New Wealth, New Opportunities: Building an Operating Model for Asia’s Wealth Market -- Full Text

Executive Summary
Asia is the fastest growing wealth region in the world. Evidenced by the concentration and growth of assets under management in hubs such as Hong Kong and Singapore, this region-wide wealth explosion is determined by a number of factors, such as: robust GDP growth across Asia, increasing political diversification, as well as the comparative underperformance of the US and eurozone markets. Asia’s burgeoning community of young entrepreneurs is another vital driver powering wealth creation across the region.

Competition in the wealth management industry continues to intensify as local, regional and global institutions position themselves to target fast-growing opportunities throughout the Asian region, often to compensate for the loss of revenue and profitability in other business lines such as investment banking.

This Accenture Point of View identifies the principal challenges for local, regional and global wealth management institutions in Asia, and sets out recommendations for bolstering a winning wealth management business in the region. Countries in the study are Hong Kong, Singapore, Thailand, Indonesia and Malaysia.

Based on our in-depth wealth management industry experience, these recommendations draw on interviews conducted with industry leaders in the five countries, as well as secondary research, conducted by Accenture between May and July 2012.

Challenges to profitability
Globally, wealth management institutions are facing high cost-to-income ratios. From an Asian perspective, it becomes clear that market participants need to deal with four primary, locally oriented challenges to their profitability:

• An increasingly competitive market environment is shifting the basis of competition away from purely commoditized products. With no clear differentiators across wealth management institutions, establishing an increasing share of wallet is a major challenge, despite the growth of the addressable market in Asia.
  
  
• With constantly changing, often volatile consumer behaviors, wealth management institutions need to deliver tailored and flexible value propositions to their client sub-segments.
  
  
• This means that new talent capabilities are needed to address and manage rapidly evolving client segments and needs. Talent churn is a major challenge for the industry in Asia. Therefore institutions need to pay specific attention to retaining talent.
  
  
• Wealth management institutions continue to struggle with the steady flow and complexity of new global and local regulations. As well as addressing growing client demands, the advisory process must also take account of these regulatory obligations. This is having a significant impact on compliance costs.

Establishing a winning wealth management business
To maximize profitability and ensure sustainable revenue growth, wealth management institutions in Asia need to adapt their operating model in the following ways:

• Adapt value propositions to evolving customer sub-segments: The current client segmentation approach is often rather basic. Real differentiation is only possible with a clear identification of focused client segments and resulting client-oriented alignment of product or service catalogues, channels and relationship manager capabilities.
  
  
• Deliver an integrated and innovative multi-channel distribution strategy: Asian players primarily use traditional distribution channels. Given the fast-growing technology affinity of clients in the region, we see major upside in investing in technologies that can unleash the potential of new mobile wealth management and social media solutions, both from a client and employee perspective.
  
  
• Enhance organizational capabilities in analytics: Delivering tailored client experiences, improving operational efficiency and enhancing profitability all depend on leveraging insights driven by intelligent analytics. Insights from analytical solutions also provide opportunities for talent retention.
  
  
• Manage the talent engine: Depending on the prevalent relationship manager or adviser model, various priorities need to be considered including specific talent management approaches in recruitment strategies, specialized skills training, performance management and sustainable compensation models that can effectively attract and retain talent.
  
  

• Anticipate and manage the effects of regulatory change: Managing growth for their clients amidst tightening regulation and changing tax structures means that wealth management institutions must continuously evaluate the cumulative effect of regulatory change. Global organizations must develop integrated regulatory and compliance strategies, addressing regional and various Asian local needs (with specific data requirements); these strategies should be built on robust governance and process excellence.
  
  
• Efficient operations and a modular and flexible technology platform: The alignment of technology with business priorities will underpin the success of all change-the-bank initiatives—minimizing cost to serve, while enabling a customer-centric view across all business units. This should be accompanied by the continuous centralization of operational support processes, either through outsourcing arrangements or internal shared services. Another important action should be the development of supporting infrastructures, including business-specific centers of excellence (e.g., risk and compliance, tax, product provision), for new on- and offshore markets.

Provided organizations move decisively in each of these areas, they will be well placed to maximize their profitability and lay the foundations for creating, running and operating a high-performing wealth management institution in the region.

