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

Copyright Control © 2012 Oseme Group

Global Wealth Management – Targeting Growth Through New Markets

By M. Isi Eromosele

Wealth management firms have traditionally targeted the ultra high net worth individuals (UHNWIs) and high net worth individuals (HNWIs) segments. This is not surprising, because these segments collectively represent almost fourteen times the financial opportunity of the next largest customer segment on a yearly basis.

However, an in-depth analysis of the remaining population on a lifetime basis rather than an annual basis yields two new customer segments with promising revenue opportunity: the affluent and young affluent. These groups represent significant returns for the right wealth management firm and offer the opportunity for firms to take their offerings slightly down market.

The Affluent And Young Affluent

The needs of the affluent customer segment are not overly complex. As with other segments, the advisory relationship is essential to the affluent, as is a comprehensive wealth management offering that empowers the client.

Clients in this segment are rapidly approaching retirement age and deem retirement and estate planning to be critical components of their personal financial strategy; they are concerned about living their postretirement lives in comfort and offering their children and grandchildren a measure of financial security.

Perception and personal touch are key with this group, as the affluent require reassurance and have a lower affinity for technology than younger segments.

For the young affluent, asset management is critical. Their primary goal is to grow the wealth they have. The group typically spends significantly, so cash and credit management are key.

Integrated information, multi-channel access and competent advice are absolutely necessary to serve this segment. The young affluent are technically savvy and confident; for them, the advisory relationship plays an enabling role, rather than one of direction.

Young affluent clients want to be able to access services and view aggregated account data to manage their assets in a convenient and timely manner. If firms do not provide these services with a high level of performance, young affluent customers will likely take their business elsewhere.

Going Down Market

While the affluent segment shows the same overall affinity for technology as the rest of the population, research shows that 77 percent of affluent households were online compared to 55 percent of households online in the total U.S. population. In the young affluent group, that chasm widens, with 87 percent of households online.

In addition, the number of young affluent customers who would prefer to pay bills and review bank and investment accounts online doubles that of the national percentage. And, 71 percent of young affluent customers not only feel that online transactions are safe, but also agree that technology has improved their lives.

These numbers identify untapped prospects in underserved customer segments. Wealth management firms now have an increasing opportunity to use technology to take their offerings down market. Hiring and retaining the talent to provide the advisory relationship and personal touch are significant cost drivers in the wealth management arena.

Technology represents one of the most promising ways to reduce the costs associated with these competencies by enabling the advisor to improve efficiency and increase the number of clients per advisor.

Technology can also reduce costs by increasing the effectiveness and rate of adoption for self-service options, although this shouldn’t be considered a primary benefit. As firms perfect providing wealth management services at the reduced costs that technology enables, they can move even further down market and tap into the remaining segments in the mass affluent.

Wealth management firms should also consider that the current numbers of prospective clients who are technically adept will only increase as the decade progresses.

In addition, as the young affluent inherit wealth from older generations and slowly matriculate to the affluent and HNWIs segments, they will take with them expectations of integrated information, multi-channel, real-time access to aggregated data and high service levels as they form their perceptions about which firms are best capable of handling their business.

The next generation of young affluent will take their place, possibly with technical knowledge and performance expectations that don’t yet exist.

Market Strategy And Capability

Identifying attractive customer segments is just the first step in outlining a viable wealth management strategy. Individual firms’ capabilities and constraints must now be added to the mix. Only by matching the needs of target segments against its own capabilities can a firm find a successful role in the wealth management space.

In a recent study, the Oseme Group Institute for Business Value assessed the capabilities of seven types of industry players: private banks, independent advisors, mega groups (large financial conglomerates that function in banking, insurance and securities), brokerages, retail banks, insurance companies and asset managers. 

The assessment of retail banks reveals a strong base on which to build a wealth management program with competencies in product areas like cash management and lending services; yet, retail banks also have substantial gaps with limited competencies in integrated information, perception and personal touch.

The study goes on to show that when the capabilities of retail banks are mapped to customer segment needs, they are most compatible with those of the technologically-adept young affluent customer segment.

The challenges all institutions will face in developing viable wealth management offerings can be grouped into the areas of customer strategy, operational effectiveness, organizational design and technology strategy. While retail banks will face some of the same core challenges as other players, the following challenges are particularly pertinent to banks.

