whitepaper wealth management

8/11/2019 Whitepaper Wealth Management

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How the right infrastructure can

enable you to reach your goals

Growing yourwealth managementbusiness


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This communication is provided by Advent Software, Inc. (Advent) for informational

purposes only and should not be construed as or relied on in lieu of, and does not

constitute, legal advice on any matter whatsoever discussed herein. Advent shall have no

liability in connection with this communication or any reliance thereon.

Investor wariness in the wake of

the crisis means many now want to

be more involved in the investment

process and are looking for wealth

managers that have, or can develop,

strong advisory capabilities.

Grow

2 | Growing Your Wealth Management Business


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HNWI Market Bounces BackAfter two years of strong growth in 2009and 2010, followed by very moderategrowth in 2011, the worlds wealthiest

individuals realized considerable growthin 2012, particularly at the highest levels.According to Capgemini and RBC WealthManagements 2013 World WealthReport,1both the population and wealth ofglobal high net worth individuals (HNWIs)reached signicant new highs in 2012despite the turbulence of the globaleconomy, particularly in the Eurozone.

The global population and investablewealth of HNWIs both increasedsubstantially to reach record levels in

2012. After remaining at in 2011,the population of HNWIs grew by 9.2%worldwide, increasing by one millionindividuals to reach 12.0 million. GlobalHNWI wealth also rebounded substantially,increasing by 10.0%, after declining in twoof the past ve years.

Ongoing Challenges for Wealth ManagersFor wealth management organizations,the growth rates in number and assets oftheir target client pool is welcome news

for those rms with the proper skillsand support infrastructure after a briefperiod of slow growth. The challenge goingforward will be to demonstrate to existing

and prospective clients that they canprovide a compelling value proposition onan ongoing basis.

That will be no simple task. In the post-nancial crisis world, investors are re-evaluating how their assets are managed,requiring rms to up their game when itcomes to the quality and type of servicesthey provide.

An array of factors are now putting pres-sure on wealth managers performance,

including a drop in transaction volumes,tough price negotiations, and an investorshift towards lower-margin products.

In short, wealth managers mustconcentrate on providing exemplaryservice to attract and retain clients, andthus grow their assets under managementand revenues. In addition, they will have torun their businesses ever more efcientlyso as to reduce costs and improveprotability.

1 World Wealth Report 2013,

Capgemini and RBC Wealth Management

How can you grow your businessin the post-crisis world?

HittingNew Highs

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Managers want to understand thedrivers of performance so they canimprove their future investment

decisions, and thus the service theyoffer to clients.

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managers, so as to obtain an aggregateview of their clients holdings andpositions. They also require sophisticatedperformance analysis tools that can:

> Provide accurate performanceattribution to identify the sources ofperformance relative to a benchmark ormodel portfolio.

> Calculate performance contribution topinpoint which sectors, industries orsecurities had the greatest/least impacton performance.

> Analyze a portfolios risk, volatility andrisk-adjusted return based on historicalperformance with ex-post risk statistics.

Equally important, this information mustbe communicated to clients in a readilyintelligible way.

Segment your AudienceRather than segment clients by thetraditional categories of investableassets and their broad risk tolerancecharacteristics, the emphasis today is onbetter understanding clients needs anddesires, so wealth managers can formulate

more appropriate nancial plans to achievetheir long-term goals.

Therefore, capturing, storing and analyzingclient datato better segment customers

and identify the right products to meettheir needs at any given timeis becomingever more crucial.

However, it is not enough for rms tocollect the requisite information thatenables them to segment their customers.In addition, they need a systemsinfrastructure that can keep pace withthe segmentation, so they can see whena customer migrates from one segmentto another, and alter their servicesaccordingly.

2. Develop Your Positioning

and Expansion Strategies

The majority of the worlds HNWIpopulation is now concentrated in theUS, Germany and Japan, accounting for53.3% of the worlds HMWIs in 2011. Infact, the Asia-Pacic region is now hometo slightly more HNWIs than any other

region, though North American HNWIs stillaccount for the largest regional share ofHNWI wealth. Asia-Pacic HNWIs reached3.37 million in 2011. On the other end ofthe spectrum, India and Hong Kong topped

the list of countries losing HNWIs in 2011,with Indias HNWI population declining by18.0%.

