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Leading Research John Rolander Gauthier Vincent Sanjit Singh Driving Performance Improvement in Wealth Management
Leading Research John Rolander
Gauthier Vincent
Sanjit Singh
Driving Performance Improvement in Wealth Management
Booz & Company
Executive Summary
• The U.S. wealth management landscape continues to evolve in the aftermath of the financial crisis. Firms face
continued pressure on profitability, unsettled competitive positions, and clients prone to move their assets across
channels
• Discount brokers and registered investment advisors (RIAs) continue to take share from wire houses and
independent broker/dealers in the highly competitive wealth industry
• In this new environment, wealth management firms are focused on improving sales productivity, rather than
simply hiring more relationship managers (RMs), in order to grow revenues. These firms can increase
productivity by:
– Freeing up front-office capacity by increasing focus on client-facing high-value activities
– Leveraging new technologies to increase sales productivity and improve the client experience
• Wealth management firms have also embarked on new efforts to streamline their operations and further align
cost structure with client segment economics, particularly by:
– Defining tiered service models to better serve client needs while increasing profit margins
– Streamlining the operating model by aligning processes, people, and technology through front, middle, and back offices to support the desired client/RM experience
– Driving process efficiency
1
Market Overview
Improving Sales Productivity
Increasing Operating Model Efficiency
2
Booz & Company
The wealth management industry is under severe pressure to improve performance, but it faces major challenges going forward
3
Client
Behavior
Advisor
Movement
• Post-crisis, client satisfaction levels are at an all-time low
• Trend of assets shifting to discount brokers and RIAs continues
• Client satisfaction is highest at discount brokers and trust companies
• Advisor migration toward independent channels continues, although
pace has slowed
• When choosing a channel, advisors are making trade-offs
between compensation and support services received
Regulatory
Change
• Broker/dealers will have to comply with the fiduciary standard
• Under the fiduciary standard, client experience, product platform, and technology
will all require significant redesign
Economics • Profitability is under pressure due to adverse market conditions and
low-interest-rate environment
• Pressure continues on pricing because of price sensitivity and client losses
Wealth Management
Firm Response
• Seek revenue growth by
enhancing client and advisor
experience, and by driving
improvements in sales
productivity
• Seek efficiency by
streamlining operations
across front, middle, and
back offices
• Link enhanced advisory
experience with efficient and
streamlined back-end
operations
Enabling
Technology
• Discount brokerages are adopting cutting-edge technology and experiencing high
client satisfaction levels
• Innovative startup providers are leveraging technology, social media,
and communities to attract younger and self-directed investors
Industry Trends
Booz & Company 4
U.S. Retail Wealth Management Market, 2010 (in US$)
Source: Aite Group; Barron’s Wealth Survey; Booz & Company analysis
En
d C
lie
nt
We
alt
h S
pe
ctr
um
Change in Market Share, 2009–2010
Mass
Aff
luent
Hig
h/U
ltra
-Hig
h
Net W
ort
h
Wire Houses
AUM: $5.1T (38%)
0%
Aff
luent
Discount
Brokers
AUM: $2.5T (19%)
Independent Firms
& Regional Banks
AUM: $3.1T (23%)
Private Banks1
& Trust Firms
2% – 2%
RIAs
AUM: $1.7T
(13%)
Total Assets: $14.5T
– 1% 1%
AUM: $1.4T
(8%) Legend
Concentration of firms
High Low
Market share of
total AUM (%)
$ Assets under
management (AUM)
Discount brokers and RIAs are the fastest-growing channels
Wire Houses’ Private Banks
Bank & Insurance
B/D
AUM: $0.6T (<5%)
Booz & Company
In the current environment, trust firms perform better than most other business models
5
Medium
High
Emotional
Needs
Functional
Needs
Relationship
Needs
Category Customer Needs/Priorities
1. Relationship
Needs
• Has a relationship/portfolio manager who is always available to meet/talk whenever I need
• Has a relationship manager who understands my finances, knows my family, and is proactive about generating value-add ideas to better manage my wealth
