The Urgent Need for Strategy-led and Carefully Constructed Digital Transformation
David Wilson is the APAC Wealth Management lead at Accenture, and he recently joined our panel of experts for the June 30 Hubbis Digital Dialogue that focused on the next phases of digitisation journey in the region’s wealth management markets. Accenture is at the cutting edge of wealth management transformation globally and the firm knows from long experience that digital disruption is taking place across every business sector across the globe. In the wealth industry, clients expect a whole new kind of experience that is more informed, more personalised, more transparent, and more user-friendly. As the leader of Accenture’s advisory and consulting efforts in APAC, Wilson came armed with deep knowledge of the region’s markets and told delegates that, as private banks and wealth firms in APAC continue their digitisation journeys in the more challenging world we all now face, the race is therefore on for the wealth sector incumbents to transform their businesses efficiently, accurately and cost-effectively, and from back to front. We have selected a number of his valuable insights and nuggets of advice for this short report.
Wilson opened his observations by saying that the industry needs to look beyond the immediate and obvious trends, for example, such as DPM, ESG, diversification of assets and so forth, and see through to the major shifts taking place. “We heard about the transition taking place from a product-centric journey to a client-centric journey, which needs to be hammered home again,” he said. “You need to step back and see the fundamental shift that is taking place, and for me, what wraps it all together is the evolution towards advisory.”
Towards advisory-based wealth management
He expanded on this, stating that trying to sell products that are wrapped up with a nice narrative is not advice. “We are seeing the demand from clients and the industry for a journey towards advisory-based sales,” he elucidated. “The way you actually seek to understand the client's goals, the target outcome, of course, the suitability and other elements, and then you assemble a portfolio with an associated set of products, clearly linking to a sale eventually, but driven by advisory. It might sound simple, but it's actually not very widespread.”
He added that this evolution would play out differently in the various wealth segments, from retail, where the advice more be more digital, to the private banking clients served omnichannel and hybrid, with the RM being much more important to the equation there.
Analysis and strategy first
Wilson explained that faced with the digital journeys ahead, the first point of call is strategy.
“You don't just implement a digital journey in isolation; you work out the strategy, you break it down by business lines, wealth segments, and you look across to all the constituents of the business, including of course the shareholders who hopefully will benefit from the ambitions you set with regard to AUM growth, profitability and so forth,” he explained.
The incumbents should then define the value proposition, the products and prioritise the targets they want to achieve first, he said. The goals around the services suite and the operating model need to then all be defined in order to arrive at the right platform and the right set of tools to achieve the goals set out by the broader strategy.
Ask the right questions to find the right answers
“You really have to start with the right set of questions that you need to answer,” he summarised. “Sometimes the strategy is kind of not really there; the journey might be partly defined but is really more like one slide from a PowerPoint, and not representative of the whole picture. To solve the issues and solve the operating model you need, you need all these elements in place, or you are never going to get to the bottom of the key issues.”
He also stated that while many of the banks are staffed with very smart people, the rigour of systematic digital transformation strategy and then execution is where things often fall down. “They might start with the best of intentions, but, and yes, this is a plug for the specialist consulting business we represent, bringing in the right people to really help focus and realise their objectives is a smart move for most of these banks.”
A diversifying competitive landscape
Wilson also addressed the key drivers for change, starting with the increasing competition, especially the rise of the FinTechs and the robo and digital platforms, all of which are particularly well suited to compete in the mass affluent market. The banks themselves are also increasingly competitive, at least those that have been assembling and effecting significant digital transformation agendas. “In short, there is rising pressure to take pre-emptive action,” he reported.
The other driver is time. Many banks and other institutions might have declared targets to their shareholders and then have to realise those goals. “But they also know how long it takes to get anything designed, syndicated, endorsed, and then built in a financial institution, so they know they must get going rapidly in order to produce visible results,” he said.