Asia’s booming wealth marketplace
In the past three years, mainly propelled by the region’s vibrant economies, levels of private wealth in Asia grew twice as fast as the global average.

As a result, the competitive heat in the wealth management space in Asia has been stoked by the entry of foreign players and other institutions such as asset management firms and trust or family office solutions providers. As evidence of this, the number of family offices is forecast to triple within the next five years. Most new entrants are entering the market by securing a license or opening a branch in either Hong Kong or Singapore.

Global institutions are mainly pursuing a strategy of providing highly integrated investment management and cross-geography wealth planning services whereas local or regional institutions are leveraging existing retail banking arms to offer exclusive localized product and services offerings.

Key factors affecting the Asian wealth management industry
There are six factors that directly impact the wealth management industry in Asia:

1. Offshore Asian hubs continue to be attractive

   The predicted expansion in high-net-worth (HNW) wealth across Asia is substantial, with double-digit growth set to become the norm. Looking at the markets in Indonesia and Thailand, expected five-year compound annual growth rates (CAGR) are 70 percent and 31 percent respectively. Continuous increases in the numbers of young entrepreneurs in Asia constitute another powerful and unparalleled growth engine for future wealth creation.

   This region-wide wealth explosion is being driven by robust GDP growth across Asia and the comparative underperformance of the US and eurozone markets. As a result, the flow of foreign funds into Asian economies—notably through the hub centers of Hong Kong and Singapore—has increased exponentially from US$324.8 billion in 2001 to $1.3 trillion in 2009.

   Assets under management (AUM) have been increasing at double-digit rates in key Asian markets, such as Hong Kong and Singapore, significantly faster than in traditional wealth centers, such as Switzerland.

2. Wealth growth in Asia
   

   In 2011, Asia’s population of high-net-worth individuals (HNWIs) expanded to reach 3.37 million—overtaking North America for the first time and establishing the region as the world’s leading and fastest growing wealth marketplace. This dominance is set to increase. In the next few years, Asia will have the highest number of “centa-millionaires” and at least 100,000 HNWIs in each of its key markets.

   The explosion in regional wealth and increasing political liberalization in a number of countries has attracted more players to the wealth management market. As they seek to capture market share, the various types of wealth management institutions in the region are expanding in different directions of the wealth pyramid.

   The middle of the wealth pyramid is becoming a prime target for some wealth management institutions in Asia due to the burgeoning size of these macro segments. The “mass” and “mass affluent” macro segments are especially prevalent in Malaysia, Thailand and Indonesia.

3. Evolving investor behaviors
   

   Before the global financial crisis, clients in Asia primarily hedged their bets by spreading investments across as many as seven or eight banks. After the crisis, many consolidated their assets into three or four banks. And as they now decide where to allocate their assets, they are increasingly demanding more differentiated products, innovative distribution channels and significantly improved relationship manager capabilities.

   When making investment decisions, Asian HNWIs have a number of priority objectives. In order of importance these are: wealth preservation, capital growth, regular cash flow, owning property and performance stability. As global economic uncertainty continues, investments in precious metals remain of interest.

   A growing number of investors are discovering that the “luxury” sector, often defined as fine art, wine and sports, provides opportunities for making profitable investments. Charitable giving is also on the rise, with philanthropic activities in the Asia Pacific region increasing significantly (net levels of donations rose by 11 percent in 2011).

   The global economic climate remains a key consideration in the investment decision process. For players in this booming market, competitive edge hinges on understanding client mindsets, as well as the prevailing culture in each local market. Wealthy clients from the Philippines, for example, are usually considered to be “second- to third-generation money” and have a preference for fixed income products.

   Singaporeans often enjoy their wealth within the first generation, are brand conscious but not considered to be particularly loyal to their banks. Chinese clients, meanwhile, are more attracted to value-added services such as their children’s overseas education, property investment and/or immigration.

   With these preferences in mind, wealth management institutions have to adapt to fast-evolving investor characteristics in the region. These can be broken down into four key areas:

   1. Investor sub-segments are evolving in Asia. Factors such as source of wealth, age and ethnicity are particularly significant.
      
      
      • Source of wealth: Within this group, Asian entrepreneurs are now contributing over 70 percent of high-net-worth wealth in Asia—up from 51 percent in 2007. These emerging investors require a different range of services from those required by traditional private banking clients.
        
