Archive for the ‘Wealth Management’ Tag

Rebooting wealth management firms

It’s never been tougher to be a wealth manager. A significant growth in assets under management over the past seven years (last week’s correction notwithstanding) has not translated into suitable top and bottom line growth. Many industry observers blame this on structural challenges that belie an easy fix and are not going away in the short term. To reboot profitability and position their firms for growth, wealth managers should go back to the fundamentals and re-examine where and how they compete.

Every company is experiencing strong headwinds including market uncertainty, insufficient scale, poor brand differentiation, fee compression, and rising costs (for regulatory compliance, information technology, etc.). On the horizon is another threat, technology-based “robo-advisers,” such as Toronto-based startup Wealthsimple, which use an automated platform to target specific, tech-savvy segments with a focused value proposition and lower fees.

It is the three “M” wealth management firms — mid-sized, me-too and middling — that face the greatest business risk. They can no longer be all things to all clients or get by merely on the strength of personal relationships. Their best approach would be to go back the fundamentals: re-examine the segments they pursue, choose the best value proposition for the target client and build the capabilities needed to deliver it. While each firm will define their own approach, they may want to consider two strategic opportunities:

The gender gap Most wealth management firms lack the practices, understanding and tools to satisfy and address one large but relatively untapped segment, women. Women create, control and influence a huge amount of wealth — upward of 39 per cent of U.S investible assets, according to research from the Center for Talent Innovation.

The research found that 47 per cent of U.S. female wealth creators (53 per cent globally) and a shocking 75 per cent of women under age 40 do not have a financial adviser. Among the U.S. women that do have an adviser, 44 per cent report they are not understood by their adviser. There is no reason to believe that Canadian female clients are managed or treated any better than their U.S. or global counterparts.

Wealth managers need to gain a deeper understanding of women investors’ needs, requirements and fears using quantitative and qualitative research (advanced tools like ethnography can help here). Insights and lessons can be gleaned from industries such as automobile and consumer electronics that have pioneered female-friendly marketing and product design. Tactics could include: crafting more gender-neutral messages and imagery, employing principles of behavioural finance to remove hidden bias, training advisers in gender-smarts and creating a more collaborative and inclusive client experience.
To best capitalize on this opportunity, consider customizing products and services to suit women, including creating a risk profile that is markedly different (according to a study from consultants BCG) from one created for a man.

“We discovered early on our female clients have unique needs. They look for more collaborative, education-focused advisers with a holistic, long-term approach to financial planning,” said Jennifer Boynton, an investment counsel at Toronto-based RealGrowth, which is growing by focusing on addressing the needs of female clients. “Addressing these needs, while still meeting their investment targets, has enabled us to consistently exceed acquisition, retention, and most importantly, client satisfaction goals,” she said.

Build digital capability Given the wide range of consumer activities that can be done on a smartphone or desktop, it’s surprising that digitization has advanced so slowly in this space. While incorporating new technologies can be difficult, it no longer can be put off. Doing so will help you remain relevant and attract key segments such as high income digital natives or millennials who are very comfortable performing day-to-day activities online.

Furthermore, going digital is vital for streamlining back-office operations, enhancing reporting and improving data and analytics capabilities.

Digital tools can provide clients with mobile, real-time and user-friendly views of their portfolio (including value, costs, transactions) along with self-serve options for research, recommendations, buy/sell and support. Advanced data analytics can be leveraged to proactively tailor your investment advice and content based on each client’s profile, or support internal investment decisions. Finally, many wealth managers can make better use of social media networks to disseminate information, build moderated communities of interest (say around tax planning) and gauge investor sentiment and needs.

When it comes to realizing the digital dividend, the secret is to understand your client’s needs, and build back from there. That requires companies to create a 360 degree review of each client’s assets, requirements and behaviour patterns, an understanding of existing processes and a willingness to re-engineer the client-experience model (including practices, culture and policies), before exploring technology solutions.


6 traits of great cultures

Several studies confirm the correlation between corporate culture and financial performance, employee engagement, levels of innovation and customer satisfaction. Companies such as P&G, Southwest Airlines, FedEx and Starbucks have been able to differentiate and excel in highly competitive markets in part by developing and sustaining healthy cultures. By the same token, the toxic cultures of firms such as GM, Blackberry and Air Canada have contributed to declining market performance.

In short: culture matters. But what exactly is culture?

A culture can be defined as the norms, practices, history and values of an organization — in other words: “how things are done around here.” The health of a culture is generally quantified through employee engagement scores, with Canadian companies averaging 40-50% engagement.

These days, companies are looking to enhance their organizational life without turning their company inside out. While the differences facing each firm often call for unique approaches to cultural renewal, best practices cut across different sectors and organizational structures and are always based on inspiring leadership and skilled management. Below, I’ve identified six tips for developing a highly successful corporate culture.

Lead by example
Leaders don’t work on culture, they work in it, tracking it, modelling the right behaviours and communicating core messages. Savvy leaders look beyond yearly employee surveys to regularly gauge sentiments and enlist feedback during weekly chats or informal events. David Agnew, CEO of RBC Wealth Management Canada, undertakes frequent branch visits, meets directly with clients and regularly and directly communicates with all of his team, as well as rank-and-file employees.

Tell your story
Every company has a story. Great leaders capture and articulate this story in an inspiring way in order to develop a powerful mission or ethos that serves as an organizational “North Star” (or guiding principle). A good example of a North Star is Google’s inspiring mission to organize the world’s information and make it universally accessible and useful.

Provide purpose
In a healthy culture there is an implicit — if not explicit — awareness of the connection between mission (what value you deliver), values (what inspires your activities), actions (what needs to be done day-to-day) and behaviours (what becomes second nature). Employees within these cultures tend to strongly identify with their company’s purpose, values and goals, improving both engagement and satisfaction.

