Private banks and wealth management firms continue to grapple with the demands on their technology and systems. But finding the right solutions – from the back to the front offices – promises to create a critical point of differentiation going forward.

Date: June 2012

Tags: Technology, Differentation

Some of the biggest challenges that IT and operations departments across the wealth management landscape face include trying to combine disparate and sometimes out-dated systems –  while also reducing the over-reliance on either manual or spreadsheet-based solutions – to enhance productivity and efficiency throughout the organisation.

This is arguably the most effective way of tackling the multiple challenges confronting the industry today and, at the same time, stand out in the eyes of clients.

So for any bank or organisation which gets it right, it will find that the overwhelming cost and compliance burdens threatening to shackle many firms ease significantly.

"Technology, and more importantly, relevant and functional technology, can make or break an organisation in today’s challenging financial services environment,” says Noor Quek of NQ International.

Moving goalposts and growing fears

From a business perspective, the end-goal for institutions is to have a single, integrated system which tells management everything it needs to know.

This is most likely to be achieved getting feeds flowing to a central point, and then making the outputs meaningful and standardised for both clients and employees.

"This often requires them to have a central data warehouse and aggregation platform, which has real-time positioning capabilities, and where aggregation can work with multiple front-end solutions,” says Julian Webb, global head of data management and analytics at DST Global Solutions.

However, marrying the front-end, client-facing solution with the back-end to enable platforms to move towards the single operating platform is complex, he adds.

Further, the many new regulatory and compliance requirements are making this difficult – and costly – to achieve. And regulators and auditors are taking an ever-closer look at how banks are managing their data.

To try to tackle the demands, spending on solutions to fulfill new regulatory obligations has risen to at least 30% of total IT budgets at many institutions, say industry professionals. This is to meet a range of needs, from know-your-client to anti-money laundering to suitability.

Then there is FATCA, along with not only other existing tax-related regulations, but expected scrutiny going forward in order to fill government coffers.

For instance, there are various changes in the tax regimes in terms of the way tax between certain jurisdictions is calculated, and the way it is to be assessed.

Technology and operations professionals estimate it will take another two to three years of hard work just to meet the various needs and requirements they are already aware of. At the same time, however, IT budgets are under continued pressure as a result of high cost-income ratios.

A further reason why many banks are worried about FATCA relates to the fact that what it looks like now is very different from what many firms expected at the outset. This has meant that it no longer only results in a higher cost of compliance, but also that  many banks have had to put their other large IT initiatives on hold – whether these were related to new products or the client experience.

With so much uncertainty about ongoing changes to the regulatory environment, IT experts also say they feel hamstrung, at least to a certain extent, about what to do next.

The increasingly international nature of private clients, in particular, is adding yet more complexity to technology and operations solutions. For example, there might be Hong Kong-based clients booked in Zurich, Singapore and Hong Kong. Worse still, the legacy systems that many heads of IT have inherited don’t tend to be very flexible.

Further, some smaller players might, in response to various regulatory changes, be forced into a shared infrastructure approach, rather than building their own.

Technology is also well-positioned to have a big influence in terms of dealing with another of the key issues that private banks face in the current environment – related to product and client suitability, and also, in ensuring that in the process of transacting for their clients, frontline advisers are fully adhering to the various regulatory requirements.

Technology must therefore be adapted and updated to mitigate the inherent risks involved as part of this, warn IT experts, to ensure that trades which aren’t suitable are not allowed to take place. This not only safeguards the client’s interests, but it also protects the institution’s reputation.

"Many organisations that do not segment their client base will have to start doing that now as requirements for each segment get more intense on all fronts,” explains Quek. “Those with technologies implemented haphazardly which do not fit in seamlessly with the rest of the organisation will have to re-engineer their structures.”

One potential solution to ensure a bank’s software and systems can communicate is to enforce a standard company-wide messaging system. This means any new system or software has to be able to adapt to this standard otherwise it cannot be implemented, regardless of the suitability of the business features.

Ultimately, the aim should be to ease the burden for advisers, in turn freeing up as much time as possible for them to talk to clients and be as productive as possible.