        
      • Age: The age spectrum of wealth customers in Asia is broadening to include younger investors. 41 percent of HNWIs in Asia are aged 45 years or younger. These individuals are looking at new ways to communicate and interact with their relationship managers (e.g., via mobile, social media and online platforms).
        
        
      • Ethnicity: There are high levels of mobility by individuals of different ethnic backgrounds within the region. For example, Chinese, Indians and Indonesians are emerging as distinctive sub-segments. These sub-segments have unique investment behaviors, risk profiles and product preferences.
        
        

2. Clearly defined investment behaviors can be identified among Asian HNWIs.
   
   
   • Controlling: Clients in Asia have a generally hands-on, product-driven approach to wealth management products. The impact of regional and global financial crises has made investors more risk-averse and controlling in nature. Before the recent turmoil in global markets, complex structured products were a key driver for wealth growth in the region, especially in the FX and fixed income space.
     
     Alarmed by the scale and impact of the market meltdown, however, many investors have shifted into low-margin, simple products. Confident of their own financial judgment, these customers are very price-sensitive.
     
     
   • Opinion-seeking: These individuals rely on their wealth management institution for investment advice, but demand the final say on when, where and how their capital is invested.
     
     
   • Delegating: Having agreed on broad investment guidelines, individuals in this segment rely completely on their institution to manage their assets via discretionary mandates.
   
   

   Compared to their Western counterparts, Asian investors are more skewed towards controlling and opinion-seeking and less inclined to pay for advice. Discretionary portfolios in Asia constitute less than 5 percent of AUM, compared to 20 percent and 40 percent in Europe and the US, respectively.

3. Investors’ affinity to technology is also changing. Despite the fact that Asians are proven early adopters of digital technologies and social media, wealth management institutions have been remarkably slow in customizing channels to customer preferences.
   
   
4. Inter-regional investor preferences are also emerging. For example, Malaysian investors typically choose holistic financial services, with growing interest in treasury products. Customers in Thailand generally prefer a specialist, more advice-led approach combined with offshore products. Indonesians, meanwhile, expect in-depth product knowledge and value-added advisory services, with a significant push towards structured products.

4. War for talent

   Given the overall growth story for wealth management in Asia, there is extremely strong competition for high-end, skilled private bankers.

   The shortage of qualified relationship managers and high attrition rates (the annual attrition rate is estimated to be around 20-30 percent in Hong Kong) are further impacting the profitability of market participants.

   Even though the attrition rate has dropped in some Asian markets overall, it remains high. The main attrition point for relationship managers is reached after three to four years’ service with the bank. At this point, private bankers are either poached by competitors or are actively re-thinking their career path with their current employers.

   Based on our findings and on input from key stakeholders in the industry, Asian private bankers seem to offer a less attractive cost-income ratio than their Western counterparts at similar skill levels. Moreover, the majority of currently available talent seems to be less experienced in managing evolving client segments and needs. Asian wealth management institutions therefore need to seek out the best ways of developing and rewarding existing talent, as well as attracting new, highly skilled talent. This is critical to meeting client expectations in such a fast-changing environment.

   Compensation, training and skill enhancement are essential to retaining valuable employees. However, the most important but frequently unaddressed factor is leadership stability. Continuous leadership change in wealth management institutions accounts for the relatively low morale. Provided senior leadership’s long-term commitment to the region and the business model is consistently communicated, key frontline staff will be reassured and empowered.

   Most banks have tweaked their remuneration model towards a greater proportion of total compensation being linked toward long-term goals. However, on top of compensation and brand name, there are other factors that help to keep private bankers motivated: these include the bank’s ability to offer a sophisticated product range that can answer Asian clients’ needs.

Almost half of Asia’s top private banking executives received a payout ratio between 11 and 20 percent of the revenue they generated. In some isolated cases, revamped remuneration schemes address the need to bring compensation and incentives in line with the right behavior or performance, as well as compliance with regulatory and corporate standards.

In Singapore and Hong Kong, the MAS and HKMA, respectively, have started to enforce the Financial Stability Board (FSB) Principles of Sound Compensation Practices. However, while the ideal scenario would be to move toward a true advisory-based model where remuneration is independent of product sales targets and commissions, many markets in Asia are still following the old compensation models to attract talent.

