The more conservative risk profile of intermediaries combined with lower returns on most investments mean that wealth managers should look at cost cutting through strategic relationships with outsourcing specialists
As climate conditions in the global wealth management industry continue chilly for even the fittest providers, strategic partnerships look ever more attractive as sound solutions for meeting the challenges of today's market. Squeezed on every side by increasingly conservative investors' needs and steadily tighter margins, wealth managers must adapt quickly to a volatile and shifting environment. This means, in particular, maintaining easy access to an effective infrastructure that capitalises on the rapid advances in technology now occurring. But if a robust infrastructure is the ticket to compete in today's marketplace, wealth managers should consider strategic partnerships as a best bet for staying on top of the game.
making the case
services in line with investors' needs and market realities.
These facts are balanced against the growing risk aversion of investors faced with geopolitical uncertainties, declining markets, and concerns over corporate governance. Investor practices increasingly signal a return to the more conservative habits that prevailed before the market heyday of the 1990s. Wealth preservation may now outrank wealth creation as an investment driver. This shift is markedly accompanied by an upsurge in requests from investors for information and advice to guide them through the tough financial decisions facing them.
At the same time, changing demographics are honing the importance of high quality client relationships that emphasise value-driven investment advice and innovative products that optimise yield in a sharply competitive marketplace. For example, mass affluent households ' with net investable assets between US$250,000 and $1m ' are growing in number, with special investment needs. In the midst of today's uncertainties, this group's need for professional advice and guidance can be expected to grow significantly. However, the smaller asset size per mass affluent household raises a challenge for wealth managers to develop efficient means for servicing its requirements that do not strain already burdened cost structures.
Wealth managers also need to tailor their services and product offerings to respond to differences among markets around the globe. This is especially important in light of the fact that non-US assets account for the largest portion of the world's wealth. The European market, in particular, will be profoundly affected by the movement to reform pension and structures, bringing in its wake a growing assumption of responsibility by individuals for their wealth management.
Faced with this array of challenges, wealth managers must allocate their resources more wisely than ever. Yet their ability to compete successfully depends greatly on the services made possible through an effective and diverse operations infrastructure, premier client service and a state-of-the-art technology backbone that supports it. All three have become key to building assets and developing robust client relationships. Of course, they also require time and money, two resources in tight supply today.
The New Industry Model: Partnership-led
Because response time and efficient marshalling of resources now matter more than ever, strategic partnerships offer wealth managers an ideal way to help solve their dilemma. The partner, in effect, brings to the table top-line technology, along with the necessary knowledge and experience to enable the wealth manager to focus on core capabilities.
An effective partnership, however, is not simply an add-on to the wealth manager's business, but rather an extension of it. For starters, both partners must have a shared mission based upon an intimate understanding of the wealth management market, and the drivers that spell success. This means the capability to develop and maintain systems that meet the specialised needs of investors across a range of wealth brackets and global markets, a competency essential to survival for today's wealth managers.
Strategic partnerships, done well, are a boon for investors, and certainly good news for wealth managers. These days, it matters for both to be informed about what to look for. So what goes into a successful partnership? Let us first consider the benefits more closely.
• Expertise goes at the top of the list, but in particular expertise that allows for rapid enhancement in service and products.
• As pressure grows to improve sliding margins, effective partners shore up cost control by applying their expertise to improve predictability of technology costs. Scalability, a growing competitive advantage, becomes possible for smaller players, who can then focus their resources on the front-office service that sets them apart.
• Because advances in technology drive innovation today, the wealth manager can look to the partner for responsibility to apply technology trends rapidly to new product and service development, speeding up responsiveness to investor needs.
• In a harsh environment, risk mitigation assumes huge importance. With operational risks borne by the strategic partner, the wealth manager can safely shift attention and resources to the critical tasks of nurturing client relationships, growing assets and strengthening brand.
If these are the prime benefits, what must the ideal partner bring to the table to achieve them? Here are the top-of-the- list criteria:
• The partner needs the experience to apply first-rate technology effectively to a broad range of investment servicing needs, be they custody, performance reporting or trade settlement. Given today's amplified emphasis on trust, this experience must go hand in hand with a demonstrable reputation for integrity.
• The strategic partner must share the wealth manager's business vision and align with the manager's objectives. An important test is whether the partners' incentives also align, ensuring development of the right products and services.
• Just as a wealth manager's clients differ, so must the solutions tailored to meet those clients' needs. The right partner is one that can accommodate a range of wealth management operations. Look for the capability to develop a modular approach designed around multi-base and multi-currency platforms, yet supplemented by customised applications.
• A first-rate partner will be adept at spotting trends early, and capitalising on them effectively. The advantage goes to the swiftest, and the best prepared.
What is a practical example of how a strong strategic partnership can make a difference? The industry is now seeing the emergence of dedicated Family Office teams, one of the many competencies committed to serving the needs of the multi-tiered wealth management marketplace. Comprised of wealth managers whose diverse clients present a burgeoning array of demands requiring leading-edge advice, these teams are tailor-made for partnering with a strong and experienced financial services provider. Their clients typically also require deep knowledge of the industry and the assurance of up-to-the-minute expertise.
To meet the challenge, the most effective programs match localised needs on a global basis. These include complete global asset servicing (from custody to trade settlement to corporate action monitoring), comprehensive reporting and fiduciary accounting, specialised income tax reporting, and online access and reporting (including web-based account aggregation capabilities). With a knowledgeable strategic partner assuming the administrative burden, the wealth manager can attend to the core task of building strong investor relationships among this specialised group. By focusing on investor objectives, rather than devoting resources to building infrastructure and investing in technology, the wealth manager gives the client optimal value and maintains the agility needed to respond to new market conditions. At the same time, the successful partner puts knowledge and experience to work by anticipating shifts in investor and client needs, and developing the right products services to meet them.
Given their role and importance, strategic partners today must ensure their businesses are partnership-ready and partnership-designed. Certainly this means ensuring a strong emphasis on developing best-of-breed technology and infrastructure, as well as top-flight products and services that faithfully hew to market needs. At the same time, this stance requires the ability to act both globally and locally, with scalable operations flexible enough to offer a wide variety of customised solutions.
Today's wealth managers, like their investor clients, face a world of bewildering change and new uncertainties. The value of a trusted and expert strategic partner has never been greater, nor has the challenge of getting it right. For investors and wealth managers alike, it pays to know who is sharing the risk in helping optimise the rewards.
Response time and efficient marshalling of resources now matter more than ever, strategic partnerships offer wealth managers an ideal way to help improve efficiency.
The value of a trusted and expert strategic partner increases as demands on the wealth manager increase.
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