As a benchmark for Asia, many banks in Switzerland have responded to the various challenges by moving away from first-generation systems and towards implementing highly-integrated solutions.

Around 60% to 70% of banks are believed to have done this in the last six to seven years – in almost all cases related to regulation and tax compliance. And the last two to three years have seen a more integrated systems approach following greater regulatory scrutiny, the need to do more straight-through processing (STP), and demand from clients for advanced functionality in online banking and trading.

However, very little has been possible overall in terms of an allocation of the IT budget to improve the client experience.

Data shortfall

Perhaps one of the biggest business risks which private banks need to tackle relates to client confidentiality and data protection.

Such information – which is now critical not only to most business decisions, but also to fulfill regulatory obligations such as FATCA – is unlikely to have been as diligently gathered in the past as is now required by many firms, nor taken as seriously as it now needs to be. It simply wasn’t a priority previously.

Yet the missing data poses challenges to IT and operations departments when determining which suitability and cross-border issues impact which types of clients.

A lot of work now has to be done now, therefore, to fill in the gaps, clean existing data and then put in place the processes to review and maintain it.

Gathering data in an efficient way can help improve the productivity RMs in enabling them to access a greater volume of information about clients, and more readily. Plus, it is vital for institutions to know what information has been shared with clients, and what each client’s preferences are. Clearly this is important at times when RMs leave a firm, in order for the firm to maintain useful relationships with clients.

For the purposes of FATCA, meanwhile, this would help banks initially identify whether they have the required client data, then therefore whether they are able to perform the query analysis to identify which clients are at risk.

As a result, institutions need to be more structured around how they capture and classify the data to get the required transparency of information. Only then can they expect to be in a position to manage it on an individual client basis.

Another issue to emerge in line with FATCA has been that it now appears to be the first of what are expected to be numerous global regulations to be implemented. As a result, organisations which don't have in place effective data infrastructure systems are far less likely to be able to react to a lot of the new regulatory standards in the pipeline.

Slowly getting data savvy

For data which firms do hold and are now increasingly gathering on their clients, technology and automated processes can support their efforts to deal with current challenges and create new opportunities

"Technology can enable organisations to make smarter use of the data,” says Webb. “Highly organised, real-time and historical data and information with the most effective distribution and reporting tools can be a huge competitive advantage.”
 
For example, wealth management firms can learn from what is happening in other industries – the “Googles” and “Amazons” of the world – which use their own data to drive how they service their clients.
 
"We are looking at providing tools to allow wealth management firms to more proactively aggregate from the various internal sources and mine the data they hold around their clients,” says Webb, “in relation to trading and investment activity, for example, to identify cross- and up-selling opportunities.”
 
This also satisfies the many regulatory challenges and requirements for data gathering and reporting.

The focus for platforms therefore needs to become better at managing, collecting and organising their data in a consistent and coherent way, explains Webb, to serve as building blocks. This isn’t to only meet regulatory challenges in a cost-efficient manner, but also to provide new sources of business.
 
"Without such platforms, meeting the regulatory requirements becomes very ad-hoc, manually intensive and expensive,” says Webb.

Mission critical

Despite the many challenges, the amount of air-time technology now gets in discussions that many private banking and wealth management CEOs have as part of their strategic planning reflects its increasingly vital role as part of business success.

Technology can be a huge enabler to private banks and wealth firms wanting to improve the overall client experience, be it in differentiating themselves from their competitors, increasing adviser productivity, or in helping streamline processes and creating efficiencies from the front through to the back office, confirms Camilla de Villiers, head of wealth management at Thomson Reuters in Asia.

"We constantly review our technology development roadmap to ensure that we are keeping up with the latest developments and trends in the industry,” says Hugues Delcourt of ABN AMRO Private Banking, “to ensure that we are doing our best to provide our clients with the right and optimised experience.”

There is little doubt that technology is an inevitable way for wealth management firms to differentiate themselves to clients.