Fierce competition for talent has seen the hiring process fall from three months to three weeks. These complications can lead to banks becoming more selective when evaluating new bankers. This means the hiring process has had to become much more dynamic as recruiters need to ensure cultural fit, as well as assessing social skills, product knowledge, investment knowledge, relationship management skills, relevant Asian experience and the viability of recruits’ existing client bases.

5. Improving institutional and political climate and increasing regulatory compliance
   Changes to the political or regulatory climate in Asia are creating opportunities and threats for wealth management institutions.

   On the one hand, the political liberalization of markets in Asia further contributes to the region’s attractiveness. Among other factors, the significant inflow of assets can be explained by the continuous focus on creating stability, trust in legislation, exchange of information standards and tax incentives.

   Having already introduced legislation or regulation in many of these areas, Hong Kong and Singapore’s reputations as secure and attractive wealth hubs underpin their status as the region’s leading financial centers, especially but not exclusively, in wealth management. And other countries are following their example. Malaysia, for instance, has eased foreign ownership rules under a sweeping liberalization program launched in 2009.

   Irrespective of this trend toward greater stability, however, most banks continue to pursue a relatively cautious approach, dipping their feet into the Asian market by securing a license and opening a branch office in Hong Kong and/or Singapore first and using that as a hub to explore the wider Asian region.

   On the other hand, new regulations on investment taxation, transparency, investor protection and capital requirements are creating complex reporting requirements. Compensation structures and fee models have also come under scrutiny from a regulatory perspective. These developments are increasing the cost of compliance and have huge implications for the operating models of wealth management institutions in Asia.

   Increased focus on regulation inevitably leads to the streamlining of processes and IT systems and a more clearly defined regulatory data and governance model. We often see these efforts being duplicated, with resources diverted from sustainable long-term solutions towards short-term initiatives with low or nonexistent impact on profitability.

   In their quest to address regulatory change, many global players have built booking centers in Hong Kong and Singapore to capture asset flows back into the region, as well as providing them with an Asian offshore option for providing Renminbi-based products.

   The drive to compliance means that wealth management organizations need to be equipped with an agile risk management framework that improves risk mitigation and increases transparency. The evolving regulatory environment also requires improved risk valuation and analytics, standardization of risk dashboards and regulatory reporting and enhanced risk control through limits frameworks and approval processes.

6. Operations and technology challenges
   

   Operations and technology are critical to the effectiveness of banks’ relationship managers. They also have a significant impact on profitability.

   These vital functions can, however, create major challenges for Asian wealth management institutions, including:

   • Pressure from front-line managers for technology and operations aligned to existing business priorities, as well as greater demand for new functionality and agile requirement handling.
     
     
   • Meeting risk and compliance requirements.
     
     
   • Significantly improving data management and data security.
     
     
   • Lack of end-to-end (automated) business and operations processes.
     
     
   • Pressure to replace often archaic or manual reporting processes.
     
     
   • Lack of data integration and analysis for ad hoc “know-your-client” (KYC) analytics.
     
     
   • Lack of plans for integrating social media or analytics capabilities.
     
     
   • Growing indirect costs.
     
     
   • The lack of a scalable, robust and flexible technology platform strategy.
     
     
   • Limited execution capabilities in terms of technology delivery management.
   
   

   The above challenges are often combined with a lack of innovation, for instance with regard to social media and/or analytical tools.

   Based on our experience, dissatisfaction with the quality of technology or technological support is among the top three reasons why a relationship manager might pursue alternative employment options.

Impact on profitability and challenges to growth
Multiple factors, particularly pertaining to consumer dynamics, market environment, regulation, and talent are placing banks’ profitability under pressure.

There are significant cost-to-income variations across regions. The US and Europe see cost-to-income ratios between 70 and 80 percent. In Asia, these rise to above 80 to 95 percent (the cost-to-income ratios of regional and local institutions tend to be lower). Given the challenges they face in improving revenue and growing AUM, this underlines why continued cost control is so essential for Asian wealth managers’ overall operating performance.

While some wealth management institutions have initiated cost reduction programs in the past two years, most of these initiatives were either not strategic or not executed comprehensively enough to offset sharp rises in costs, mainly originating from new regulations.

