the future of wealth management

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The Future of Wealth Management

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The evolution of wealth management

New firms arose to serve the wealthy, focused on protecting and transferring wealth of established families.

The First Era of Wealth Management (1853-1980)

Deregulation, falling interest rates and the beginning of a raging bull market ushered in a new era, focused on creating and growing wealth.

The Second Era of Wealth Management (1981-2007)

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The New Era of Wealth Management (2008 -?)

New Rules for a New Era

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Persistent low growth / low yield environment is challenging revenue

growth…

“Slower growth means lower returns on capital. If real GDP grows at 1.5 percent, then a diversified portfolio of stocks and bonds would probably grow at 1.5 percent, as well.”

- PIMCO’s Bill Gross 7/11/12

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…ROEs are below pre-crisis levels, at risk of not covering cost of

capital.

ROE

0

5

10

15

20

20062007

20082009

20102011

2012

(#)

Source: Accenture Banking 2012: Revenue Growth and Innovation

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Regulatory Environment

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Welcome to re-regulation. And we are just getting started…

33%33%

33%

FinalizedProposed

Not Yet Proposed

Source: Davis Polk 10/1/12Dodd-Frank Rules

7

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Competitive Environment

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Customers are at risk…

(#)

17% Recently Changed

50% Ripe for Change

33% Stable

Source:: Sway Research- “Hearts and Wallets”

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…and firms all expect to take market share from one another.

3%

5%

6%

19%

40%

49%

79% Acquistion

Expansion

Focus on Affluent Clients

Lower costs

Unsure

Other

No growth expectedSource: WealthManagement.com survey of 648 wealth managers from all channels (Oct 2012)

10

“Where will your growth come from in next 12 months?

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Generational Shifts

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Transfer of Wealth: 2017-2052

$41 Trillion*

Wealth of Gen X + Gen Y expected to exceed Boomers

by 2018

*Up to 98% of heirs switch advisors

*90% of heirs intend to leave current firm

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Keys for Success Differ by Generation

Boomers Gen X Gen Y

New Rules for a New Era

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Technology Shifts

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This is what passes for client experience in most of our

industry…

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Today’s clients want high-tech and high-touch. Why should they have to choose?

Advisors

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Clients want an ecosystem, not silos.

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Skate to Where the Puck is Going

“With so few wealth managers concentrating on Gen X and Y, and the fact that nonfinancial services firms are only beginning to move into the wealth space, a disruptive opportunity may exist for an innovative wealth manager.”

-Delloitte Consulting

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Client-Centric/Advice-Driven

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Driving efficiency through a differentiation of tasks and roles:

What can banks learn from healthcare?

(#)

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Smarter Differentiation of Roles, Tasks and Tools, for one thing…

(#)

22

Standardized Process Specialized

Low

Touch

In

tim

acy/E

Q H

igh

To

uch

Nursing

Pharmacy

Psychotherapy

Brain Surgery

Fees

Scalab

ility

Execution Diagnosis

Adapted from True Professionalism by David H. Maister © 1997 David H. Maister , used by permission

© Clientific, LLC 2012

Are your brain surgeons handing out aspirin?

(#)

© Clientific, LLC 2012 24

Fees

Scalab

ility

Standardized Process Specialized

Low

Touch

In

tim

acy/E

Q

Hig

h

Touch

• Account Opening• Transactions• Balance Reporting• Basic Service Issues• Funds Transfers

• Standard Credit• Product Advice• Estate Settlement• Discretionary Trust• Complex Issues

• Goal Setting • Financial Planning• Complex Estates• Succession Matters• Nonfinancial Issues• Moral Support

• Custom Credit• Asset Allocation• Basic Trust Admin• Complex Assets• Basic Estate Plans

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Or worse,Are your pharmacists performing brain surgery?

(#)

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HNW Client Insights

(#)

(#)

“How would you describe the state of mind of your clients in 2012?”

Source: WISE Gateway 2012 Executive Survey.

How HNW Clients are Feeling

Source: WISE Gateway 2012 Executive Survey.

28

Source: Merrill Lynch Cap Gemini, 2011.

Top Six Priorities of HNW Clients, 2010

1. Capital Preservation

2. Effective Portfolio Management

3. Specialized Advice

4. Transparency of Statements and Fees

5. Global Asset Allocations of Portfolios

6. Independent Investment Advice

Clients Still Need Help!

Source: Merrill Lynch Cap Gemini, 2011.

29

Drivers of Loyalty to Advisors

Differing Loyalty Drivers

1. Trust

2. Responsiveness/ Pro-activity

3. Quality of Advice

1. Quality of Advice

2. Service

3. Value for Money

Source: VIP Forum Research.

Drivers of Loyalty to Firms

Related and overlapping, but clients expect firms to drive advice and service

(#)

77% of Affluent Primarily Use Banks for Banking

12% of Affluent Primarily Use Brokerages for Banking

81% of Affluent Primarily Use Brokerages for Investments

1% of Affluent Primarily Use Banks for Investments

Source: McKinsey and Co.

The Challenge of Competition

31

Revenue Mix Varies by Segment

Wealth Segment

Credit Products

Deposit Products

Investment Products

$5M +

$1M -- $5M

$250k -- $1M

16%

29%

39%

31%

29%

26%

53%

42%

35%

Expected Change in Profitability

+8% +8% -1%

Source: McKinsey and Co.

Share of Revenue Wallet in Wealth Management for Various Segments, 2010

(#)

Investment Capabilities,

26%

Specific Products Of-fered, 27%

Financial Planning &

Advice, 47%

“ What product or service is most effective at attracting NEW clients in 2012?”

“What product or service is most effective at engaging EXISTING clients in 2012?”

Source: WISE Gateway 2012 Executive Survey.

Brokerage & In-surance; 8%

Loan Products;

20%

Investment Products;

28%

Financial Planning &

Advice, 32%

Delivery Model; 12%

Advice is the differentiator

© Clientific, LLC 2012 33

Wealth Managers’ Survey

“Most important metrics for making decisions and evaluating operating performance?”

Source: WISE Gateway Metrics Survey 2011

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Questions?

@Cllientific

www.clientific.net

www.wisegateway.com