This global pictureof the ongoingimportance of Europe and the Asia-Pacicregions as key wealth centers, and rapidgrowth in North America and the emergingmarketsis crucial in determining rmsbusiness strategies.

In order to expand into new product,geographic and client markets, managers

will need a exible operating platformthat allows them to offer differentiatedservices to each segment. And withcompetition intensifying as more rmstarget the same pools of money, improvingoperational efciencies through the useof an automated support infrastructurethat can reduce costs and deliver thenecessary market scalability is increasinglyimportant.

Given the myriad rules withwhich rms have to comply,especially when operating inmultiple jurisdictions, thereis a great risk of errors.



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3. Meet Compliance and

Regulation Requirements

One overriding theme to emerge from

nearly all Advents recent discussions withclients is the impact that new and ongoingregulationsand amendments to existingoneswill have on the wealth managementindustry.

Expanded regulation in some form is avirtual certainty in the months and yearsahead. At this stage no one is sure exactlywhat the long-term effects of recentlegislation such as Dodd-Frank and FATCAwill be. Nevertheless, what is clear is thatchanges to the regulatory landscape will

force wealth managers to make additionalinvestments in staff, training and/ortechnology to ensure they comply with alltheir regulatory responsibilities, as well asmeet their clients requirements and therms internal investment policies.

Given the myriad rules with which rmshave to comply, especially when operatingin and expanding into multiple jurisdictions,there is a great risk of errors or oversightsoccurring where an organization relies onmanual policies and procedures.

By contrast, an automated portfoliomonitoring, trading compliance andreporting environment provides a morerobust safeguard against the threatof accidental or malicious compliance

breaches, countering the reputationaland legal risks that can otherwise result.Moreover, an infrastructure that allowsa manager to demonstrate adherenceto strict compliance standards, as wellas meeting investors and regulatorstransparency requirements, can give therm a competitive advantage in attractingand retaining assets.

4. Systematize Risk

Management Strategies

Along with the newfound stress ontransparency, the nancial crisis hasprovoked an industry-wide reassessmentof, and heightened focus on, managingrisk. This emphasis includes both agreater awareness of the risks industryparticipants face, not least around issuessuch as counterparty risk, and a need tocontrol risk more effectively.

To meet their risk management require-ments, wealth managers will need:

> Scenario analysis capabilities todemonstrate in a transparent and

comprehensible manner the risksclients face by pursuing proposed assetallocation strategies, and from investingin different products.

> Performance attribution reportingfacilities that detail the risks associatedwith the investments made, so clientscan see the risk adjusted return guresachieved. Going forward, regulators mayalso help drive this trend by mandatinginvestment managers to deliver risk-adjusted information to end clients.

> An integrated and automated front toback ofce environment to removemanual intervention in the transactionchain wherever possible, including withexternal providers and counterparties,and institute data validation and audittrail capabilities, thereby helping rmsmitigate operational risk exposures.

The majority of the worlds HNWIpopulation is now concentratedin the US, Germany and Japan,

accounting for 53.3% of the worldsHMWIs in 2011.

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5. Manage Talent and

Structure Your Teams for

GrowthA rms staff is its most valuable, andexpensive, resource. Therefore, it isimperative employees devote their timeand expertise to the most value-addedactivities possible.

Cut Red TapeBurdening front ofce revenue generatorswith administrative functions, oremploying people to conduct repetitiveback ofce tasks that can be carriedout faster, cheaper and more accurately

by an appropriately implemented ITinfrastructure is an all-too-commonoccurrence in the wealth managementindustry. Yet such wasteful practices areunsustainable.

Ongoing staff cutbacks are forcing wealthmanagers to do more with less in all areasof the organizationwhether it is in thefront, middle or back ofce. Since a returnto pre-2008 stafng levels is not expectedanytime soon, if ever, wealth managers willneed the support of technology solutions

that drive automation and enhanceefciency.

Beyond the use of traditional enterpriseportfolio management systems, weexpect to see greater emphasis onautomated solutions for customerrelationship management (CRM), reporting,reconciliation and research management.The automation such tools bring allowswealth managers to curtail manualintervention in their operational processes,removing the high stafng costs and

error rates that go with it, while providingemployees with sophisticated functionalityto help them better do their jobs.

That will aid the rm by:

> Making it more operationally efcient--and thus more cost efcient.

> Putting the information staff need attheir ngertips to improve investmentperformance and client service.

> Ensuring the organization meets itscompliance obligations.