Challenges For Retail Banks Developing Wealth Management Offerings

The affinities found between the capabilities of each individual company and the needs of

various client segments suggest one of three strategic alternatives: remaining a traditional wealth management provider, becoming an expanded wealth management provider or refocusing to become a best of breed product manufacturer.

Private Banks | Trust Companies | Independent Advisors

The capabilities of private banks and trust companies and independent advisors match up well with the needs of the traditional wealth-management client base. These providers are characterized by strong personal touch and perception competencies, complemented by robust advisory and retirement and estate planning skills.

To remain competitive, these firms should align their strategy to that of a traditional wealth management provider. Such firms employ proven means to offer comprehensive wealth management services to the top-tier client segments, the UHNWIs and HNWIs.

Firms already operating in this space have a distinct and well-established lead over potential new entrants. By continuing to focus on the wealthiest customers, they take full advantage of their established reputations and relationships and reduce the degree of organizational and infrastructure change necessary to stay competitive.

By deciding not to go down market, they avoid diluting their brands. That said, many established firms will face declining margins as new competitors enter the marketplace and will need to attract the new generation of wealthy as the traditional wealthy client group transfers wealth to younger generations.

Firms considering entry into this already crowded market must carefully consider what it will take to be successful. Not only must new entrants create a comprehensive suite of wealth management products, they must package these around the rare talent that can build a core advisory relationship with a demanding client segment and supply a new level of customer service that most established firms are unaccustomed to providing.

Expanded Wealth Management Providers

Mega groups, brokerages and retail banks, match up well against the needs of the affluent and young affluent. The affluent particularly value the wide breadth of product offerings of the mega groups and their relative strength in planning for retirement; the young affluent value the strength in multi-channel access displayed by retail banks and the leadership role brokerages have taken in adopting new technologies.

The role of expanded wealth management provider represents the best route for most mega groups, retail banks and brokerages. While these firms typically have a wide client base overall, they lack an existing wealth-management offering dedicated to the client base in the HNW and UHNW client segments.

By using technology to expand down market to serve the needs of the affluent and young affluent, these firms have the potential not only to increase their potential customer base by a factor of four, they can also establish important relationships with potential HNW clients before they are targeted by traditional wealth management providers.

However, these firms face a range of challenges specific to their individual capabilities. Brokerages will have to broaden their product offerings, mega groups will be forced to address significant gaps that exist in integrated information and tax planning and retail banks, especially, face an uphill battle.

They must significantly improve the competencies of perception and personal touch, as well as offer stronger protection and tax planning products to successfully provide a comprehensive wealth management solution.

While there are clearly opportunities and profits to unearth with down market offerings, the challenge is how to serve the corresponding customer segments profitably. Because no one has yet done it well, expanding down market is a high-risk strategy.

On the other hand, a down market strategy specifically highlights and attacks the critical competencies that make this business costly for traditional providers.

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

Effective Global Wealth Management Strategies

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

Goals-Based Wealth Management

By M. Isi Eromosele

Goals-based wealth management has attracted a lot of attention over the last few years as the global financial crisis that started in 2008 changed the way many families look at how their wealth is managed.

While significant losses in market value have occurred at other times in history and did not necessarily modify investors’ attitudes, this global crisis was different in one major way. It challenged a number of expectations as to what could or could not happen in investments.

The simultaneous substantial price declines and liquidity losses that affected several alternative strategies forced investors to rethink significantly the way in which their portfolios were allocated.

Integrated Wealth Planning

Strategic asset allocation, the process by which families work with their investment advisors to set long-term strategic targets for various asset classes, cannot occur in a vacuum.

Among other factors, families must look at financial planning, estate planning, philanthropic planning, investment planning and tax planning when creating an overarching wealth management strategy.

Other than investment planning, however, each factor requires a distinct focus on the specific goals of each client and a willingness to consider several discrete goals. Keep in mind that this may include tradeoffs if certain goals prove to be incompatible.

Financial advisors should help families perform some capital adequacy analysis to help the members of the family understand whether they have enough assets to maintain their current lifestyle, to extend it to incorporate their dreams, to protect them against risks and nightmares and to deal with any form of additional contingency.

Yet, such an exercise is often disconnected from the work of the investment advisor who may not incorporate all these important data points into his or her strategic asset allocation analysis.