There are also major differences in the regional composition of revenue. The major source of revenue in Switzerland is based on administration and asset management fees. These fees are generated within a more sustainable and profitable discretionary model. In Asia, however, where the model is much more transactional (around half of revenues are based on commissions), there is a negative impact on profitability.

So a one-size-fits-all approach is not a viable option for Asia. Currently, there is little to no differentiation around the products and services being offered. The basis of competition has shifted to quality of service and pricing, which in turn, has further eroded profitability.

We believe that an addressable cost reduction potential of 5-10 percent still exists. Based on current discussions with our clients in Asia, we understand the major focus continues to be on cost containment and measures to accelerate revenue growth. Another key route to increasing profit margins lies in addressing employee productivity, measured as sales per employee. There still is significant upward potential in Asia compared to Europe and North America.

To address the issue of employee productivity, talent capabilities need to be aligned to targeted client sub-segments and skill gaps need to be addressed.

Core capabilities for success in the Asian wealth management market
Now, more than ever, the operating models of wealth management institutions need to be fit for purpose, focusing on unique, value-add investment in those areas that are directly visible to clients.

Leveraging wider bank infrastructure and operations for the majority of underlying functions across the bank also provides significant upside. Market participants in Asia need to move faster to transform their operating models if they are to achieve and sustain profitability and revenue growth in these challenging and rapidly evolving wealth markets.

A key success factor in the overall operating model is the management of the client interface. Currently WMIs in Asia adapt their sales approach based on the type and size of the customer’s net worth. There is still no accurate alignment of specific workforce capabilities to customer needs. Moreover, the relationship level and depth of advice varies significantly depending on the customer segment.

We believe that greater focus on the specific client interaction model per defined segment will help WMIs achieve greater differentiation.

To transform their operating models, market participants need to address the seven elements of this operating model according to the key parameters that drive profitability.

1. Segmented value proposition

   Quite a few market participants today follow fairly simplistic AUM-based segmentation approaches. However, by using existing data and advanced analytics across multiple customer dimensions, institutions can tailor value propositions according to specific investor needs and behaviors. Products and services, pricing, channels, and dedicated relationship managers for defined customer sub-segments need to be aligned in order to differentiate and optimize profitability. Communications and transactions would also follow the dedicated channel strategy of well-defined client preferences.

   As well as delivering detailed insights into product and services profitability, advanced analytics can facilitate sophisticated client segmentation by focusing on the three core customer characteristics (value, life stage and behavior).

   Understanding client behavior in each segment (based on loyalty, investment preference, risk aversion, activity, channels, generational age group, etc.) will enable market participants to adapt product and services for each segment and optimize pricing model accordingly. Communications and transaction channels should be aligned to each segment, with dedicated advisory approaches and clients mapped to relationship managers (so that specific needs and cultural backgrounds can be matched).

   Accenture has found that a segmented value proposition can decrease cost-to-income ratio by up to 10 percent. The challenge is that many institutions lack integrated and accurate data. They also lack the analytic platforms that enable sub-segments to be established and adapted as clients’ needs evolve.

   Imagine that the client is a young Chinese urban professional, pursuing an aggressive and mainly self-directed, and transaction-oriented investment strategy. This client has a relatively high-risk appetite and a bias toward investing in Asia, especially China and ASEAN. The regional wealth management institution managing his account can capitalize on its Asian experience by offering him exclusive access to Indonesian high-yield corporate bonds and unrivalled access to the ASEAN equity markets through its online/mobile-trading platform.

   While the client is not likely to pay for discretionary services, he is still interested in alternative investments, such as hedge funds and private equity. The regional bank can partner with other service providers to offer him a wider service portfolio and therefore capture a larger share of his wallet. The institution can also cross-sell other services such as tax advice and estate planning. To complete the customized client experience, the bank’s segmented value proposition would be based on real-time analytics, including the use of social media channels for customer insight, communication or even transaction purposes.

2. Products and services

   Private wealth clients are increasingly demanding:

   • More accessible and liquid investment products.
     
     
   • Increased exposure to multiple asset classes with greater demand for structured products and other alternative investments, as well as conventional investments.
     
     
   • Discretionary portfolio management products with greater transparency, both in terms of performance and fee structure and ad-hoc reporting.
     
