
the President | Chief Executive Officer | Executive Creative Director of Oseme
Group - Oseme Creative | Oseme Consulting | Oseme Finance
Copyright Control ©
2012 Oseme Group
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