A discussion centered on the family’s goals need to be fully integrated into the overall advisory process. It should start with financial planning and then naturally extend into investment, estate, tax, and philanthropic considerations. Other important considerations are the need to harmonize tax and estate planning and strategic asset location.

Goals-Based Asset Allocation in Practice

The goals-based strategic asset allocation process can best be explained as a decision pyramid with three critical components.

Asset Division

The first step in goals-based asset allocation requires the family to divide assets into two categories: internally managed (where any value added is generated by the activities of the family) versus externally managed (where any value added can be traced to external managers).

While this may seem to be a simple step, it is important for several reasons. It provides a framework for families to view their own entrepreneurial activities, divide these activities between those that involve a high degree of risk and those that do not and account for different liquidity levels.

It allows the family to consider assets which, though valuable, are not expected to be traded, such as homes, collections, and the like.

It also allows the family to specify those areas where it feels able and willing to create value, and those where it recognizes that it needs external help. Finally, it makes it possible to postulate the almost obvious: wealth is typically created through internal, often entrepreneurial ventures, while it is only dynamically preserved in the public markets.

This last element is important in that it can serve as the pillar on which rational expectations are anchored.

Asset Identification

The second key branch in goals-based asset allocation relates to the need to separate the assets necessary to support the family’s lifestyle from those that are surplus to this requirement: separating assets into lifestyle and non-lifestyle buckets.

Families spending a very small portion of their capital to maintain their lifestyles are often tempted to create a form of an endowment portfolio whose income can be used to fund annual expenditures.

The major problem with the endowment approach is that assets must be “located” in a structure that belongs to the people who are spending the money. This can create estate transfer or gifting issues in that it may effectively freeze some share of the overall assets in the hands of a generation that might not wish to keep them, unless the goal is for whatever remains of the portfolio be passed on to charity.

The importance of taking a long enough time horizon is simple: assuming that one has a life expectancy that is longer than the time horizon chosen, one will need to replenish the lifestyle bucket over time. This is obviously more difficult when markets are not performing as expected.

Thus, the longer the time horizon, the more time for markets to perform in line with expectations. Yet, given the path dependency of the behavior of this lifestyle portfolio, one needs to assess the circumstances in which this strategy would or would not work.

Strategic Goals Determination

The third and final branch of goals-based asset allocation relates to the strategic determination of the family’s goals beyond lifestyle maintenance. While the range of such goals is practically limitless, goals can generally be classified into one of three categories: personal, dynastic or philanthropic. Importantly, these goals can involve an equally varied range of implied risk profiles.

While some families do not need much prodding to create a list of goals, others need a bit more guidance. It is not uncommon for a family to initially assume that discretionary wealth should automatically be allocated to a growth objective.

This may not necessarily be the best approach for two reasons: (1) growth has its limits and (2) what constitutes discretionary wealth varies based on individual needs and desires.

A Practical Framework

The starting point for the goals-based framework is to help a family translate goals and objectives expressed in non-financial language into financial realities. The framework comprises two dimensions.

First, the list of family goals is open-ended; second, the investment universe should be  divided into modules, which are designed to work with the family’s internal and external assets.

While there is plenty of room for customization, the framework need to be sufficiently flexible to allow for all but the most unusual circumstances and need to be properly structured to provide a measure of operational efficiency.

The framework is an extension of the typical wealth planning dialogue. While the questions leading to the discovery of the key inputs into the model might appear to be deterministic, they are intended to help a family understand the various trade-offs they may need to make.

Once family goals have been identified, classified and analyzed, the next step is to create the policy portfolio. To the extent that each family portfolio will have totally customized allocations to each investment module, the resulting overall portfolio will clearly be different from one family to the next based on individual goals.

However, within each module, the guiding force is not the family’s goals, but the

realities of capital markets. The ultimate goal is to help them achieve some economies of scale beyond personal family goals.

Depending on the needs of the families, the investment modules should have different incarnations. These options should reflect both tax status and the family’s investment preferences.

While no one framework can ever hope to meet every challenge associated with the real world, the foregoing process is designed to meet the needs of a large cross-section of wealthy families, both domestically and internationally in a way that integrates the investment activity into the broader wealth management process.

