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CHAPTER 1: WM industry outline What challenges the wealth management industry?
- Sluggish margins
- Regulatory burden
- Changing client behavior
- Digitalization agenda
- Sustainable agenda Global wealth classification and liabilities – 2020 Keynote on the WM market opportunity
- Sustainable growth of >4% across the world
- A HNWI is born every 20 seconds and UHWI every 40 minutes
- From 2021 and 2025 further $15 trillion in bankable wealth Wealth managers have been facing «top line» profitability pressure in recent years although AuM growth and efforts on productivity increases allowed to maintain cost-income ratios levels.
Challenge 2: Reshaping the pricing schedule: smart pricing as a key driver for revenue uplift Value perception : Clients are less and less willing to pay for “commoditized” services like AuM based fees for safekeeping and brokerage and want more transparency Advisory based pricing : Those clients which are interested in professional advice and customized services are inclined to reward the provider with an advisory fee Product bundling : Most UHNWI and Core HNWI are increasingly interested and positively responding to a holistic – goal based approach beyond investments Segment based pricing : Those clients defined as “self-directed”, are interested execution services and research, investment opportunities and portfolio risk-return analysis tools
Hybrid & full digital-> Self-service and WM led servicing, Mid and Back office full digitalization and Multichannel access How to improve the CX: qualitative factors How to improve the CX: quantitative factors Challenge 5: embrace digitalization Scaling innovation: While many Banks are experiencing automation of existing processes they have trouble scaling innovation in the organization Process automation: Effort is put in automating what previously was made manually in a sort of labo-context. Most approaches are not end to end and many APP coexist Redesign processes: Processes need to be redesigned according to the digital options and conceived to be able to learn from executing (ML) Govern: Digitalization need to be governed from the BoD thru Management starting via CEO to cohesive and end-to end thought actions Challenge 6: embrace sustainability GOALS:
- Accelerate the achievement of global climate goals and the UN Sustainable Development Goals (SDGs)
- Lay out concrete recommended actions for different market players
- Promote a dialogue with all relevant players and stakeholders in the Swiss financial industry Recommended actions for wealth managers Integrate guiding principles regarding sustainability into the mission statement (or equivalent) of the organisation, ensure they are translated into corporate strategy and policy for sustainable investment
- Apply them to all core products & services
- Make sure management and employees are aligned with the policy and the strategy by engaging them in the implementation and aligning remuneration structures
Provide transparency on the sustainability of portfolios through meaningful and relevant reporting – Include relevant KPIs on ESG factors
- Transparently report on climate risks based on TCFD
- Publish comparable portfolio indicators for all products on offer – Adapt reporting to the size and complexity of the organisation State a clear target and roadmap to reduce the carbon footprint of managed portfolios to net zero by 2050, and set an intermediary goal for reductions by 2030 in line with Swiss climate goals. Thereby cooperate with one of the relevant initiatives in this field Adopt active ownership strategies – Facilitate exercising of voting rights at Annual General Meetings (AGM) for clients in ways that promote sustainability – Engage with companies towards improved sustainability strategies Train client advisors and investment professionals through the SSF e-learning tool or other training Identify private client sustainability preferences in the advisory process, based on SwissBanking recommendations
- Ensure sustainability is part of every client conversation
- Offer products and services matching different sustainability client needs
- Undertake the same level of diligence in asset manager selection for ESG capacities as for traditional asset manager selection criteria to ensure asset managers have the capability to deliver on ESG factors. What should WMs do: focus on strategic activities and core markets
- Strategic vs. Non-Strategic. The choice of markets in which to play is inevitable. Investments in core markets are drawn from exiting marginal ones. [ACHIEVED]
- Client segment. Cluster clients according to segments and markets to streamline resources and leverage capabilities [ACHIEVED]
- Build or Buy. Identify what is strategic in terms of processes, products and services and outsource what is not [ACHIEVED]
- Value proposition. Redefine the own USPs within a changing regulatory and market preferences context. Accordingly adapt the business model developing sustainable and value creating approaches (e.g. cross border client servicing model) [IN PROGRESS] Rethink the business model
- Integrate offering : Develop a Wealth Management model towards a holistic approach, including relevant services on wealth governance for HNWI [IN PROGRESS]
- New Pricing model : Develop a pricing model which is in line with clients value perception (e.g. advisory based fees) [IN PROGRESS]
- Enhance Customer experience : Focus on each client touchpoint within the value chain, identify factors which can boost the “wow” experience of clients and improve the overall firm perception [EARLY STAGE] Manage costs for selective growth
- Articulate a clear cost allocation and manage it. A more performing cost accounting system is key to permanently and efficiently manage the cost basis and promulgate selective growth [NOT ACHIEVED]
- Clear and compelling growth agenda. Many WMs are cutting costs without a clear view where they want to grow or strengthen. This can harm them long term in their strategic activities [IN PROGRESS] Embrace paradigm shifts
Investment advisor role
- Monitor client strategic and tactical asset allocation and provide adjustments when needed
- Filter new investment ideas according to client segment and client risk/return profile
- Set up and promote offering campaign to RMs and across client basis
- Deliver research material on single asset classes and bespoken investments
- Support RMs in client reporting
- Support RMs on bespoken investment for UHNWI individual Advisory mandate
- Advisory has been increasingly delivered to clients via advisory mandate.
