Wealth management: Deceptively simple

Wealth management: Deceptively simple

It may be a simple concept but it’s not easy to deliver

The ANZ recently announced its intention to ramp up its drive into the wealth management sector and HSBC Australia plans to expand into the ‘mass affluent’ market.

Both announcements reflect the need felt by all the Australian banks to find new ways of increasing shareholder value in a crowded domestic banking market. But, despite the simple premise behind the wealth management proposition, there are several key factors that make the delivery of a successful wealth management strategy somewhat harder to achieve.

The largest of these factors is technology, and while having the best IT is no guarantee of immediate promotion to the top of the wealth management league, having fragmented and inflexible systems will certainly prevent a provider from gaining a dominant position in this potentially lucrative market.

The essence of wealth management is to provide better-off retail clients, with services similar to those provided to ‘high net worth ‘ndividuals’ — clients who typically take their business to the onshore or offshore private banks.

The added value the retail banks hope to create comes firstly from the fact that wealthier retail clients are less price sensitive, and are willing to pay for tailored products and services normally only available to private banking customers and, secondly, from the expectation that each customer will buy additional products from the bank, bringing higher revenues for little or no increase in marketing costs. Add to this heady mix the propensity of clients with complex financial affairs to be more reluctant to move from one provider to another, and you have a recipe for increased profit, greater customer loyalty, and a sustained increase in shareholder value.

Time for the CIO to enter, stage right on a white charger, with systems map and IT strategy in hand

Wealth management means offering a seamless range of products, covering traditional bank offerings such as cheque books, credit cards, loan facilities and so on, plus a full range of value-added products and services including securities trading, portfolio management, general insurance, superannuation and life assurance products, all backed-up by a financial planning capability designed to help customers understand how to structure their wealth, in accordance with their appetite for risk.

The major banks all have this capability, but their fund management, insurance, stock broking and private banking arms tend to have grown up as independent entities, either through organic growth, or as a result of mergers or acquisitions. The likelihood is that these business units have historically been allowed to focus on their own specific customer segments, with minimal interference from the parent, as long as they have remained profitable. IT systems therefore, have needed to work well in supporting the individual business units, but have only needed to give a passing nod to the huge transaction processing systems of the parent, perhaps doing little more than transferring aggregated financial data on a periodic basis.

In the world of wealth management, however, all this has to change. Every customer has to be seen as a client of the total group, no longer for example, just as a retail banking customer, or an insurance policy holder. Everyone is either a customer of a product line, or a prospect for that product line, and there needs to be in place a mechanism that allows customers to be seen as, and treated as, group-wide assets. It is not simply a matter of every business unit knowing of the existence of a customer, and so being able to market to that customer; everyone in the organisation needs to know everything about that customer, including exactly what products the customer has bought, how much was paid, and ideally even what products the customer has bought from competitors.

At first glance it appears that perhaps all that is required is a sophisticated CRM solution, which can integrate with, or perhaps overlay, all other business unit systems, to provide a single customer view. But wealth management is not just about cross selling — it is about dynamic pricing; adjusting the amount the customer pays for any product based on the value of the products and services already purchased.

Now it becomes important to understand the actual profitability of the customer, taking account of all the products and services purchased, and the potential for the bank to deepen its relationship with the customer.

Private banks take the concept one step further, recognising that wealth is often structured for tax and other reasons around the family as a unit, rather than around the individual. To do this, the banks need to look beyond the single customer that they may recognise, and must consider the spouse or partner, and the children as part of the same customer group. Husbands and wives may choose to hold assets in individual names for tax purposes, savings may be held in the names of the children for inheritance planning, family trusts may have been established for various reasons. All these factors influence the way the banks interact with their customers.

Enter the CIO

The level of business intelligence required is significant, and the complexity of the processing requirement is major. Time for the CIO to enter, stage right on a white charger, with systems map and IT strategy in hand! For this is a problem of systems integration, data management, communications, functional analysis, and raw processing power.

Wealth management virtually sells itself as a business concept. But while many will claim to be offering this service today, in reality it is expensive and complex to implement properly, and requires big changes in attitude and approach. Most of all, it requires an ambitious and far-reaching investment in technology, at a time when most banks are already heavily committed to the redevelopment of core banking applications. Although simple in concept, delivering wealth management services that genuinely bring benefits both to the bank and its customers, is harder than it may at first seem!

Peter Dugdale is an independent consultant. He was previously head of wealth management IT for HSBC and has international experience in asset management, insurance and private banking.

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Tags CIO roleFinancial Servicesanz bankbankingHSBCwealth management

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