The goals-based allocation can be viewed as a bottom-up exercise designed to elicit the family’s risk profile given the different and possibly competing goals it is trying to achieve.

Families will most likely view the process as successful once they have discovered and identified their goals, quantified the capital required to meet each goal and created complimentary sub-portfolios that meet each goal in a comfortable manner.

In the post-2008 global financial environment, families need to be able to clearly map their assets to their goals with more clarity and definition. The clarity fostered by a more direct link between portfolio composition and the nature of the goal each portfolio seeks to achieve provides at least one more level of protection against emotionally-driven missteps.

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

Trends and Emerging Business Models In Global Wealth Management

By M. Isi Eromosele

The global wealth management industry is in the midst of a series of dramatic changes, resulting from the recent global financial crisis as well as long-term trends in the industry. Full-service firms have been losing share of advisors and assets to independent and self-directed channels, a trend that preceded the financial crisis and has accelerated.

The global financial crisis has created new challenges for the industry: Client satisfaction has approached historic lows and client focus on transparency and lower-risk/return products has resulted in lower revenue yield. In addition, consolidation of banks and brokerages has led to the challenge of creating a truly integrated experience and realizing the potential economic rewards.

Going forward, the industry must focus on three key strategic challenges:

1. How can advisors and firms regain client trust?
2. What is the role of the advisor in a world of integrated financial institutions?
3. How can wealth management operating models deliver specialization and scale to enable competitive advantage and profitable growth?

Answering these questions will be crucial to positioning evolving wealth management firms for a new phase of growth and profitability.

Recent trends have posed important challenges to firms in the global Wealth Management marketplace.

Client Behavior

• Asset allocation has shifted toward safer products, and demand for transparency has increased
• Post-crisis, client satisfaction levels are at an all-time low

The global downturn has engendered more pragmatic client behavior. Assets are being shifted away from equities and alternatives. Increasingly, clients are showing preference for safer, more transparent products such as fixed income and cash related products.

Client satisfaction levels have decreased dramatically during the global financial crisis

as investment performance decreased. Driven by this decline, clients have exhibited decreased loyalty to their advisors and firms, fueling the migration trend. Advisors are facing challenges in how to best address client dissatisfaction.

Wealth management firms are responding by adopting a more client-focused perspective.

 Advisor Movement

• Advisor migration toward independent channels continues
• Advisors are increasingly making trade-offs between compensation and services received (issue resolution, portfolio management tools)
• Battle for HNW clients continues, resulting in expanding war for advisor talent

The U.S. Wealth Management Market

The U.S. Wealth Management Market is served by multiple providers with distinct formats but overlapping value propositions.

The shift of advisors from full service to independent models is expected to continue.

Driven by the desire for independence and higher payouts, financial advisors have been migrating from full investment houses to more independent firms. The hybrid channel has benefited from this trend, as breakaway advisors typically have a mix of commission and fee businesses.

Independent segments should continue to benefit from investor and advisor preference for independence. Independents, RIAs and hybrid advisors have increased share and

now account for about 45% of assets combined.

Increasingly, advisors are choosing a sales format based on tradeoff between compensation, flexibility and risk.

Private Bank Model Characteristics

• Inherited book
• Advisor not responsible for overhead or team costs
• Broad product set and team of experts
• HNW / ultra HNW

Independent Model Characteristics

• Creates a brand and market presence
• Self-sourced client base
• Responsible for all overhead and business risks

Pressure on Profitability

• Changes in asset levels and pricing, along with increasing regulatory oversight, are putting pressure on wealth managers’ profitability

Profitability will remain under pressure and firms would need to continue managing costs tightly.

Pricing

• Greater price sensitivity in low return environment
• Pressure on management fees

Assets

• Lower asset values have decreased earnings
• Preference for simple, less risky, and transparent products

 Mandates

Simplicity and transparency reduce clients’ willingness to delegate wealth management (fewer discretionary mandates)

Holistic Advice

Offering integrated advisory services (e.g., insurance, financial planning, risk management) with higher margins

Customized Offerings

• Can be addressed via modular product architecture
• Complex products will return, but with lower margins

Implications For Business Models

• As a response to shifts in the market and profit pressure, firms are adapting their business models
• New formats in the independent space have emerged to offer new value propositions for firms and advisors
• New players have entered the market and are attracting breakaway advisors
• Consolidation is driving scale in bank brokerage and resulting in integrated institutions
• Team coverage models dominate the ultra HNW space
• Innovations have emerged in the online space

Wealth Creation: The “Private Investment Banking” Model

• Broad range of private banking, commercial banking and investment banking capabilities
• Team-based, multidisciplinary sales and service coverage model
• Referral protocols to access products within a diversified financial services firm

The wealth management industry is undergoing a number of changes, from new client behaviors and shifts in sources of profitability to new sales formats and emerging business models.

