Wealth managers are finding their jobs crowded by increasingly long lists of boxes to tick, driven by increased regulation and more technically demanding clients. Alison Ebbage speaks to five industry experts about what banks must do to improve their customer relationship management.
Private bankers in Europe and the UK are facing challenges on many fronts, but increased regulation and client demands are renewing emphasis on sales suitability.
The introduction of Markets in Financial Instruments Directive (MiFID) and the UK’s upcoming Retail Distribution Review (RDR) are driving some of this change.
So too is an increasingly demanding client base that expects justification for every decision made, plus the ability to look at a portfolio on a granular level at any time.
Regulation & client demand is formalising wealth managment process
The combination of regulation and client demand is formalising the whole wealth management process, according to Sungard’s president of its private banking business Daniel Bardini.
“The challenge has not only been regulatory but has also been to rebuild trust. This means complete transparency and formalisation of the whole process for both new and existing clients,” says Bardini.
Introduced in 2006, MiFID was the first indicator of how the assessment process would become formalised. It introduced suitability requirements and categorised investors in a more structured way.
Karen Bond, director at Navigant Consulting, said MiFID stops the selling of complex products to investors who do not have the requisite experience. Advisers also need to explain the disadvantages of any products they propose.
RDR requirements to test CRMs
The UK’s RDR proposes to take assessment further with the requirement that advisers should look at “all substitutable products”.
But it does not stop there. Advisers must also be able to assess a client’s needs on an ongoing basis, taking into account any changes in circumstances or risk profile.
They must also be able to provide reporting on a real-time and granular basis, and track that in its entirety to satisfy both regulators and clients.
John Liver, partner in financial services at Ernst &Young, says the Financial Services Authority’s starting point is that everything needs to be documented and that if it is not, then it did not happen, thus leaving the firm open to regulatory fines or customer complaints.
“Documentation now needs to include salient points made at client meetings and an ongoing process to ensure that a portfolio reflects a client’s evolving needs and that there is some identifiable discipline around that,” he says.
How can technology help CRM?
How then can technology help at each stage of the process? Certainly in the initial data grab, a good customer relationship management system (CRM) should be able to prompt the adviser if there are any gaps or boxes that need ticking.
It should also provide a structured documentation workflow around the conversations and assessments that advisers are already having.
CRMs need to direct the initial data capture too; the client’s details, risk profile, parameters around what can and cannot be invested in or sold as well as investment aims.
This allows the wealth manager to develop a proposal and forms the basis of the contract. There is also extra work in supervising the whole process via statistical and sample checks to ensure clients with similar profiles are offered the same products and opportunities.
CRMs currently lacking: AT Kearney’s Frohling
But Penney Frohling, partner and head of the firm’s financial institutions group at AT Kearney, thinks CRMs are currently lacking.
“There is an art to managing private clients by identifying patterns, revealing real risk appetites via psychometric testing and using behavioural finance. Current systems are incapable of capturing this strategic data. CRMs are just the plumbing – they are nowhere near sophisticated enough,” she says.
Portfolio construction is the next stage. Here software needs to be able to apply risk parameters to allow and disallow certain investments, as well as flag up specifics such as not investing in a certain area or currency.
“Once the wealth manager starts to construct a portfolio, the software should require reasoning behind each transaction,” says Bardini. “In previous times this would all be done manually but now it all needs recording.”
Liver compares this to an institutional model where the technology adds a best fit according to the risk profile and adds discipline to that whole process.
“Institutional investors have a buy, sell and restricted list to choose from,” he says.
Increasing client demand for real-time reporting
But it is not just the regulator that is interested in this decision-making trail. Clients too are increasingly demanding and thus an additional part of the equation is detailed real-time reporting and access.
“Clients now demand a clear line of sight when it comes to their portfolios,” Frohling says. “[They want] the ability to look through as asset class and a product within that to identify, for example, the actual equities within a collective fund. It is all about having an x-ray view.”
Bardini adds that every wealth manager’s dream is to have a 360 degree view of a portfolio.
“The nightmare is, however, not being able to communicate that to the client on demand,” he says.
Software needs to be more predictive
Bardini says software now needs to move up a level and react on a real-time basis to events and suggest changes to a portfolio and identify cross-selling opportunities on the back of a given event.
“Another nice touch is to be able to provide a client’s contact details along with this reactionary information,” he says.
Engdal points out that instant remote access for the client as well as the adviser is fast becoming a must have.
“This improved frequency of contact and quality of information allows for a more trusting relationship,” he says.
Frohling thinks there is much to be done.
“There is very little in the way of automation at the enhanced granular level and scale required,” he says. “It’s new territory and software has yet to step up to the mark.”