Author: Pierre Bouquieaux, product director – private wealth management at Temenos
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In its 2014 analysis of the Swiss private banking market, KPMG concludes that the healthy profitability of the best-performing banks appears to be driven by higher revenues-per-employee rather than by lower costs. As simple as this observation may sound, it sends a crisp message that PWM institutions cannot afford to ignore: they must help their relationship managers focus more on selling the right investments to the right customers.
Theoretically, an institution’s revenue-generating capability can be improved by improving people, products, distribution or process. But people are expensive, product innovation is limited by regulation, and novel distribution options are finite – which leaves process. Process supported by modern IT solutions is certainly the most powerful lever available today to boost revenue generation.
Take Banque Cantonale Vaudoise in Switzerland, an eager adopter of modern IT solutions and whose wealth management AUMs (Assets Under Management) grew twice as fast the market average between 2008 and 2013. In 2013, it invested in a solution for relationship managers that industrializes and automates the entire investment proposal generation process, from the investment strategy selection through to the generation of the proposal and the grouped emission of trade orders. It takes relationship managers 50% less time to make investment proposals to clients through the solution. Concurrently, the bank has been steadily gaining market share against the dominant incumbent competitor in Western Switzerland.
When a PWM institution helps its employees generate more revenue in less time, it also frees them up to spend more time building new relationships, which in turn generates more revenue. Furthermore, industrialising the proposal generation process helps standardise content and presentation in proposals, which increases levels of professionalism as perceived by clients. The compounded effects of investing in modern IT solutions and better processes is something all PWM institutions should aspire to.
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By GlobalDataResearch confirms that the long-term rewards of superior productivity are very attractive: in KPMG’s analysis the 15 "strong performers" that display higher average revenues-per-employee also boast an average return-of-equity which is nearly double that of banks with "stabilised" performance (15% vs 8.8%).
The timely provision of portfolio risk information to clients has become another sure-fire way of boosting revenues. Indeed, clients’ average level of financial education is better nowadays than a decade ago, and they have become more sensitive to risk and to the suitability of the proposals made to them. Modern IT systems can help institutions address this demand by integrating rich and real-time portfolio risk information into the proposal generation, post-proposal and general compliance processes.
However, as surprising as it may sound seven years on from the last big financial crisis, a majority of PWM institutions do not possess this capability. As a result, they face extra costs, data inconsistencies, time lags, as well as compliance and other challenges when striving to enrich revenue-generating activities with portfolio risk information.
Yet modern IT solutions do exist that enable intuitions to totally integrate the portfolio risk dimension into all steps of the revenue-generating process. One very successful approach has been to open institutions’ underlying portfolio and relationship management platform to best-of-breed, third-party portfolio risk management systems. In this kind of setup, the institution’s PWM platform sends relevant data to the specialised third-party system which performs the calculations and sends back the results to be distributed by the bank’s platform where required. Of course, to extract value the bank’s PWM portfolio and relationship management capabilities need to be perfectly integrated, which is not always the case.
The beauty of a fully integrated setup is that relationship managers, using the intuitive proposal generation tool on a laptop or tablet, can at any time simulate the risk implications of an investment proposal they are in the process of making. The system can block the issuance of a proposal if its risk parameters either do not suit the client’s profile or do not respect certain risk thresholds set centrally by the portfolio management or strategy teams. At a centralised level, the institution can easily parameterize what risk information is shared with clients in the actual proposals, so as to ensure consistent information-based differentiation and transparency. Finally, over time, the client and the relationship manager can check the compliance of the investment with the pre-defined risk objectives, which reduces the cost-to-serve throughout the investment lifecycle.
But while PWM institutions do recognise the need to shore up their revenue-generating capabilities and information-based differentiation, they are knowingly suffering from acute inertia in both these domains. According to PWC’s 2013 global PWM survey, the most cited "Top 5" priorities were enhancing tools to support relationship managers, providing client with internet reporting and adapting systems to meet compliance requirements. Yet, among the top four challenges cited by the respondents were "not enough use of technology by CRMs" and "too many manual processes". PWM institutions should be mindful that modern IT solutions do exist that can help them overcome this inertia and become more productive and profitable.