"Today, clients expect 24x7 access to information with high levels of security and system integrity; this is a given,” says Roland Slee, managing director for Bravura Solutions in Asia Pacific. “The value now is in providing advanced analytics that leverage that data to create a consistent, seamless experience for the customer and indicate additional, relevant investment opportunities.”
 
Last year, DBS Bank, for example, enhanced its internet and mobile banking platforms to enable its clients to view their investment portfolio online while they’re on the move, says Su Shan Tan.

"We are also proud to the first bank in the region to provide a consolidated online view of our clients’ banking facilities (credit cards, current account, etc) and investment holdings, “ she adds. “The usability of your platform – in terms of how convenient and easy it is for the client to access his data – will drive and differentiate the client experience.”

Practitioners have differing views on the extent of the importance of the personal relationship between an RM and client. This is to a certain degree dictated by the business model and individual preferences of both sides. It is difficult to argue, however, that technology doesn’t lead to a more streamlined, consistent and trackable delivery of information of all types.

"Some frontline staff think the most important thing in private banking is the relationship with the customers, which the frontline says does not require technology,” says Georges Zecchin of Crédit Agricole Suisse. “Indeed, technology is paramount in private banking.”

This is especially the case in today’s markets with new regulatory demands, he adds, requiring banks to keep up-to-date with new requirements and be able to implement them for the benefit of their clients.

"Technology should ease the communication between an RM and a client throughout the entire relationship process,” says Zecchin, “and not just be a way to communicate with the system or place an order.”

Today, even if all the knowledge of a client sits in the RMs head and on some notes, the systematic capturing of knowledge about clients is lacking, says Mario A. Bassi at Solution Providers Management Consulting. “Given that a client gets serviced by several different individuals within a private bank, each of them has different sources of information. So if a bank has a common repository to collect this information, it provides a much better view of a client and ultimately helps the bank to service them in a much better way and ensure also the necessary regulatory duties to record client interaction.”

Further, the desire of Asian clients to be in the driving seat when it comes to making decisions about their portfolios, means they want the ability to log on directly and access their account details and other information quickly.

This is especially the case in markets like mainland China, for example, where the functionality and flexibility that local banks need to service their clients need requires the institutions to be able to pick and choose different software and solutions to create the whole suite.

For instance, the gambling mentality of many wealthy individuals in Asia means the local banks must develop functionality and interfaces which enable them to go online to place their orders, and view and access their portfolios on their own, so that they feel in control. This influences the decision-making processes in terms of choosing the technology and software required.

Client reporting is an important component of this, both for clients and RMs. According to Urs Tanner, CEO of Assentis Technologies, there tends to be a three-generation approach to client reporting.

The first generation is what most financial institutions have implemented today, he explains, which means they report on what happened in the past. But this is not enough to differentiate themselves and they should offer more advice.

As a result, client reporting of today and tomorrow must contain background information on what happened and why, says Tanner. This is particularly important, he explains, because client reporting is often the only touch-point a bank has with its client. As a result, client reporting should be used as a sales tool going forward, with banks incorporating sales messages as part of up-selling efforts.

Essentially, he adds, by providing more flexibility to investors, for example to enable them to start choosing which kind of information they want to see in their client report, a bank can use reporting as a way to differentiate itself.

According to Dr Fred Davies, CEO and chairman of Insa Software, some clients expect the reporting to be more than a simple statement of assets, and instead to show the potential down-side risks – a “what if?” analysis and how their assets performed relative to an appropriate benchmark.

Technology is also vital for private banks to be able improve their current processes of onboarding clients.

For example, says Bassi, the start of the life-cycle with a prospective client involves a lot of marketing materials which make a lot of promises to clients. But it is when a client transacts for the first time that the onboarding happens.

"Whereas it might take a retail client 24 hours or less to open an account with their consumer bank, this process at a private bank might take several weeks because of the number of compliance checks and the technology-support requirements,” he explains. “The leadership should decide on the processes and how they should be designed, so that technology tools can support this.”

Bruce Von Cannon of Banque Privee Edmond de Rothschild, says he is surprised at the extent of the importance that clients place on getting statements and account summaries delivered in electronic forms as a consideration when choosing a private bank.