Wealth management firms can take advantage of these changes. To capture continued growth prospects, they will need to:

• Focus on client experience
• Revisit market segmentation and refine their customer value proposition by segment
• Upgrade or build new capabilities (e.g., product solutions, advice, client knowledge management) to deliver customer value

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

High Net Worth Asset Allocation Strategies

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

Copyright Control © 2012 Oseme Group

The Global Wealth Landscape

By M. Isi Eromosele

The global wealth management marketplace is evolving with the expansion of an affluent client pool and increased competition created through mergers, acquisitions and the introduction of non-traditional players.

Wealth managers should be setting business goals that require innovative technology solutions to help increase sales, reduce costs, retain existing clients and attract new ones. They must increasingly coordinate processes around their customers.

It is advisable that they realize the need to carefully evaluate and quickly deploy the right technology solutions to garner competitive advantage in the market. The considerations to create or strengthen a customer-centric model are complex, but most firms must recognize that long-term success is determined by an organization’s ability to deliver customer-centric products and services.

Wealthy individuals have multiple and complex financial needs. Banks gearing to meet their needs must build long-term relationships in which advice, as opposed to products and transactions, is the focus.

These banks must establish multiple touch points with clients, enabling them to benefit from enduring client loyalty and their predisposition towards referrals to prospective clients. The primary differentiators are going to be advisory capabilities, product breadth, and facilitation of customer ease and convenience.

Focus On Advisory Services

Private banking and wealth management customers are turning cautious with their investments as they seek better service providers. The quality of service, reporting and investment advice remain some of the important selection criteria for customers.

‘Know-all’ advisors, offering advice across different product types, suggesting unique product bundling, predicting trends in the local and as well as global markets and suggesting investment protection mechanism, are key to the success  of wealth management services today.

With the frequent highs and lows in the markets, there is an apparent disconnect between

many advisors and customers. Advisors are turning towards fact-based analysis and detailed case studies to bridge the gap.

However, it would be pertinent to note that there is also a growing trend towards self-service enablement, where knowledgeable customers are not fully dependent on the advisory services provided by the bank. To provide such high levels of service, banks should implement systems that offer a holistic view of customer relationship across assets and liabilities, to tailor appropriate investment solutions.

Increasing Market Share

Wealth management clients are increasingly demanding comprehensive and tailored services, with bespoke investment options. They are also keen to maintain relationships with multiple banks, to compare offerings and opt for the best. Banks should spare no efforts to strategically transform their product offerings and services, while revamping their technology infrastructure to differentiate themselves from competition.

The wealth management space is now being catered to by different types of firms including brokers, private banks, retail banks and insurance houses and all of them are vying for the same clients, the booming mass affluent segment and the high net worth segment.

Wealth management firms must make strategic investments to differentiate themselves in the eyes of existing and would-be high net worth and ultra-high net worth clients. It is imperative for insurance firms, brokerage service firms and retail banks to invest heavily in the advisor centric model as they each vie to be the chosen wealth manager for the retirement segment as well as for the younger generations.

This has resulted in direct competition in a space dominated, till recently by private banks and trusts. As a result, each of these players is looking at how best to differentiate its offerings.

Consequently, as wealth management firms increasingly compete for the same high net worth clients and clients themselves become more demanding, the pressure is on firms to understand the essence of client needs in existing and growth markets, even if they have already developed an accurate understanding of high net worth individuals in their established markets.

Without this insight, firms will find it difficult to develop an attractive proposition. As a result, banks are moving away from the conventional pure product focus and focusing on total solutions that are completely oriented to client needs.

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

Crafting A Viable Global Wealth Management Strategy

By M. Isi Eromosele

Wealth management firms have traditionally targeted the ultra high net worth (UHNW) and high net worth (HNW) customer segments. This is because these segments collectively represent almost fourteen times the financial opportunity of the next largest customer segment on a yearly basis.

