New players drag data delivery in wealth management world into digital era

The changing face of asset management, aided by encroaching regulation and fast moving technological development, has led to a series of new players entering the private wealth space.

Like technology providers before them, custody banks are dusting themselves down and making their way from the once sleepy back office to the click-happy, client facing shop window.

Backed by layers of infrastructure and armed with tools already deployed to help pension funds and asset managers report portfolio holdings and asset allocation changes, providing the same information to wealthy clients is the next logical step for revenue diversification.

Private investors are keener than ever to see breakdowns of fees, as well as portfolio holdings in regular reporting, says Michael Le Garignon, head of sales at Société Générale Securities Services in London, which recently devised an online reporting solution for UK wealth manager SCM Private.

“The industry as a whole is under increased pressure to reduce investor fees and demonstrate value for money to the end-investor,” says Mr Le Garignon, adding that his client, SCM Private, was “more advanced than most” in looking for cost-effective ways to deliver wealth management services to private clients.

SocGen’s electronic portals to help clients manage their wealth are built in partnership with technology provider JHC Systems, which runs the Figaro core books and records engine.

“We did look at developing an existing piece of software,” recalls Mr Le Garignon. “But when we revised the associated costs and understood the broad capabilities of JHC, it was an easy decision to make.”

As well as giving customers online access to managed assets, there are benefits for the bank, allowing groups of clients to be analysed by underlying manager or investment strategy.

Key reporting requirements for private clients include capital gains tax packs, performance measurement and valuations. But this is still uncharted territory for custody banks schooled in the institutional market place, lacking a private client-centric mentality.

Some wealth managers may want to introduce more electronic capabilities than others, says Mr Le Garignon, meaning standard frameworks offered by custodians may need to be re-configured to meet each manager’s needs. “Ultimately, working with private clients, managers and their advisers creates different requirements to the standard custody arena,” he admits.

Mr Le Garignon expects greater demand for technology back-up from wealth managers keen to access the mass affluent end of the retail space, looking “to ensure the end-investor is given support and guidance around the ‘decision tree’, without the need for giving direct advice”.

These DIY, self-service portals will become more and more “automated and low-touch” he believes, passing on massive cost savings to clients. “The higher up the wealth spectrum we go, for both private banks and wealth managers, there will remain a strong demand for a higher touch service offering,” he says. “These investors expect a premium service and are more willing to pay higher fees.”

Société Générale is clearly not alone among service providers targeting wealth managers. “We are building more and more relationships with this client segment and have packaged dedicated solutions for distributors and wealth managers,” says Jean Devambez, head of asset and fund solutions at BNP Paribas Securities Services, adding the company can use elements from both existing solutions for asset managers and those it provides to banks and broker-dealers to craft the new services.

“The changing regulatory landscape and the pressure on efficiency is pushing this client segment to find new operating and business models and we are ideally placed to help and to assist them,” he says.

While institutional fund players bring large asset sizes to the custodians, wealth managers and distributors are attractive in that they bring much more frequent transactional activity, says the bank. 

Technology providers, which hoped to be the key beneficiaries of digitisation in wealth management, sometimes see custodians as unwelcome guests at the fintech party.

 “Custodians are moving into the front office and this is becoming a pretty crowded place to play right now,” says Martin Engdal, market strategist with software provider Advent.

“Some of the larger custodians are trying to build online portfolio management capability for third parties,” he says, adding that not all of the custody banks are suited to servicing the potentially lucrative private banking world.

“Many custodians are not tech experts, their expertise lies elsewhere,” says Mr Engdal, telling the story of a Swiss custody player forced to shut down a 12 month project after failing to meet a private bank’s needs.

“It is a constant battle and one that usually plays in their favour,” he says. “They can afford to give the technology away for free to attract custody custom. That is their business model.”

Europe’s wealth management market is currently hampered by a lack of unified reporting and data delivery structure. “A lot of wealth managers admit to reporting the wrong data,” says Mr Engdal. “They come to us for help as they realise they can lose business and clients.”

Currently, one of the main challenges his group faces is reporting client assets in the alternatives space. “There is a search for alpha through more exotic products such as hedge funds and private equity, which are difficult to manage,” he says.  “How do you measure the specific capital which has been committed? You need to have the technology in place to report this.”

Wealth managers who don’t invest in systems to support specialised alternative products can lack credibility, he believes. “They need to be able to justify the value of their advice and be able to manage all asset classes. Without that range, they will not look professional in the eyes of a client.”

Rising client expectation, particularly for data delivery, is leading to a fast-innovating market in terms of reporting, he says. “Banks have to ask themselves: ‘How much data can I hand over and will the client understand it?’ How do you present this graphically and in an easily accessible format?”

Client reports, says Mr Engdal, need to resemble sports highlights. “You should be able to provide a client with an overview of their assets and then give them the ability to drill deeper if they want to. As an adviser, you also need to provide a storyline related to the performance you are generating.”

This dynamic data provision world is still ripe for innovation, believe private bankers and technology entrepreneurs. Although it has yet to add this as an online tool, Citi has developed a service in its Lab, which allows bankers to analyse a client’s business alongside portfolio holdings.

“Very often, we get the situation, where a client owns industrial assets and also has a relationship with a few banks,” says Luigi Pigorini, CEO at Citi Private Bank Emea. “The client often feels that there is no correlation between any of the holdings. We might have to show them, much to their surprise, that with all due respect, not only is there a high correlation between the wealth management holdings and their business, but that the portfolios held with each bank also have exposure to the same sectors. This is a very cutting edge service and a powerful client acquisition tool.”

Similarly BizEquity is a fintech start-up already working with private banks in the US and now trying to break into the European wealth market, offering online valuations of private clients’ businesses. “This tool puts power in the hands of wealth managers, banks and insurance advisers,” says BizEquity CEO Mike Carter, who has worked on developing the “algorithmic-based” data evaluation tool.

First generation wealth management technology solutions could only deal with estate planning for equity, cash, real estate and bond investments, he says. Since 1892, anybody has been able to find out what public companies are worth, says Mr Carter, yet private companies represent 99 per cent of all businesses and it has so far been almost impossible to value them and accurately position them in a client’s portfolio. 

“We believe this represents the next big wave,” says Mr Carter. “We are using Big Data and Cloud technology, to help wealth advisers do a better job.”