Andrew Au, CEO and founder of AG Delta, comments on what wealth managers will need to do to survive in 2016
Let’s not hold any punches, 2015 has not been kind to some of you. You may have experienced a wonderful high in the first half of the year only to see revenue and profit nearly wiped out in the second half due to unexpected market moves. The regulators and their various demands have certainly not helped matters. Although AUM may have increased overall, profitability (the true measure of a firm’s success) remains elusive. Now, 2016 may shaped out to be just as challenging. But luckily, every cloud has a silver lining.
Buried in Compliance
It comes as no surprise that Compliance will once again top the list of challenges for many private banks. What will make 2016 even more arduous is that compliance will probably eat away most of the budget. 78% of wealth managers are expecting compliance requirements and associated costs to increase in 2016. Salaries for compliance officers are growing at over 10% per annum fueled by the need for more headcount to headcount oversight and auditing. Many will struggle but a few will find ways to maximize the value of their compliance spending by taking on initiatives that not only protects the firm, but also amplifies the firm’s competitive advantage to drive revenue growth. Using compliance to enhance the wealth service delivery by providing more targeted and suitable advice, creating a safe and efficient trade execution environment, and centralizing the compliance workflow across functional units are just some ways banks may look to maximize their compliance budget.
Quick and Nimble Wins
The wealth management space is rapidly evolving, and you’re going to find yourself being pressured to strike quickly in your initiatives or be told to move on. Gone are the days when you can commit to a project that takes 2 years to complete and 5 years to generate any noticeable ROI. To survive in 2016 and beyond, you must be quick and nimble, and that means you should only invest in projects that can deliver business value at a rapid pace and generate a return within a short period of time.
Technology Vendors Become More Open
Technology vendors must also adapt and become more flexible and creative to meet to the bank’s demand for shorter project cycle and faster time to market. As much as some vendors would like the claim, most people have woken up to the fact that an "all-in-one" solution does not actually exist. To build a solid infrastructure, one must rely on different best of breed solutions of different discipline and integrate them into a singular enterprise platform. If your vendors fail to meet this simple requirement, then their ability to support your business should be put into question.
Know what it means to "Go Digital"
Even today, many view "Going Digital" as simply having a fancy client facing app that looks hip, but in reality, it is often a lot more complicated. A well thought out digital strategy is developed through an objective and holistic review at how the firm operates and identify operational weak points where technology can make product and services delivery safer and more efficient. Some firms may find themselves needing a complete overhaul of the entire business model and processes. But a properly executed digital strategy will ultimately bring success longevity to the firm as it future proves the business from whatever uncertainties the market bring.
Like it or not, The Revolution is happening
Private banking is not immune to change. In fact, it is due for a revolution similar to what Airbnb and UBER did to travel and transport. The rise of IFAs, EAMs and new digital wealth managers like Alibaba will no doubt drag the industry forward with private banks kicking and screaming. Your clients are not oblivious to these changes as they are attracted by the proposition of better services for lower fees. At this stage of the game, private banks are left with two choices: Either embrace innovation and change, or be ready to shut down the business.
Andrew Au, CEO and founder of AG Delta