     
   • Significant investment input to support their own decision-making process, across products, performance and associated risks.
     
     

These demands are not fully aligned with the growth strategies of wealth management institutions, most of which are focused primarily on attracting recurring revenues.

A more diverse service portfolio with, in particular, greater availability of sticky products (for example, offerings that help to establish longer-term client relationships) is a proven means of institutionalizing client relationships. Clients with transaction accounts, credit cards, loan commitments and less liquid longer-term investments—typically alternatives, insurance products, tax and trust or estate planning—tend to be more loyal to their bank than others.

This approach is particularly relevant for the Asian market, where wealth management is heavily skewed toward relationships and where there is a natural tendency for high-net-worth clients to be more attached to their relationship managers than the institution.

It is critical for banks to offer diverse products and specialist knowledge across a potentially broad range of channels. But their service propositions also play a pivotal role in building client advocacy and loyalty. Firms focusing on empowering their front line—across all levels of the organization—and delivering a consistent and tailored service across channels will reap rewards.

Two strategy dimensions are important for building trust and loyalty with high-net-worth clients:

• Providing bespoke tailored services to individuals appropriate to their lifestyle choices and investment needs.
  
  
• Providing accessible, investment house-strength decision support, risk assessment and reporting for individuals for whom empowerment is important.

Based on our assessment of global, regional and local wealth management institutions in Asia, the following observations can be made:

• Global and regional banks offer comparable sets of products. Particularly for players targeting affluent and HNWIs, success hinges on providing niche products that are differentiated across client segments.
  
  
• Most global banks pursue product value propositions based on high customization and close linkage to the investment banking arms of their corporations. Most of the time however, this approach is difficult to standardize or automate, leading to high cost to serve and low margins.
  
  
• Most local banks are more focused on offering plain vanilla and in-house products. These institutions need to strengthen their product lines by adding sophisticated offerings such as structured products, hedge funds and derivatives that cater to evolving client needs.
  
  
• Targeted growth initiatives based on product push tend to get very little client focus.
  
  
• Existing gaps in the bespoke solutions offered by global banks and regional players are creating opportunities for competitors to carve out market niches and develop solutions that respond to clients’ product and lifestyle needs.
  
  
• When defining key client sub segments, wealth management institutions should also streamline their offerings by manufacturing differentiated products and services in-house. In order to optimize their products and services offering, wealth management institutions can adapt their product architectures to meet the needs of different customer segments. Partnering with third parties in areas where they do not have a competitive advantage is another option.
  
  
• The current lack of real customer insight and analytics does not support the development of new products and customer propositions.

We believe that dedicated customer segmentation and a focused product and services strategy will assist Asian banks differentiate themselves in the market.

3. Innovative sales and digital distribution strategy Wealth management institutions cannot compete on investment products and services alone. The ability to provide a differentiated client experience is becoming increasingly important. Asian tech-savvy investors expect an integrated multi-channel wealth management experience, in line with digital services provided by companies in other industries.

An innovative digital distribution strategy will assist market participants to increase digital sales and optimize cost-to-serve ratios. Sample solutions include:

• Mobile banking solutions for relationship managers to optimize their time and productivity while promoting an innovative image to the target market.
  
  
• Workstations that seamlessly integrate insight, advice, execution, and servicing components to drive high performance and reduce time spent on non-value adding tasks.
  
  
• Advanced mobile banking solutions that empower clients to manage portfolios and trading operations on their own, view performance and reporting, and conduct scenario analysis on-the-go. Mobile applications can also ensure that customers receive timely and personalized access to experts.

4. The power of analytics-driven insights

   Analytics can provide deep insights into customers and their needs, track relationship manager performance and improve profitability. Gaining optimum customer insight will become increasingly vital as banks move to provide advice based on client-specific or family-specific situations.

   Applications for wealth management institutions include:

   • Using advanced analytics to rationalize client segments, help generate leads and cross-selling opportunities, identify unprofitable relationships and optimize the product or service mix.
     
     
   • Revisiting pricing models to reduce price leakages and more accurately account for the cost of serving specific client segments.
     