Solicit feedback
Internal practices, tools and policies play a vital role in promoting or hindering desired behaviours. These practices need to be regularly reinforced and tweaked as necessary to ensure high performance and adaptability to new conditions. Some proven steps include having monthly town hall meetings, encouraging interactions outside of work and utilizing knowledge management systems.

Inculcate and reinforce
It is easier to attract and build an esprit de corps and promote the right behaviours when the firm has effective mechanisms to manage human capital. RBC Wealth Management Canada has extensive on-boarding and training programs for new hires, culture-reinforcing performance management systems and ongoing practice management for seasoned professionals. “It really helps us to attract and retain the industry’s best people,” says Mr. Agnew.

Embrace differences
Healthy cultures are not homogenous. Numerous studies have demonstrated that higher organizational performance and innovation come from diversity, not uniform workforces. Though RBC has a dominant ethos, it does not seek out one specific kind of employee, believing diversity of talent and style can help contribute to continued growth. “There are no shortcuts to establishing and maintaining a positive culture,” says Mr. Agnew. “It requires an investment of time, effort and resources at all levels of the organization.”

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Shifting fortunes in wealth management

Wealth management, an industry long accustomed to steady growth and healthy profits, is now facing significant headwinds — and opportunities. How traditional banks and private money management firms respond to these new realities will determine whether they can stay relevant to their clients and sustain historical growth and profitability.

Though definitions and numbers vary, the Canadian high-net-worth or HNW market (typically defined as households with $1M+ in investible assets) consists of the top 4% to 5% of households, which collectively hold roughly $3.4 trillion in assets.  The Big 6 banks love managing HNW assets due to their healthy revenues (fees average 0.35% of a client’s money according to McKinsey).  Furthermore, the client’s assets do not have to be backstopped by large amounts of regulatory capital plus these assets are balance sheet positive — rich people deposit more money into banks than they borrow from them.   Given today’s financial industry challenges (i.e., capital markets profits are down, implementing new regulations like Basel 3 is expensive), it is no wonder many bankers now consider wealth management a key driver of growth and profits.

This once cushy business, however, is quickly finding itself caught in a vise of declining fees and increasing costs. For example, ongoing economic uncertainty continues to put pressure on fees and is triggering a shift away from complex (and high-margin) products like hedge funds to safe (but lower revenue) fixed-income assets.  Periodic financial scandals are reducing client trust in the industry and exposing breakdowns in compliance.  Growing client demands (particularly around technology, premium talent and product sophistication) are increasing service costs. Finally, increased regulatory requirements are boosting operating costs and business complexity.  Oded Orgil, managing director of Corporate Office Strategy at Manulife Financial, says, “Clients today have higher expectations for service and value.  They are more active in the management of their portfolios and are cognizant of a firm’s reputation, compliance record and risk management processes.”

At the same time, well-positioned companies can look forward to a promising medium-term market outlook.  The number of HNW households and the assets they hold are increasing (the recession notwithstanding), an aging population will be monetizing their equity from hard assets like homes and businesses to financial assets and; currently low-equity valuations have a solid upside.

Nimble wealth management companies can pursue a variety of strategies to leapfrog competition, improve their value propositions and sustain margins, including:

Bolster margins

Segment client’s better: Move beyond flat fee and service levels to a model where different clients are given different levels of services and fees.

Sell more to existing clients: A challenge for many companies, but driving higher cross-selling rates will improve revenues, lower client-acquisition costs and boost retention.

Optimize the back office: Look for efficiency gains and cost savings in back office operations like custody, accounting and record keeping.

Regain trust 

Reinforce the value proposition: Rich people have watched assets plunge along with everyone else’s and rightly question what they get for their money. Firms should invest in enhancing the client experience in order to drive measurable client satisfaction.  Target areas include staff training, client education, cross selling complementary services and client-supporting technology.

Improve transparency: It’s no longer acceptable for a client not to know their financial position at any given time.  Deploying advanced record keeping and online information delivery tools can provide clients with better visibility into their holdings, transactions and asset mix.

Foster simplicity: For the vast majority of clients, investing has never been a more complex and arcane activity.  Companies can foster trust by making the language and process of investing much more “user friendly”

Enhance the offering

Leverage global networks better: In many cases, the rich of 2012 live in multiple residences, travels extensively and have kids in disparate geographies.  To better serve these clients, wealth management companies should leverage their global retail network or establish strategic partnerships in key markets with symbiotic firms.

Become mobile enabled: The wealthy increasingly are performing daily activities including financial transactions through mobile computing devices such as a PC, smart phone or iPad.  Providers must keep pace by supporting their offerings through mobile channels.

Offer tailored solutions: Many clients are looking for bespoke, one-stop solutions that satisfy their unique investing needs.  This could include providing access to alternative assets like private equity investments in their portfolios and bringing in other complementary services like tax and estate planning.  Furthermore, wealth managers need to learn work better with emerging institutional-like structures like family offices.

Go for “smart” scale

Provider fragmentation, the need for scale and steadily increasing compliance and technology costs makes the fragmented HNW sector ripe for further consolidation. However, this strategy will only pay dividends only if the acquisition can be profitably integrated and the client sees value as part of a larger entity.  Otherwise, the firms run the risk of losing their top wealth and relationship managers, along with their best clients.

“The complexities of the investing world” says Orgil, “are unlikely to abate.  This ‘new-normal’ opens up new opportunities for the wealth manager to forge a better, more profitable relationship with their clients. The quicker firms understand this the more sought after and competitive they will become.”

For more information on our services and work, please visit the Quanta Consulting Inc. web site.