Grounded in reality
And of course, there are both the cost sides and the revenue sides. “Your new digital advisory journey for the affluent segment is not just there out of the goodness of your hearts because you want to give a better client experience; you want to grow revenue, you want to get more cost-efficient, especially with the costs of acquisition per client nowadays,” he observed. “These are fundamental financial performance reasons that come down to results and then individual bonuses.”
Wilson also offered his views on the art of differentiation, which he said is usually temporary, as advances are soon copied or even outrun by other innovations amongst the competition.
The fine print around differentiation
“The moat around some of these innovations is not impossible to breach,” he observed, “so the advantage is only for some time for the first movers. But you might find it surprising to know that you do not have to be state of the art in innovation – some private banks still do not allow clients to trade via their mobile apps. In short, your advances do not always have to be centred on the super-exotic areas like Metaverse, base, campaign management and all that. Sometimes, the basics can also differentiate because of the relative state of the other players in your markets.”
A key area of differentiation is around enhancing the RM capabilities, delivering them a so-called cockpit from which they can conduct their orchestra of advice, products and clients.
Ready for take-off
“The RM cockpit is important, and it ties into the broader conversation around RM empowerment,” Wilson told delegates. “In the populous markets of Asia, we clearly can't have an RM-intermediated journey for everybody, just because of the level of affluence, the demographics and the sheer size of many of these countries geographically.”
He pointed to Accenture’s most recent reports on the development of wealth management in Asia, noting that the industry is targeting a doubling of AUM by 2025. “That will be achieved, they believe, partly by hiring numerous RMs, but we all know that is a dangerous game as it drives prices of talent much higher, so it is just not sustainable,” he observed. “So, you need to achieve more with your existing RMs.”
Freeing up your revenue generators
But he reported that their research shows that these RMs have been spending on average 50% of their month working on non-income tasks. This, he said, not only weakens revenue generation but impairs loyalty amongst those RMs, who in turn are expected to handle more clients – as many as 400 in the mass affluent segment - and win more AUM from them. “This means a lot of frustration and attrition risk,” he said.
He told delegates that their Accenture survey had asked RMs across eight markets in Asia how important they consider the RM cockpit, and 80% had replied that it is indeed very important.
Make the easy yards
“This is the low-hanging fruit that can easily be grasped,” he stated. “Consider how tough it is to win new clients compared with the relatively much easier challenge of your existing RMs becoming much more productive. There are challenges to getting the cockpit invested, issues in making it efficient, and there is change management required. But, compared with finding a new RM and then going through the nearly two years for them to become productive in their new house, this is far more effective. That is why Accenture is beating this drum so loudly.”
Wilson rounded off his observations by noting that while HNW and UHNW clients were by 2021 some 95% satisfied with their portfolio performance, this is hardly surprising after a 10-plus year bull market.
“We then asked these clients how satisfied they are with their banks and wealth firms, and fewer than 50% said they were satisfied, and some 30% said they would move house, which one can take with a pinch of salt, but the reality is that the findings present a clear call to action that these players need to up their game. If large amounts of AUM shift banks or firms, that is somewhat frightening if you've got a suboptimal proposition, and rather exciting if you have a proposition that will draw those funds to you.”
His final observations centred back on the thrust to advisory, either mandate-driven advisory where clients pay a fee for advice, or transaction-based revenue but with a proper advisory wrapper.
Upping your game
“Clients in Asia as we all know tend to work with a number of houses, and our research showed that 60% of any Asia-based client’s AUM is with their primary firm, dropping to 29% for secondary, far smaller for the third bank or firm, and nothing really for the fourth. This means to get to double the AUM by 2025, these players need to be primary banks for most of their clients; otherwise, they are merely boutique type players.”
He addressed the question as to whether there is a correlation between advisory and being the primary wealth management firm. “Yes, the survey showed that there is a real correlation between having an advisory proposition and delivering it well, providing an end-to-end goals-based portfolio led with the product on the backend, versus either not providing those, or delivering poorly. In short, you can really quantify in dollars and cents exactly why it's so important to have a really strong advisory-led proposition.”
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