A thorough analysis of the remaining population on a lifetime basis rather than an annual basis yields two new customer segments with promising revenue opportunity: the affluent and young affluent. These groups represent significant returns for the right wealth management firm and offer the opportunity for firms to take their offerings down market with the help of new technologies.

The Affluent And Young Affluent

The needs of the affluent customer segment are not overly complex. The advisory relationship is essential to the affluent, as is a comprehensive wealth management offering that empowers the customer.

Clients in the Affluent segment are rapidly approaching retirement age, and deem retirement and estate planning to be critical components of their personal financial strategy; they are concerned about living their postretirement lives in comfort and offering their children and grandchildren a measure of financial security. Perception and personal touch are key with this group, as the affluent require reassurance and have a lower affinity for technology than younger segments.

For the young affluent, asset management is critical. Their primary goal is to grow the wealth they have. This group typically spends significantly, so cash and credit management is key. Integrated information, multi-channel access and competent advice are absolutely necessary to serve this segment.

The young affluent are technically savvy and confident; for them, the advisory relationship plays an enabling role, rather than one of direction. Young affluent customers want to be able to access services and view aggregated account data to manage their assets in a convenient and timely manner.

Wealth management firms now have an increasing opportunity to use technology to take their offerings down market. Technology represents one of the most effective ways to reduce the costs associated with offering competencies by enabling advisors to improve efficiencies and increase the number of clients per advisor.

Technology can also reduce costs by increasing the effectiveness and rate of adoption for self-service options, although this shouldn’t be considered a primary benefit. As firms perfect providing wealth management services at the reduced costs that new technologies enable, they can move even further down market and tap into the remaining segments in the mass affluent.

Wealth management firms should realize that the current numbers of prospective customers who are technically adept will only increase as the new decade progresses.

Additionally, as the young affluent inherit wealth from older generations and slowly matriculate to the affluent and HNW customer segments, they will take with them expectations of integrated information, multi-channel availability and realtime access to aggregated data and high service levels as they form their perceptions about which firms are best capable of handling their business.

The next generation of young affluent will take their place, possibly with technical knowledge and performance expectations that don’t yet exist.

Identifying attractive customer segments is just the first step in outlining a viable wealth management strategy. Individual firms’ capabilities and constraints must now be added to the mix. Only by matching the needs of target segments against its own capabilities can a firm find a successful role in the wealth management space.

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

Effective Strategies For Global Wealth Management Firms

By M. Isi Eromosele

In the present global economic environment, the opportunities to increase revenue are limited. As such, many financial institutions are making forays into wealth management as a way to generate new top-line growth. As some of these financial firms already have an affluent customer base, they assume this can be easily converted to a wealth management offering, while others recognize that they’ll have to attract new clients to their institutions.

To be successful in their chosen markets, these firms have to analyze their target customer segments, carefully assess their strengths and weaknesses, and differentiate themselves from their competitors. Additionally, these firms must also leverage new technologies to ensure that their costs to serve previously unprofitable segments are lowered.

Factors like increased global economic volatility, the increasing number and complexity of financial products available and the intricate personal responsibility for retirement planning have made many previously confident individual investors realize that they do, in fact, need advice. This demand, along with the lure of attractive returns, has many firms considering entering the wealth management space.

High net worth (HNW) clients 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.

Moving Beyond Products And Services

Many financial institutions currently view wealth management as an integrated set of products: cash management, asset management, protection, credit, retirement and estate planning and tax planning. While a product-centric approach to wealth management is sensible in some areas (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 these products.

While firms target customers with a range of products as solutions to individual wealth management needs, customers 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 customers 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.

The following five competencies address customer needs that enable firms to create sustainable competitive advantage in attractive customer segments.

Advisory Relationships

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 client’s interests are the advisor’s paramount concern.

Integrated Information

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 provision of integrated information and multi- channel access empowers clients by enabling them to access constantly updated, accurate information, whether in person, over the telephone or online.

Perception

To win new customers and retain existing ones, wealth management firms must be perceived as competent, dependable and empathetic. To compete effectively, the firm must have a brand that is firmly associated with the qualities demanded of a wealth management institution.

Personal Touch

A major component of successful wealth management offerings is human touch. Clients 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