> Providing the scalability to grow thebusinessby adding client assets andexpanding into new customer segmentsand marketswithout a commensurateincrease in expenditure.

Prioritize Value-Added FocusIn addition, relieving staff of mundaneactivities will free them to concentrateon the tasks where they can add mostvalue: addressing clients service demands,researching the market for investmentideas and opportunities, focusing onimproved risk management, and marketing

the rm to prospective clients. Moreover,because employees are given the freedomto concentrate on the most interestingand rewarding parts of their jobs, theyare likely to derive more satisfactionfrom their work, be happier and moreproductive.

Moreover, by having tools that allow therm to report internally on their managersperformance, executives can see detailssuch as who is signing or losing the mostaccounts, whether any managers churn too

much, how their portfolios are performingrelative to any other, and so on. The rmcan then reward or admonish its staffaccordingly.

6. Manage Your Data and

Intellectual Capital

Information quality, and the ability tocollate and share it across the enterprise,is critical in todays fast-moving,

interconnected, customer service-orientedenvironment. Teams must be able toleverage all the information across theorganization that is relevant to them. Atthe same time, the rm must preserveits institutional memory and intellectualcapital through a centralized datarepository to ensure the organizationandnot the individual portfolio or relationshipmanagerowns all its client and researchinformation. In that way, it wont losevaluable client details and relationships

if key staffers leave or are let go, as waswidespread during the nancial crisis.

Manage Your ResearchOne key component is an enterprise-wideresearch management system for thecapture and organization of the proprietarydata used in rms manager search,selection and oversight processes. Byaggregating manager research in a singlelocation, a central platform will facilitatecollaboration, create greater transparency,and enhance institutional memory.

Having a formal research management tooin place to keep track of all this informationand have it available at the click of a button

brings an essential competitive edge.

Manage Your Customer RelationshipsSimilarly, a centralized CRM systemcan provide signicant competitiveadvantages. Unfortunately, employeesare often reluctant to use whateverCRM application the rm has adoptedfor fear of losing control over the clientinformation they have obtained, and thusthe relationships they have built.

However, an effective and easy to use

CRM system offers an attractive quid proquo. For the employees, having completeand accurate portfolio and personalinformation they can access quickly anduse constructively will enable them toprovide more responsive and proactiveservice and improve client acquisitionand retention. So by seeing the benetthey can reap from such a platform theywill be more inclined to use it. The rm,meanwhile, now has a centralized store ofinformation, helping make the clients itsproperty rather than that of the individual

manager.

The CRM system is just part of the answerthough, since it is only as good as the datawith which it is populated. Therefore, itis important to link the CRM to relevantasset management systems to createprocesses that force the data to be kept upto date.



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A company that reinvests a highpercentage of its revenues onR&D to provide its users with new

functionality to meet their futurerequirements.

What to look for in the duediligence process

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7. Improve Your Performance

and Productivity

Many wealth management organizationsremain burdened by signicant manualintervention in their operational processes.That results in high stafng costs anderror rates, limited scalability, and a lackof insight into and control over clientsportfolio performance and risk exposures.

To address these problems, and ensuretheir long-term sustainability, wealthmanagers must focus on ways toimprove their business performanceand productivity by implementing

robust end-to-end technology solutionsthat introduce a high level of straightthrough processingboth internallyand externallyin the rms operatingenvironment. In this way organizations willbe in a position to:

> Increase automation and eliminatemanual processes.

> Reduce redundancies and achieveeconomies of scale.

> Analyze returns and identify sources ofperformance.

Technology can offer a wide range ofbenets in these areas. In particular, IT is aprincipal avenue for improving service andoverall efciency to clients. Therefore, thechallenge for many industry participants inthe short to medium term will be to closethat gap between recognizing the benetsa dedicated IT platform can offer and theircurrent business practices.

8. Manage Your Costs

Allied to the issues surroundingperformance and productivity addressed inpoint 7 above is the question of managingcosts.

While often necessary these days, cuttingcosts is proving difcult for many in theindustry. Changes in regulations and theassociated investments in complianceprocesses have led to higher IT and

operating costs. In addition, one of thelargest drivers of cost, compensation, hasalso increased in some regions.