"Banks that fail to invest in such reporting and software technology will be at risk of facing client attrition,” he warns, “and longer term possibly being unable to hire talented private bankers who wish to have the best possible software base from which to serve clients.”

It is also important to repackage information when providing it through internet or mobile channels. Choosing the right colours for the particular audience is an important consideration as part of this. For example, red is a good colour for Chinese clients, whereas in many other countries and cultures it has negative connotations in relation to financial markets.

A lot of thought is also needed as to the functionality in terms of the user experience and what aspects like charts should look like.

A further challenge to all organisations is to ensure that the institution’s technology capabilities are fully understood and well-utilised, adds Quek. “This means educating all front-, middle- and back-room users on the capabilities and the outputs of the system,” she explains. “It is not unusual for clients to experience delays to queries because data is not correctly collected, inputted and retrievable. This impacts on reputational risks and potential legal issues. “

The key going forward is simplification, adds Slee, with more functional and capable platforms addressing a broader range of needs across product silos, market tiers and segments.

Yet the challenge in the current environment is cost, and taking the plunge to spend significant amounts now only to reap the rewards later on. "However,” says De Villiers, “we have found that firms we have worked with to leverage technology, be it mobile devices, harnessing the internet, implementing sales support tools like proposal generation capabilities, or on-boarding and reporting tools, have realised immediate benefit and are now able to scale their businesses in a far more cost-effective manner.”

How critical is it? Well, says De Villiers, this boils down to how serious a firm is about the wealth opportunity and how long they intend to be in the game for.

"It is impossible to envision how a private bank can acquire new clients and keep the loyalty of existing clients without investing in modern technology,” adds Davies.

Going mobile

In step with the rapid pace at which the wealth management market has evolved, more so than ever before, the use of technology to enable advisers to connect to their clients, the markets and the news that shapes world events is integral to success, says John Fennelly, managing director, wealth management, at Thomson Reuters.

As a result, online and mobile applications that give advisers access real-time news and commentaries, as well as investment performance and product information, are transforming the industry and the definition of service.

Client expectations in these areas are being raised all the time from other aspects of their daily lives, so wealth managers must be seen to be keeping up with technology.

"Today’s investors are exceptionally savvy and demand immediate access and response from their advisers,” explains Fennelly.

"What we are finally seeing is a tipping point in the preference across all customer segments to the use of digital channels,” says Mark Jansen, partner, advisory, financial services industry practice, at PricewaterhouseCoopers (PwC) in Asia. “Whilst this has been talked about for over a decade, it is finally happening as technology and bandwidth have increased along with the ubiquitous use of various hand-held devices means that it is now part of everyday life.”

For example, adds Delcourt, many if the firm’s clients are iPad users, so it has therefore developed a research application for iPad to provide clients in Asia with the added convenience of accessing investment research and economic commentaries anytime, anywhere.

One way of using technology to meet the needs of Chinese clients in the mainland, for example, is to use mobile phone SMS to encourage product sales. Given that most people use this way of communicating, it is important to incorporate it as a marketing and sales tool.

A challenge related to the use of mobile and internet technology more broadly, however, is the fact that there is a regulatory black-hole when it comes to determining those products which institutions should be showing on their website, how they can qualify from a suitability perspective, and to what extent they can really push a particular product versus another.

Next-generation technology

The shift in focus to the next generation is also having a marked influence on technology strategies across the industry.

In particular, as part of the focus on  improving the client experience, Carolyn Leng of CIMB Private Banking says technology is very important to "Generation Y”, which is savvy and will be the ones managing and generating the wealth going forward. “These individuals welcome the use of technology to access their portfolios.”

She is a firm believer, however, in the human touch as core to any private banking offering now and in the future. “Clients will always want to speak to their private bankers directly to bounce around ideas and share experiences,” she says.

Such a view is, equally, difficult to argue with.

Adds Grace Chow of Bank of East Asia: “It’s not about enabling clients to access larger amounts of information and then to trade online by themselves without the banker. Although this level of support costs more, we believe many clients would agree that this level of personalised service is worthwhile.”