• Has a relationship manager whose expertise and network are so important to me that I almost always reach out to him/her before I make an important decision
2. Functional
Needs
• Is a true one-stop shop for my financial services and is willing to provide services that go above and beyond typical investment or wealth management
services
• Has fair pricing for the value provided by the firm
• Is always in tune with my unique situation and needs
3. Emotional
Needs
• Has an outstanding reputation among people I respect; doing business with the firm is like being a member of a prestigious club
• Makes me feel secure because of the firm’s unquestioned integrity
• Gives me significant peace of mind that I have an expert focused on me and my family’s financial well-being and on the success of my business
Source: Booz & Company survey 2011
Trust Firms
Discount Brokers
Wire Houses
Private Banks
Regional Banks
Perf
orm
an
ce
Booz & Company
Firms rely on different business models to compete for the same clients and assets
Overview of Wealth Management Competitive Landscape
Key
Players
Sources
of Growth
Way to
Play
Source: J.D. Power and Associates 2011 U.S. Full Service Investor Satisfaction Study; Booz & Company analysis
6
Wire Houses Discount Brokers and
Platform Providers RIAs
Innovative Online
Service Providers
• Dominant channel in
delivering wealth
services to HNW and
affluent, but slowly
losing share to other
channels
• Slow-growing sector,
benefiting from high
profit margins driven
by profitable banking
products and low
advisor compensation
• Innovative providers
leveraging technology,
social media, and
communities to attract
younger and self-
directed investors
Private Banks
and Trust Companies
• Fastest-growing
sector, benefiting
from advisor and
asset migration away
from wire houses
• Differentiated by
proactivity of advisors
and, for some firms,
by ability to integrate
banking and
brokerage services
for their clients
• Growing sector,
benefiting from RIA
growth and cost-
effective provision of
product and platform
services
• Focus on providing
high-touch, highly
personalized service
levels to UHNW
clients
• Strong client
relationships,
supported by product
and operational
support from large-
scale platform
providers (e.g.,
Fidelity)
• Improving products,
services, and platform
capabilities for
RIAs/IBDs and their
clients (e.g.,
appointing dedicated
client service teams)
• Engage clients
through community-
based investment
advice
• Data aggregation is a
key value proposition
• Merrill Lynch
• Morgan Stanley Smith
Barney
• UBS
• Wells Fargo Advisors
• Bessemer Trust
• J.P. Morgan Private
Bank
• Northern Trust
• Wilmington Trust
• GenSpring Family
Offices
• LPL Financial
• StanCorp Investment
Advisers
• Charles Schwab
• Fidelity
• Pershing
• TD Ameritrade
• Covestor
• Prosper
• SmartyPig
• Wealthfront
• Zecco
Market Overview
Improving Sales Productivity
Increasing Operating Model Efficiency
7
Booz & Company
Move the Average Train or Change Learn from
the Best
Wealth management firms are focused on increasing sales force productivity rather than simply recruiting more advisors
8
Current Total Group
Post-Performance Intervention
Wealth RM Performance Curve
High Low
Pe
rce
nta
ge
of
the W
ea
lth
RM
Po
pu
lati
on
Performance
30%
0%
Shifting the Curve
How to Increase Sales
Force Productivity
Increase capacity of
sales force by
refocusing on value-add
activities
Leverage new
technologies
1
2
Source: Booz & Company analysis
Increase average production per advisor
Booz & Company
Increasing sales force time spent with clients requires a reduction in non-value-add activities
9
CLIENT EXAMPLE
10% 12% 11%
21% 24% 23%
14% 12% 10%
8% 10%9%
RM 3
100%
17%
14%
16%
RM 2
100%
16%
13%
13%
RM 1
100%
22%
10%
15%
Meeting Customer
Meeting Prep/
Travel
Post-Meeting
Client Management
Compliance
Issue Resolution
Training &
Education
Internal Activities
Time/Activity Analysis of RMs
Typical Findings from Time Spent Analyses in Private Banking
Client Value-Add
Observations
• Low absolute selling time (<15% of time
spent)
• Scarce sales time generally allocated to
“friendly” rather than high-potential clients
• High-cost staff undertakes low-value-add
account servicing tasks
• High compliance effort for the RM
• Complex transactions (e.g., setting up
