A new era for wealth management

Is this the dawn of a new era of nouveau classic banking for private banks and wealth managers? A new survey by PwC suggests this is the case, with wealth managers having to focus more on technology, processes and people if they are to be successful in a world of increasing political, fiscal and regulatory pressures. Mark James, Partner at PwC Channel Islands, explores the key issues for Jersey and Guernsey wealth managers…

PwC’s most recent Global Private Banking and Wealth Management Survey report, entitled “A New Era: Redefining the Way to Deliver Trusted Advice”, identifies significant changes affecting wealth managers around the world. The report draws on insight from a survey of nearly 240 private banks and wealth managers, including a number of Channel Islands respondents.

Overall, the report shows that increasing demands for transparency, growing regulatory compliance burdens and the need to control costs is giving wealth managers enormous challenges. Moreover, clients are becoming increasingly demanding and sceptical about the advice they receive from their wealth managers - more than half (53%) of high net worth clients surveyed say their primary source of financial advice is now their own research and knowledge.

Of particular interest to the Channel Islands is the report’s assertion that we are now entering a new world of ‘compliant confidentiality’ that will continue to become more transparent and regulated. Wealth managers will not want to impact their reputations by operating in ‘non-transparent’ or ‘non-cooperative’ jurisdictions. The progress made by Jersey and Guernsey in being named on the OECD ‘white list’ means they are well positioned to take advantage of this trend. The report underlines a number of further key issues for Channel Islands professionals, which are outlined here.

People

Significantly, 20% of Client Relationship Managers (CRMs) admit that they do not know enough about their clients, with the report showing a need for CRMs to dramatically improve their skills, appreciation of risk and ability to deliver the right information to their clients on a timely basis. Together with an organisation’s brand history, CRMs were seen as the single most important factor driving brand value. It is interesting, therefore, that only 25% of Channel Islands CEOs felt their CRMs were of a very high calibrein terms of meeting clients needs…yet recruitment and staff retention ranked only fourth in terms of those CEOs’ current priorities.

The report also found that small, well-run boutique firms are particularly well positioned to thrive, with the focus shifting to client service and retention through better relationship building. The most profitable wealth managers in the survey were found to have significantly lower ratios of clients per CRM across all wealth segments, allowing them to better understand clients’ needs.

Meanwhile, opportunities exist to capture inter-generational wealth transfers. Although 87% of wealth managers say they regard inter-generational services as a priority, only 38% of them are able to retain more than 50% of their clients’ assets when faced with an inter-generational transfer event.  A significant factor here is improving the skills of CRMs.

Processes

The report supports the idea that further consolidation and inorganic growth are inevitable – something that has already been evidenced in the Channel Islands market. Some 88% of wealth managers expect further consolidation in the sector in the next two years, with 63% regarding acquisitions as crucial to their growth strategy. In addition, only 32% of CEOs say they will open up operations in new countries over the next two years, compared with 52% in 2007 - due in part to the burden of keeping abreast of changing regulations across different jurisdictions.

Meanwhile, transparency is the new gold standard of wealth management as clients increasingly look for value in their wealth managers as trusted advisors. Growing demands of clients for information about performance of assets, financial health, integrity and risk analysis, mean wealth managers in the Islands are facing mounting challenges in managing the cost and efficiency of delivering different services. In fact, although enabling growth is the top priority for COOs, a drive towards operational efficiency and short-term cost-cutting is their second-highest priority.

The report also suggests that wealth managers should stick to their core segment, with profitability among segments of wealth varying widely. With ‘affluent’ (less than $500,000), ‘very high net worth’ (over $20 million) and ‘ultra high net worth’ (over $50 million) clients less profitable in the current environment, wealth managers should have the necessary scale, systems, product mix and CRM skills to operate in these segments profitably.

Technology

The report found that wealth managers need to invest in technology to survive. CEOs regard the use of technology as the weakest element of their organisational capabilities, with 63% expecting to increase their IT spend in the next two years. Providing innovative online client interfaces can increase client loyalty and free CRMs to focus on higher-value client interactions.

Respondents in Jersey and Guernsey held the particular view that the next two years will see a particular focus on a combination of CRM front office and client reporting systems, including system rationalisation and outsourcing of non-core services.

The PwC report underlines that the wealth management industry is at an historic crossroads, with wealth managers needing to up their game in terms of ensuring the quality of their advice. Arming CRMs with the relevant skills they need to fully meet client needs, rebuilding trust and providing extraordinary levels of insight and transparency are key priorities. These are significant challenges for Channel Islands wealth managers, requiring investment in technology, talent and determined execution.