Client-centric business models help performance rocket
Integrated business models which are aligned with client needs are more likely to boost assets under management and wealth manager’s profits
Elon Musk is in the news again. The multibillionaire inventor, and perhaps the world’s only true ‘Rocket Man’, announced a new compensation plan which ties his remuneration as CEO of Tesla to the company meeting specific financial performance benchmarks.
While some deem this announcement to be a publicity stunt aimed at masking Tesla’s production struggles, others hail the decision as another example of his revolutionary thinking when it comes to making hard-nosed business decisions.
At its core however, the plan merely ties the compensation of an executive to the financial performance of a firm – a premise used by countless organisations worldwide. A more innovative idea would be to drill deeper into what drives those targets and include broader performance metrics, such as those related to achieving client outcomes.
“Trying to create a company is like baking a cake – you have to have all the ingredients in the right proportion,” says Mr Musk. In other words, specifying ambitious revenue, market capitalisation or sales targets without a deeper understanding of customer satisfaction, employee motivations and operational productivity is largely meaningless.
Business executives are aware of this, and yet truly high performing teams tend to be the exception rather than the rule for many organisations, including wealth managers.
Business challenges for many wealth firms typically stem from lack of cohesion – fragmented operations, decentralised pockets of data and an inconsistent feedback loop. Notably, enduring information silos hinder the sharing of data and other communications, which in turn plague the firm’s ability to deliver a seamless omni-channel service to its clients, and the status quo governing the way business operates remains.
The focus for most firms should therefore be aligning end-to-end business models with client needs. This notion is supported by our research, which shows satisfied clients are more likely to place a greater share of their wallet with their primary wealth manager than those less satisfied, boosting AuM and ultimately financial performance (see chart).
Prioritising customer satisfaction by identifying areas of improvement across the entire client journey can better ready businesses to monetise their high approval score and increase the lifetime of a customer. Similarly, communicating customer preferences, and any other relevant information, across the wider team can help firms gain a differentiated capability relative to competitors who often rely primarily on the relationship between a client and their relationship manager (RM).
Identifying key attributes of what drives improved business performance is therefore the critical path for wealth managers. This includes recognising which human capital skills are needed, at what point in the client journey, and how these align.
To help achieve this client-focused outcome, it is important to tie client-centric measures with wider productivity and pay metrics in order to drive stronger business performance.
For instance, if specific pay incentives were structured around a client’s satisfaction with their RM’s actions, such as receiving recommendations and access to the right products at the right time, then employee behaviour would adapt to clients’ needs more readily, potentially aiding the breakdown of internal barriers. In turn, this would further instil trust and confidence between the client and the wealth management firm, leading to increased referrals, a greater share of wallet and net new money through the door.
Firms need to start planning how they can better align all the constituent business functions together to meet the needs and outcomes clients desire.
Nabil Elhihi is an analyst and Jenny Kvaskova a senior analyst, at wealth management think-tank Scorpio Partnership
