Life is a series of choices. We’re taught we can’t have it all, that we must pick one thing or another. And with every choice comes an inevitable opportunity cost. Wealth managers face the same predicament when determining and implementing their business strategy. Or think they do.
“If we do this we can’t do that.”
“We must focus our investments.”
“We should be the best in this niche, rather than trying to capture it all.”
Today, wealth managers have a more varied mix of prospects and clients than ever. At one end are the traditional, older generation of customers. They often prefer to meet in person. Trust is a major part of the relationship. At the other, the younger generations—including the growing and increasingly important millennial category—have different needs, tend to be more tech savvy, prefer digital solutions and have lower levels of trust. And in between are all the rest, clients who may not fit neatly into one group but share the servicing preferences of both.
Is it even possible to create an efficient, responsive and profitable business model to serve all these different segments? The answer many come to, unfortunately, is no. Painful choices must be made to prioritize one client type over another.
How to successfully serve multiple client segments
Being all things to all people may not be easy. But with volumes growing and profitability shrinking, excluding your firm from one or more of these segments is a big gamble in an industry where scale is ever more important.
Technology is key. In particular having a flexible portfolio management system (PMS). The ability to manage multiple asset classes, counterparties and client segments is at the core of any successful wealth management platform, and having efficient systems in place is necessary in order for the business to function properly.
Additionally, a multi-asset class order management system (OMS) with tight integration to sell-side brokers can make all the difference. The OMS hasn’t received the attention it often should have in the past, in part because wealth managers had limited need to support myriad asset classes, instruments and complex portfolio structures. That is changing.
Younger generations now have a greater appetite for a wider variety of asset classes. As clients’ needs increase, the trading infrastructure must cope with diverse assets, structures, markets and currencies, and process transactions faster and more efficiently.
Client and advisor experiences and interactions have to be similarly flexible. Wealth management remains an intensely customer-centric business. Digital capabilities that meet the growing demand for online servicing will be essential. But not all clients want to be served either online or offline. There may be a time and place for both. A multi-channel approach is crucial to serving all segments in the way they want.
And the backdrop is challenging, to say the least. Competition from new and existing participants is rising. Margins are being squeezed. Recent regulations such as GDPR and MIFID II are adding to compliance costs and operating complexity. Decreasing client stickiness—with 75% of millennials saying they would switch provider for a better offering, according to Deloitte’s recent report “The Future of Private Banking & Wealth Management”—doesn’t make the situation any easier either.
In this environment, technology-enabled efficiency, accuracy and responsiveness have never been more important.
Three paths to success
So yes, wealth managers must make a choice. But it doesn’t have to be an either/or decision. You can service a diverse client base…if you opt for a flexible and rounded operating model. Here are three areas worth exploring: outsourcing, internal culture and business development.
By outsourcing all tasks and operations that don’t provide a competitive advantage, you can free up resources and time to focus on what matters most to clients. It will also reduce your debt in legacy technology.
Establishing an internal culture that focuses on the ongoing development of all parts of your business is crucial, as opposed to a “buy and hold” strategy where you acquire technology and let it live on its own until the time for a new project comes along.
Lastly, focusing on business development. Keeping an ongoing, non-online dialogue with peers, vendors and consultants will provide you with the latest information on market trends and activities, the possibilities available and how those can impact your business.
So, is your business strategy ready for the challenges and opportunities that today’s wealth management landscape offers? It starts with a full and frank review of your entire technology stack, to ensure you have a business model that meets your different clients’ specific needs, while stripping out those legacy technologies and operating constraints that prevent you from becoming and remaining truly competitive.
If you want to be a player in this space, it’s time to act. The choice is yours!