trusts) not pooled, hence limited sharing of
best practices
• Long tail of smaller clients reduces
effectiveness of top performers
• Insufficiently standardized processes result
in manual processes and high error rates
1 Creating Capacity
Non-Value-Add
Source: Booz & Company analysis
Booz & Company
Embracing enabling technology can dramatically improve RM experience and increase productivity
10
2 Leveraging Technology
Interfaces Devices Data Analytics Infrastructure
… are highly secure
and functional
… augment physical
presence with online
presence
… can be merged
across domains
… enable insights from
massive data sets
… enables storage and
solutions in cloud
Overview of Technology Stack
• Connected: anytime, anywhere access at high speeds • Context aware: personalized insights based on hard and soft data
• Collaborative: secure online social interaction platforms • Untethered: convenient device-agnostic computing (in the cloud)
• An integrated 360-degree client view can allow the RM to offer tailored value propositions to clients
• New imaging and communication technology can put control in the hands of the client and RM (e.g., telepresence)
• Online delivery of information can reduce the overload of current paper-based communications
• Advanced workflow and decision engines can automate non-value-add tasks and increase capacity of middle/back office to
support higher-value-add processes
• Back-office processing and infrastructure can be virtualized/cloud-based to increase efficiency
Sample Implications for Wealth Management Firms
Networks
… promise speeds
of ~1 Gbps
Booz & Company
• Client/FA matching
• Communication channels
(e.g., online chat)
• Data mining across organization and
external sources for referral
opportunities
• Lead transfer to FAs
• iPad and iPhone apps
• Paperless and digitized
• Virtual meeting (e.g., Skype)
New client acquisition and experience can be improved by leveraging firm capabilities and new technology
11
Emerging Firm Capabilities Across Sales Process
Closing the Deal Conducting the
First Meeting
Creating Awareness &
Reaching Out Identifying Prospects
Source: Booz & Company
• Market leader role in regions
• Lead-generating center of excellence
in organization
Team-Based Selling
• Clearly defined team roles
• Disciplined sales process
• Division of roles along value chain
End-to-End Advisor Platform
• Seamless prospecting, planning, proposal, and
new account opening platform integration
• Linkage of funding and account opening
process
2 Leveraging Technology
Capabilities
spanning entire
sales process
Relationship-Driven Prospecting
• Product benchmarking / competitive
differentiation
• Social media
Value Proposition
• Interactive planning tool (mobile and
face-to-face)
• Affiliate partnerships for development
Profiling & Planning
• Automated reminders and to-do lists
for financial advisors
• Document management, including
imaging
Workflow Management
Analytics-Driven Prospecting Fit with FA Thin Rich Front-End
Market Overview
Improving Sales Productivity
Increasing Operating Model Efficiency
12
Booz & Company
-6%
-$1M
1%
$0.1M
20%
$3M
15%
$2M
24%
$4M
59%
$9M
<$500 Thousand
$500 Thousand-$1 Million
$1-$2 Million
$2-$15 Million
$15-$30 Million
$30-$60 Million
$60-$100 Million
>$100 Million
$17M
-5%
-$1M
-7%
-$1M
“One size fits all” operating models result in under-serving best clients and losing money on low-revenue-generating clients
Economics by Wealth Tier Client Operating Model
Pretax Profit Note: Numbers may not add up due to rounding.
Source: Booz & Company analysis
1. Execute tiered sales and
service delivery model
2. Drive process efficiency
in supporting technology
platforms
3. Realign end-to-end
operating model
How to Address Variable
Client Economics
7%
19%
11%
4%
12%
18%
8%
7%
12%
7%
Revenue
$80M
3%
6%
$30-$60 Million
<$500 Thousand
$500 Thousand-$1 Million
$1-$2 Million
$2-$15 Million
$15-$30 Million
$60-$100 Million
>$100 Million
15%
28%
AUM
(Market Value)
$30B
1% 2%
11%
66%
Client
Relationships
2,000
19%
34%
3% 2%
2%
1
2
3
CLIENT EXAMPLE
13
Booz & Company
A tiered sales and service model is cost-effective and caters to the unique needs of client segments
14
1 Tiered Sales and Service Delivery Model
• Dedicated team
• Team leader has expertise most
relevant to client
• Full range of services (fiduciary,
investment management, etc.)
