One firm, several models: The need for a single wealth management organization

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Are you set up to meet the varied needs of today’s client?

You’ve spent years building a business model that effectively puts clients into what you consider to be “appropriate wealth” tiers. The problem: This isn’t how your clients think.

Today, it’s common for retail investors to separate some of their money into self-directed trading apps. That same client might have a bigger slice of their money in low cost ETFs and still another slice with another firm for more complex needs. As clients allocate their assets across different providers—each with a different selling point and experience—the traditional wealth manager faces growing challenges in capturing a complete share of wallet and an accurate view of the client. In fact, we estimate that $2.5 trillion in retail investments (for retail investors up to $5 million in investable assets) are outside of the primary advisor’s control.1

Compounding this challenge is industry consolidation and scale. Over the past year, six wealth managers have surpassed $2 trillion in assets—with each offering their clients a mix of branch-based, full-service brokerage and private banking advice, call-center-based services robo-advice and resources for self-directed trading across mobile and online channels. Each of these “channels” may have disparate approaches to new client acquisition and, often, separate financial targets that can lead to internal frictions when trying to address the problem.

Despite a build-out of these multichannel models, there’s often limited integration across each channel. Wealth managers typically aim to “graduate” clients as their wealth increases, often resulting in unsettling movement of clients between advice channels. For those clients who grow assets to qualify for the next “tier” of service, they will likely face multiple interruptions in service, experience and advice offerings.

This mismatch between how clients handle their assets and how firms are organized often results in disjointed relationships over time. Yet firms that unify key functions around the various needs of the client lifecycle can find ways to meet individual needs of clients through a single relationship. We’ve seen firms that take this approach achieve greater share of wallet, higher client retention and increased engagement. 

How? The solution is to organize differently, around the one unifying constant—the client.

35% of advisor-directed relationships worth $2.5tn are in client accounts outside of advisor’s control

PwC Strategy& Analysis, Cerulli Associates, 2020 US Retail Investor Advice Relationships.

Note: for retail investors with $100k to $5mn in investable assets

Prioritizing the client

Over the past five years, fee pressure, industry consolidation and the emergence of self-directed products have contributed to the multichannel model that many wealth managers now operate. This range of channels and business lines poses organizational challenges, as different business lines might have competing agendas. For example, advisors in the field might not be incented to provide different service levels to meet varied client demands or may view new channels (such as digital) as detracting from their traditional approach in managing client relationships. On the flipside, when viewed from the senior management perspective, the challenges are threefold:

  1. Fully loaded operating profit margins vary widely across channels, with a 10 to 15 percentage point difference between full-service channels and digital channels.
  2. Marginal costs vary widely, with digital channels delivering significantly greater operating leverage. Coupled with the significant investments that have been committed to digitization in the wake of the COVID-19 pandemic, this makes it imperative for managers to resolve channel conflict and ensure their clients are served seamlessly across their channel(s) of choice.
  3. The pandemic has also compressed years of client behavioral change. Given the overlay of intergenerational wealth transfer and the native digital comfort of younger generations, a greater share of US wealth today is held by clients who favor digital channels. This is in contrast to a traditional model that relies on face-to-face financial advice.

We recommend that firms consider how the current operating model presents impediments to clients and the advisors who guide them. It’s clear from the client’s perspective that compartmentalization doesn’t work. But many wealth managers don’t have the tools to provide service across a client’s complete portfolio and lack the incentive to bring in input from other channels to fully meet the spectrum of client needs.

Still, despite the pervasiveness of digital communications, clients realize that getting in touch with a “live person” is a tremendous value—this is all the more evident during periods of high volatility and when dealing with complex products such as annuities or alternatives. 

As firms consider investing in their wealth management capabilities, this much is certain: The client should become the driving force. Offering the full capabilities of your firm—investments, lending, research, security and access to quality advice—to all your clients across wealth tiers is essential. So how do you help enable your wealth management business to focus squarely on the client while also making the economics work?

Unify to meet client needs

Our experience with large wealth managers and multichannel offerings suggests that firms should focus on one overarching objective upon which all others should rely: enhancing the client experience. Our research shows that positive experiences are especially critical in financial services, where three out of four consumers say the experience will likely impact future purchase decisions.