IT investments may represent anexpenditure some organizations areunwilling to undertake at the currenttime, given the cost pressures they face.Nevertheless, utilizing a strategicallyimplemented systems infrastructure canyield cost savings and business growthdividends. To do so, the technology needsto fulll certain requirements:

> Introduce a straight through processingenvironment to free up staff frommundane processing tasks and redirect

them to higher value client servicingfunctions.

> Automate reconciliations with externalcounterparties.

> Connect to third-party market dataproviders to ensure the organizationssystems are populated with thenecessary data in a fast and seamlessmanner.

And for those wealth managers with

budgetary constraints that prevent an in-house software installation, Software as aService (SaaS) outsourcing models presentan attractive, lower cost alternative. With aSaaS approach, wealth managers leveragethe functionality they require withouthaving to implement and maintain thesoftware internally. Furthermore, they gainready access to any application upgradesas they become available, helping keepthe manager up-to-date with the latesttechnology developments.

9. Choose External Partners

and Providers Carefully

The importance of a rms externalrelationships was highlighted, at timespainfully, during the nancial crisis.The stability and service offeringof organizations brokers, tradingcounterparties, administrators andcustodians, and the market infrastructuresand system providers they use have

all come to the fore as rms sought toprotect themselves as the crisis unfolded,and prevent a repeat of the panic going

forward.

As a result, rms have become much moreaware of the need to:

> Assess their broker relationships,and their reliance on them for tradeexecution and research.

> Minimize counterparty risk.

> Choose partners and systems that offerstability and support growth.

For example, sophisticated IT systemswill give wealth managers the abilityto track the performance of stockrecommendations that stem from brokersresearch, and rank the rms accordingly.

Meanwhile, buy side efforts to assumegreater control over the execution of theirtradeswhether by connecting directlyto trading venues or by interacting withtheir traditional sell-side partners oragency brokerages through more low touchelectronic channelshave been given

further stimulus by the nancial crisis. Thisshift in market operation, and moves byasset managers of all descriptions towardsgreater self-determination and control,require sophisticated software toolsthat support activities such as pre-tradeanalysis, order management, execution andpost-trade analytics.

Leveraging robust yet versatilefront, middle and back ofce systemfunctionality is another key ingredient.Such systems enable wealth managers to

run their existing post-trade operationsin an efcient, scalable and customer-focused manner, while providing them theexibility to move into new markets andpursue new product and pricing strategies.



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10. Optimize Your IT and

Operations Infrastructures

As highlighted in the sections above,

leveraging robust, scalable systems withsophisticated functionality developed by asoftware provider with extensive marketexpertise can assist rms with many oftheir cost and customer service issues, andhelp improve their performance.

However, in addition to adopting an ITinfrastructure that addresses the rmscurrent needs, it is crucial to their futuresuccess that organizations partner withtechnology providers that demonstratean ongoing commitment to investing in

research and development.

Replacing a system involves enormousexpense. Along with the actual cost ofbuying the software, there are payments toconsultants to help choose and implementa system, training for staff to use it, therisk of losing clients due to mishandleddata conversions, and so on.

Therefore, it is much more cost effective,and less disruptive to clients, for awealth manager to stick with its existing

softwareprovided it is upgradedfrequently with new functionality, to workon new platforms as they emerge, and keeppace with industry market developmentsand best practices.

Moving Forward: Targeting

the Opportunities Ahead

Wealthy investors are now recoveringmuch of the ground lost during the nancialcrisis, with those in Asia and the Americasmaking particular headway. However,while asset levels are recovering, theshift in investor attitudes stemming fromthe painful lessons of the crisis means

the wealth management industry cannotsimply return to the old ways of operating.

Instead, the emphasis for wealthmanagement organizations has to be onrebuilding trust and working in partnershipwith clients to deliver risk adjustedperformance that meets their goals. Inthis environment, rms must focus onnding ways to efciently run and growtheir businesses, so as to retain andexpand their client bases, control costs andachieve the economies of scale that will let

them improve protability and meet theircompliance obligations.

To do so, wealth managers must employa robust and sophisticated IT framework

with the automated functionality to deliveroperating efciencies, better managerisk, help generate investment returnsand improve how they communicatewith clients. Furthermore, the systemsshould be provided by a nancially stablesoftware company committed to theongoing development of their offering.

Now more than ever, the right technologycapability is a critical component inmeeting wealthy investors demands.Those organizations that implement

the requisite infrastructure, and use itjudiciously, will be best placed to protfrom the opportunities that lie ahead.

Make it happen

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