• RM is expert selected by primary
client need
• Dedicated RM
• Non-dedicated team
• No team
• Local, limited relationship
management with centralized
implementation/product
• Investment-led
Sales Force and Client Service Model
RM Experts Client Segments and Model
Team-Based Model Invested Assets ~$10M+
(Net Worth >$25M)
RM-Led Model Invested Assets ~$1M–
$10M
(Net Worth $3M–$25M)
Branch-Based or
Centralized
Services Model Invested Assets <$1M
(Net Worth <$3M)
Dedicated Team
Commercial
Banker
Private
Banker
Investment
Advisor
Fiduciary
Advisor
Other Experts
Other Experts Private
Banker
Investment
Advisor
Fiduciary
Advisor
Investment
Officer
Administrative
Officer
Centralized Services
Branch-Based
Advisor or Call
Center
Wealth RM
Team Leader
Source: Booz & Company
Characteristics
CLIENT EXAMPLE
Booz & Company
Wealth management firms typically have multiple opportunities to improve client experience and process efficiency …
15
ILLUSTRATIVE
2 Process Efficiency
Reference Data
Settlement & Custody
Treasury Services Trade Services
Customer-Facing Activities
New Account
Opening Marketing & Sales
Investment
Manager Services Customer Billing
Client Relationship
Management
Transition
Management
Foreign Exchange Cash Management Securities Lending
Trade
Confirmation/Allocat
ions
Mutual Fund
Trading Trade Execution
Compliance
Post-Trade
Compliance
Security Movement
& Control
(DVP/RVP/FOP)
Guidelines
Compliance
Contractual
Settlement Services
Pre-Trade
Compliance
Risk & Credit
Management
Agent Bank
Monitoring
Operational Risk
Management
Payment Services
Loan Processing
Distributions
Reconciliations
Third Party
Portfolio Construction
Portfolio Modeling Rebalancing Order Management
Decision Support/Analytics
Research Aggregation What-If Scenarios
Performance
Regulatory
Reporting
Data
Analytics/Attribution
Performance
Reporting
Market Risk
Management
Credit Risk
Management
Transfers
Agent Bank
Network
Management
Fails, Buy-Ins,
Claims
Management
Physicals/Vault
Asset Servicing
Income Processing
(Dividends & P&I)
Mandatory
Corporate Actions
Voluntary Corporate
Actions/Proxy
Processing
Withholding Tax
Reclaim
Cash
Disbursements
Regulatory
Reporting
ERISA Reporting
Firm
Compliance/Reg
ulatory Reporting
Custody/TPA
Reconciliation
Investment/Trust Accounting
Portfolio/Trust
Accounting Pricing & Valuation
Mutual Fund Daily
NAV Tax Reporting
Income/Expense
Posting
Daily/Monthly
Reporting
Reference Data
Security Master
Market Data
Client Account
Master
Connectivity/Interfaces
Vendor
Management SWIFT Counterparties
Market & Pricing
Data Other Third Parties TPAs
Tailored Services
for Client
Segments
Straight-Through
Processing
Shared Services/
Centers of
Excellence
Information
Consolidation
Opportunities
Source: Booz & Company
Booz & Company
… while realigning their operating model to support the distinct client segments and reduce costs
16
Operating Environment
Source: Booz & Company
3 End-to-End Operating Model
Target Architecture
• Common where
possible, custom where
it counts
• Standard processes
with different levels of
customization by
segment and product
where appropriate
• Cross-organization
functions embodied in
centers of excellence
• Processes located in
few, lower-cost
locations wherever
possible
• Client-specific activities
maintained in client-
facing business units
Client Segments
Ultra-High-Net-Worth Clients High-Net-Worth Clients Affluent Clients
Business Owners, Inherited, Executives, Retirees
Products and Accounts
Accounts
Brokerage Trust Banking
IRA Lending 401(k)/403(b)
Products
Fixed Income CDs ETFs
Annuities Futures/Options Loans
Equities
Alt. Investments
Channels
Retail Branches Call Center Self-Directed
Online Platform Wealth Offices Mobile Social Media
Processes
Linkages to Other Groups in Organization
Credit Underwriting
New Account Opening
Performance Measurement
Manager
Selection
ACATS
Recon-
ciliation
Dividend
Tax Reports
Service to RM
Client
Reports
Margin
Centers of Excellence
Corporate
Actions
Pricing & Valuation
Cash
Processing Other COEs
List is not exhaustive
Client Segment Product
ILLUSTRATIVE
Booz & Company 17
Contact Information
New York
John Rolander
Partner
+1-212-551-6069
Gauthier Vincent
Senior Executive Advisor
+1-212-551-6522
Sanjit Singh
Senior Associate
+1-212-551-6728
Booz & Company
Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizations. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914. Today, with more than 3,300 people in 60 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage. The independent White Space report ranked Booz & Company #1 among consulting firms for “the best thought leadership” in 2010. For our management magazine strategy+business, visit strategy-business.com. Visit booz.com to learn more about Booz & Company.
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