How do you make it work?
  1. Develop a firmwide approach to help standardize client acquisition. Digital channels are creating distinct entryways, often resulting in a decrease in incoming calls to the advisor and branch visits. This may require firms to combine these multichannel approaches into a centralized model. We believe that capturing individual client needs and understanding their preferences early in the life cycle is critical. Firms will need to leverage analytics and on-us/off-us data to aggregate multiple client data points such as complexity of needs, preferences for guidance versus self-directed investing, recent life events and intent-to-buy signals in order to understand and meet the client’s individual needs. 
  2. Design an operating model that aligns with the client’s needs. We recommend unifying key functions to help deliver a coordinated experience as clients choose different or multiple channels. This may require allowing clients to use distinct channels such as mobile, online or advisor-led for advice on different products. For example, a client may be best served by full-service advice for alternative financial products but self-directed for investments in index funds. Redesigning your operating model around a full suite of products across channel preferences can ultimately lead to higher share-of-wallet, stickier client retention, improved client engagement and lower costs.
  3. Invest in key capabilities to help evolve the operating model and digital upskilling for wealth management teams. Financial advisors should be the go-to for questions, whether in person or through a virtual counterpart that leverages your technology investments. This may require addressing gaps in a client-centric model, such as an integrated digital front-end platform or better aligning front-, middle- and back-office capabilities to simplify support. Further, we’ve seen a need to align advisor compensation and incentives to client-centric outcomes when evolving toward a single wealth management organization.
  4. Measure profitability and evolving client preferences to guide future reinvestment decisions. We’ve seen significant changes in how clients use different channels and drivers of channel profitability over the last 18 months. With a low-rate environment, elevated retail trading volumes, a multi-fold surge in payment order flow and massive new user growth, the old rules-of-thumb no longer work. Firms should rigorously measure channel and product economics and evolving client preferences and then project how these might change as the economy and society returns to normalcy. These insights should guide decisions on the allocation of further technology investments, real estate decisions and advisor hiring.
Transforming your capabilities to help meet the needs of the client can lead to share-of-wallet gains and improving client retention and engagement

 

Current state

Future state

Client acquisition

New client acquisition strategies are designed for the specific need of each channel with embedded biases that limit the opportunity to capture the client’s share of wallet.

A centralized acquisition model leveraging various data points to account for individual and varied client needs and preferences.

Front-end platform

Inability to articulate a client-centric portfolio or value proposition given the disparate platforms, products and experiences across channels.

Fully integrated single point of access linking all platforms, products and experiences across channels.

Channel and products

Channel and product silos create an inability to deliver a value proposition that accounts for each client's unique preferences.

Suite of products and channel choice that can meet the full spectrum of client needs with tiered pricing and service levels dictated by product channel economics.

Advice

Limited tools available to construct a holistic financial plan between advice channels.

Single-relationship advice model across all channels to meet individual and varied client needs.

Servicing

Different client servicing levels and experiences due to lack of integration and smooth movement between channels.

A single, consistent service experience model based on client need.

The path forward

With the frequency of industry consolidation, new product launches and unique partnership arrangements driving competitive pressures, wealth management firms can no longer assume a set-it-and-forget-it mindset. Direct access to index funds, passive management and financial planning apps mean that clients have plenty of choice, and your model needs to be organized to offer an experience that can differentiate.

The good news is that by combining key functions, client needs can be met early in the life cycle, which can help increase the potential to capture a full share of wallet. Leading wealth management firms have already begun to embrace the client-centric benefits of FinTech innovation and AI to better understand client needs early.

Our analysis suggests that getting this right can drive significant financial benefits. We estimate a multichannel wealth management firm with $1 trillion in financial assets and $5 billion in annual operating expenses could see $100 million to $150 million in pre-tax income growth from incremental client satisfaction and greater share of wallet, coupled with a reduction in expenses as clients leverage digital channels.

The time to organize differently is now for wealth management. Investment in creating a singular wealth management experience that aligns the operating model across channels and products is crucial—not only for a happier client but also for future business growth.


Contributing authors: Steven Kavallaris, Aaron Schwartz

1. Sources: PwC Strategy& Analysis, Cerulli Associates, 2020 US Retail Investor Advice Relationships.

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Julien Courbe

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Mohib Yousufani

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