     
   • Monitoring relationship manager behaviors for early signs of departure (e.g., high number of client visits in a short timeframe, discontinued use of the CRM system, and increased access to LinkedIn etc.). This can be useful to reduce client churn when a relationship manager decides to move to another wealth management institution.
     
     
   • Providing a targeted customer experience (via a segmented value proposition) and measuring the performance of various distribution channels.
     
     
   • Develop adviser performance and retention measures.
   
   

   Analytics is a hot topic on the agendas of most wealth managers across the region. Accenture believes that analytics can significantly increase sales and reduce cost through improved targeting client segments. Based on our experience, profitability can be improved by up to 10 percent.

5. Manage the talent engine

   What matters most in the advisory process is the quality of relationship managers and their management of the client interface. The overall objective of all activities should be to gain “Trusted Adviser” status. The capabilities of a wealth manager need to combine both technical and financial acumen to create bespoke client solutions, together with the client-focused soft skills needed to build and sustain strong relationships.

   The following elements are critical in addressing the talent challenge in Asia:

   • Definition of flexible talent strategy to address the growth needs of the APAC region and specific client characteristics: With most banks acknowledging they have yet to attain trusted adviser status with the majority of their clients, a clear definition of the client interface and quality selling of products and services will be a key differentiating factor in the market.
     
     
   • Recruitment of the right talent according to the bank’s specific customer segmentation, product and services strategy and advisory model: This is key to being a “trusted adviser.” Non-traditional approaches for recruiting need to be looked at, including an integration program for experienced hires. As client needs become more complex, more qualified and in-depth expertise is required (product specialists, research analysts, portfolio and investment managers, tax and legal experts, etc.) to deliver tailored and integrated advice.
     
     
   • Leverage talent network within or outside the bank to deliver tailored client service: Global banks need to leverage their global networks of investment strategists more thoroughly. The ability to connect clients to expertise and networks outside the bank is also increasingly important—for example, specialists advising on philanthropy or fine art investments. Relationship managers will still be at the center of the relationship, but clients will have direct access to specialists whenever the need arises. The benefit of the “team” advisory approach will be increased client retention, even in circumstances where the individual relationship manager is leaving.
     
     

• Develop and groom existing relationship managers toward current market needs: Partnering seasoned professionals with in-house junior private banker talent will fast-track them, enabling them to fill more demanding roles, as appropriate and foster a sense of loyalty. Continuously performing skill assessments (right mix of soft skills, local cultural knowledge, and language, products and services knowledge) and identifying knowledge/skill gaps is also important. Additionally, relationship managers’ skill-sets should be continuously optimized and adapted to meet the needs of targeted client sub-segments and their evolving preferences.
  
  
• Implementation of external staff development programs: External development programs (such as Singapore Wealth Management Institute, INSEAD, etc.) can have a very positive impact on staff motivation and retention. Such certification programs usually cover topics from risk management to product knowledge, investment strategies and wealth restructuring.
  
  
• Review advisory approach: For most global and regional banks, the team approach seems to be a desirable and effective way to manage customer relationships in the wealth management segment. Successful teams should have an organization that includes subject matter specialists, high-service oriented relationship managers and administrative assistants who also take care of the growing amount of regulatory documentation. One option is to develop capabilities focused on specific areas of the institution’s wealth management operations by creating specialist teams for each segment or group of segments.
  
  
• Define attractive career paths for top management positions: Define a long-term performance management and compensation philosophy that rewards wealth managers, drives client-centric behaviors and encourages loyalty. Rather than focusing strictly on targets, revenues and assets under management, organizations need to align bonus and remuneration to reward long-term client service. Remuneration structures with long-term payouts will encourage wealth managers to stay with the organization, reducing attrition and minimizing competitor poaching. By building leadership continuity around strong leaders, the organization will increase the longevity of its employees.
  
  
• Define performance management and compensation frameworks that focus on ethical performance encouraging long-term commitment while deterring banking executives from crossing established boundaries within the regulatory environment. This may include the identification of non-financial metrics, such as ethical leadership and transparency when assessing performance and awarding incentive pay. Key actions could include the implementation of contractual coverage for penalties, claw back provisions and malus clauses that help banking executives focus on doing the right thing by putting their money on the line.
  
