BANKS TACKLE REPORTING CHALLENGE

Gone are the days when the most disruptive technology in wealth management was the Rolodex. The generation that has grown up with Google is used to fast access to information and flexible, intuitive interfaces – and that ­generation’s wealthy will demand ­similar tools to manage their money. Regulations, such as treating ­customers fairly (TCF) and the markets in financial instruments directive (MiFID), are increasing the burden on financial services providers to provide better targeted reports to their clients. “Banks need to take this into account as they overhaul how they report to clients, specifically over the web,” says Todd Paoletti, director of client self-service solutions for ­technology provider ­Actuate. “They have to take into account how [end-users] want to view information.” Actuate and IBM surveyed high net-worth individuals on their key criteria for selecting a wealth ­manager, then asked the service providers what they perceived their clients would want. There was a clear discrepancy between the two, with HNWI rating quality of client service and reporting and confidentiality and security as first and second, ­respectively. Banks believe image and reputation is the principal reason for choosing a provider. Mr Paoletti says it is not just the amount of information that is becoming important for clients, but its type and presentation. “A lot of what’s driving this is new and emerging wealth and transferred wealth. You’ve got ­individuals who are potential clients out in the market who essentially don’t have a long track record for having the kind of money they’re coming into, so they have different expectations,” he says. “We’re seeing pressure on the banks by the client community to ­provide performance information back to them, the clients, not just on a pure earnings scale, but performance against client life ambitions.” A new age “It’s definitely a new generation. One has to be aware that wealth today is created at a younger and younger age. And the younger [clients] are more demanding because they are born into technology,” says Søren Mose, CEO of Saxo Bank Switzerland. Saxo is ­principally an online bank, so many of its interactions with clients typically take place over the internet. “The old-fashioned way of print and mail doesn’t work. The client wants to have the possibility to, at any given time, at any given place, evaluate his portfolio,” Mr Mose says. Customers want online access, not just to the ­current net worth of their holdings, but to a variety of metrics allowing them to break down their portfolios by asset class, and they want intuitive graphical interfaces. “We’re working on allowing the ­customer to customise his own ­statement,” Mr Mose adds. This is not entirely surprising. To do so could be to take a leaf out of ­Facebook. The social ­utility’s advertising model is based on using customers’ personal interests to ­automatically assign ­targeted adverts. In the same way, a wealth manager can more effectively cross-sell products and services. “I actually think the whole statement issue will be a competitive issue,” Mr Mose says. “If we can empower the client to ­tailor his own reporting layout, it’s a huge competitive advantage. At the moment, you can only access what the bank will give you.” Controlling interest It is this sensation of control that a younger generation of entrepreneurs has come to expect. Mr Mose says that Saxo has endeavoured to replicate this in its own interfaces. “With Saxo you can build your own platform so you can have the graphs and the ­financial ­information on those issues you want to be informed about.” But Saxo, as well as being a relatively young organisation with a business model based around the internet, tends to deal with clients who have a great deal more autonomy in directing their business. The discretionary wealth management world is still lagging due to organisational and cultural barriers, according to Chris Pickles, industry ­relations manager at BT Radianz. “The PWM industry is based on ­personal service – and that has always been in a face-to-face environment. Also, it’s based on the idea that it’s ­relatively low on overheads,” he says. The relatively small scale of wealth managers means they have not had the resources, let alone the ­inclination, to make the investments in these ­systems. “This is a pretty advanced development, because the customers are not expecting something old and clunky. They’re expecting the latest ­Facebook-type environments, and often wealth managers don’t even know what Facebook is.” Mr Pickles says that BT is working on such interfaces with major banks, with the emphasis on ‘major’. “They’re ­working on it in their retail environment, where they can apply large-scale ­investments, because they have a large number of clients, and the cost per client ends up fairly small.” Those large banking establishments are able to bring to bear existing ­technology infrastructure. “It’s much more difficult for the small- and medium-size PWM firms. In many ways, it’s not so different from a trading ­environment, where the big firms can throw money at the problem, while the small firms are losing out on the Star Wars side of things,” he says.

Todd Paoletti: Emerging wealth and ­transferred wealth is driving change

It would seem that the potential is limited for a small- or medium-size banking institution to gain an early foothold and set themselves up as the ­ubiquitous providers of such services, mimicking those ‘Web 2.0’ start-ups that emerged over the past few years. BT is talking about the possibility of shared services for small providers. “By sharing them on an application service provider basis, you’re sharing the cost of ­development and you can each white label,” says Mr Pickles. But, he admits, “one of the ­difficulties is that you don’t get the same level of ­differentiation; you are white-labelling a service from ­somebody else.” As yet few, if any, private wealth managers have delivered such a ­solution. Such ‘social networking’ ­concepts are ­something of a distant goal and wealth managers will still have to find interim solutions. This may involve integrating portfolio ­management tools and market data into an internet portal style of service, Mr Pickles says. “It’s not rocket ­science or anything leading-edge; it’s just ­making sure you provide that whole range of services that classically might be available on a normal ­commercial website to bulk investors.” Understanding the client base’s needs is vital – get it wrong and you risk ­alienating customers. “One has to be careful to avoid giving the client too much information,” says David Couch, head of the wealth management ­practice at consultancy Morse. “Quite often, they’re looking at systems that can provide far more information than the client requires… One of the ­challenges is finding the right balance.” Likewise, while security is vital to customers, as evidenced by IBM and Actuate’s survey, wealth managers have to be careful not to be too heavy-handed. It is natural that a demand for more information, whether taken from or delivered to the client, increases the need for tighter security. But, says Mr Couch, “there’s an interesting ­conundrum here. On the one hand, clients want easier access to ­information… at the same time they want that information to be secure. But they don’t necessarily want all the aggravation of making those systems secure… wealth managers are ­struggling to strike that balance.” Mr Couch uses the example of his own wealth manager, which assigned him an encryption key for secure access to his account without ­consulting him beforehand. “On the one hand that’s great, because they tell us it’s much more secure. But they forget to mention that the process for logging in is now twice as complicated and requires you to carry around a ­little pocket calculator-type thing.” This sense that a new and unfamiliar system has been imposed upon clients could stick in the craws of some users, and wealth managers might do well to remember that, in some of their most valuable demographics, ­conservatism still reigns. And for those that do ­modernise, it is vital not to completely abandon the personal touch in favour of automation.

Søren Mose: “The old-fashion way of print and mail doesn’t work”