Costs are key to discussions around this subject, given that technology in the form of process automation does help reduce bank costs over time. “This can be witnessed in customer service, as well as in product development and enhancement,” adds Chow.

Finding the right balance

Banks should also be looking at which of their products are more suitable for electronic channels. “While this isn’t always suitable for all private banking clients,” says Jansen, “it is definitely under-utilised and should not be ignored. The question is how elastic customer demand is relative to price and channel.”
 
Given that technology is moving quickly, however, he says banks need to make decisions about what they do and don’t have available online.

E-channels can also be used to bring the client and adviser closer together through a more efficient communication method. “Banks which are more static in the presentation of their investment materials and products may mean clients look other banks as their regular go-to providers,” warns Jansen.
 
Further, e-banking can be used to address regulatory concerns such as over hold mail.

Modern technology can also reduce the increasing administrative load put on asset managers by the ever-larger demand for statutory reporting, says Davies.

"Since undeclared monies are rapidly disappearing then client tax implications are becoming significantly more important and technology must be able assess these implications,” he explains.

Most focus still tends to be on front-office applications in terms of improving the client experience and the effectiveness of frontline staff, says Jansen. “Core processing systems will also be critical as customers expectation of real time reporting increases, or more importantly as some in the industry start dining this, thus lifting the bar.”

However, it is important to understand how clients’ expectations are changing in terms of what they want and need from their banking relationships.

While clients use online and mobile tools for news and research, discussions and decisions around product suitability and deal structuring is still done on the phone or in person with an adviser.

IT expert raise an interesting question about whether banks trust their RMs, or instead they trust the rules set in the system in terms of which products are suitable for different types of clients.

There isn’t a straight answer to this. For the more experienced and capable client advisers, the institution can rely more on them to sell the right products to the right clients, based on the correct criteria. However, not all RMs are as clear about the full product range available to each client.

It is about finding a balance and ensuring collaboration between the human and technological aspects to the role of providing client advice and the right experience.

Buy or build?

Given the wide-ranging technology and systems needs of even the smallest wealth management players, the “buy or build” debate is inevitable.

Historically, says Slee, there has been a tendency for Asian organisations to build their own technology solutions, given the lower costs of doing this in the region.

However, since companies must now satisfy market demand for technology-driven features such as an enhanced online experience, mobile applications and personalised analytics, financial services organisations should be looking to buy in their technology and systems solutions where possible.

According to Webb, they should look to build only if it can help them to deliver a competitive advantage within a doable time frame, as speed to market is also an important consideration.

"Wealth management organisations are now seeking to build strategic relationships with technology suppliers that can provide off-the-shelf solutions to meet their needs,” says Slee, “while delivering economies of scale in harnessing fast-changing technologies.”
 
And at the higher-end of the spectrum, with the firms which operate on a large-scale, Webb says that the challenges when dealing with a significant volume of transactions require real expertise, which he adds is difficult to achieve in house.

"In order to achieve real agility – the ability to rapidly enter new markets, frequently release new products, maintain compliance with fast-changing regulation and respond to competitive threats – wealth management organisations are looking for technology providers to deliver next-generation solutions based on modern, open technology,” adds Slee.

Yet the key challenge for vendors, says Jansen, is keeping pace with the customer and RM demands with regard to e-banking and front-office solutions.

Also, a key consideration for selecting any vendor is how much support the vendor has available on the ground in Asia. Furthermore, how the product suite and overall system is tailored for Asia – it isn’t the case that a firm can just import a European system or infrastructure in the region.

At the same time, the concept of hiring more people in a wage-challenged market whilst grappling with legacy systems and processes that don't lend themselves to scale means worsening cost-income ratios and an uncertain future for some private banks, says Jansen.

"At the end of the day, technology is therefore critical to firms having economies of scale that will be required to meet future growth,” he explains. “The smart money is looking at a five- to 10-year strategy, not a one- to two-year strategy, which requires a commitment to put in place the foundations today, which enables profitable growth with scalability for the long term.”