  
• Manage attrition and retain or reward talent: We believe that technology is pivotal to optimizing relationship managers’ time. Where increased regulatory requirements cannot be covered via technology, increased support of administrative personnel should be considered, allowing front-line managers to focus on client interaction. On top of that, longer-term cross-divisional collaboration compensation models and KPIs need to be aligned with client priorities and focused on relationship manager retention.
  
  
• Address leadership stability and low morale: Where the attraction and retention of talent is concerned, leadership continuity is ranked higher than compensation structures. With this in mind, organizations should clearly assess and address the bank’s leadership commitment to the region.
  
  
• Increase employee productivity: Technology can be used as an enabler for focusing resources on value-add tasks (for example, adviser workbench, mobile applications) and optimizing time spent on profitable client interactions, ensuring that clients are contacted at the right time.

The management of the client interface is the differentiating factor that goes beyond reinforcement of a strong brand and the promise of highest quality service. Wealth professionals need to emphasize their role as consultative advisers who are not just trying to sell the next product, but are actively watching over client assets and, in the process, earning their fees. This message should be reinforced through all defined communication channels.

6. Holistic regulatory approach

   The cost of entering the Asian market has increased significantly in recent years. This is in large part due to the increased number of regulations with which market participants in the wealth space must comply.

   To cope with the regulatory challenge in a cost-effective way, wealth management institutions must have high-quality, centralized data, transparent and auditable compliance reporting and appropriate governance. Priorities include the development of an expansive view of the regulatory landscape to facilitate long-term strategic planning and evaluation of the cumulative impact of regulatory change on the balance sheet, and on the supporting business and operating models.

   Scale and automation will be key to leveraging those investments for increased profitability. Against this backdrop, Accenture predicts an increased number of mergers, acquisitions and consolidation in the region. Compliance requires large investments for banks across the region, with appropriate technology and processes needing to be adapted to existing and new requirements. As matters stand, we believe that many of the new entrants lack the scale needed to leverage these investments on their own.

7. Efficient operations and a robust technology platform For each of the elements outlined above, technology will be an enabler of high performance for wealth management institutions and key to the delivery of enhanced client experiences. Based on current assessments, WMIs can be smarter and more innovative in the ways in which they use technology.

   A modular and flexible technology platform that clearly aligns with business requirements and priorities helps minimize the cost to serve, manages risks, increases organizational agility and offers better service to clients.

   So far, wealth managers in Asia have been less inclined to invest in new wealth management technology than their Western counterparts. Ample opportunities for technology upgrades exist, including:

   • Client reporting packages.
   • CRM applications.
   • Administrative and compliance tools.
   • Client advice tools.
   • Access to client information and analysis.
   • Mobile platforms for client and relationship managers.
   • Regulatory reporting.
   • Information data security.

One of the biggest frustrations cited by investors is the lack of effective, understandable portfolio reporting, tailored to individual needs. Investors are also looking to access information more quickly. With ever-increasing compliance and informational requirements, reducing print will become more important for banks. Online and on-demand statements are quickly becoming the norm. Clients will not be satisfied with delays in receiving and understanding information on their portfolios. Where delays do occur, they will not hesitate before changing their bank to secure the service they need.

Global banks’ drive towards greater efficiency requires a global cross-functional business model. Decoupling of the front from the back office, and tighter automated process linkages between the middle and back office, are fundamental to achieving economies of scale. Sourcing opportunities should be further explored to structurally reduce the cost base.

Automation in the back office remains low, especially where straight-through processing rates for vanilla products trades are concerned. Front-office systems need further investments to support communications between relationship managers and their clients. Investment in analytical tools and consideration of social media channels as active elements in the distribution and communication channel strategy will be clear differentiators in the marketplace.

Wealth management institutions should consider having more centralized back-office functionalities and IT platforms that offer flexibility for localization in Asia. The establishment of regional centralized operations hubs can provide the necessary infrastructure to reduce costs and enhance efficiencies.

Business processes that have been integrated from front to back need to be based on an infrastructure and open architecture that enable access to real-time customer information and analysis, an extensive product range and, ultimately, faultless execution. When reviewing the advisory process value chain, organizations need to be more radical, both in standardizing operations from front-to-back, and in their sourcing approach.

The focus should always be on managing the client interface. However, given current cost pressures and immediate return requirements, long-term investment in securing these objectives continues to be avoided by most banks.