- Advisory mandate allows to switch from product commissions to advisory fee tarification, which is more in line to client expectations and MIFID/FIDLEG requirements
- Financial intermediaries provide different advising intensity for different prices
- Premium advisory mandates foresees a proactive interaction on a daily/weekly/monthly basis between IA and client to seize market opportunities and provide above services. RM and IA work very closed together
- Basic advisory mandates usually foresees a reactive interaction (when client asks) between IA and client. RM involves IA on demand Portfolio manager role
- Promote PM investment solutions to FO and clients
- Manages client assets according to client risk return profile and investment style
- Provides information and research as to PM investment choices further to regular support to RM as to performance reporting
- Support RM in trouble shooting, bespoken solutions Wealth advisor role
- Wealth advisor provides solutions in the areas of wealth planning, structuring, family advisory and philanthropy, corporate advice etc.
- WA provides the clients with the solution details and accompanies the client through planning, implementation and delivery of the envisaged solution
- RM assesses client need, follows up with WA solution implementation and provide quality control at solution delivery
- Wealth advisory target aims at increasing client retention, client share of wallet and new client acquisition
- Wealth advisory target upper end HNWI and UHNWI Credit specialist
- Credit specialist provide solution in the areas of secured loans, i.e. lombard loans and mortgages. Unsecured or partially secured loans can also be part of the offering depending on the risk appetite on the financial intermediary
- CS provides the clients with solution details, mediates between clients expectations and standard solutions, engages in the negotiation
- RM assesses needs, follows up with CS and support negotiation
- Credit can be a powerful ” business opener” with entrepreneur clients and prospects
- Credit capital requirement however do limit the potential of the product to rather standard solutions Risk management approach at organizational level Questions: What are the risks for the organization? • How much risk does the organization want to take? • How to proceed to to define a risk appetite framework The goal of the RAF is to identify the level of activities allowed under a defined risk budget. Chapter 3: Business Model for International Centers
Product type
- EU provides highest consumer protection to resident investors, being products fiscally and regulatory penalized if not matching domestic requirements
- Other countries do not apply any discrimination at investment product level, though they do when it comes to vehicles (eg Trust and Insurance vehicles)
- Consumer protection in terms of product suitability is also applied according to different standards, being the EU at the forefront (eg MIFID II) Cross border activities pre-requisites MANUALS
- Cross border manuals are describing the rules and regulations under which a cross border activity is legitimate.
- This affects specifically three areas: financial advise, opening of accounts, negotiating of contracts TRAINING
- Cross border manuals are describing the rules and regulations under which a cross border activity is legitimate.
- This affects specifically three areas: financial advise, opening of accounts, negotiating of contracts TRAVEL AUTHORIZATION
- Markets are supervised by a market leader
- Travels are authorized by the Market leader
- Travelling is contingent In order to pick an operating cross border model one needs to maximizes an equation of this 3 variables: client proximity, cost factor and regulatory and tax compliance. Each market, served on a cross border basis, requires a selective / tailored approach. Client proximity Cost factor Regulatory and tax compliance Remediation Conclusions The remote approach Low to medium due to market distance from BC and services provided Low to medium cost limited to travel expenses Low. Regulatory breaches on restricted activities, potential recognition of hidden PE and fiscal attraction to the country where services are performed. This risk can be from medium to high 1.Cross border manuals describing permitted activities at BC and within the target market 2.Cross border 1st level of defence controls to be performed Being proximity low, client retention is difficult • Frequent travelling RMs exposes WMs to regulatory and fiscal risk. Remote approach for core markets is suboptimal. Better fit for
according to market 3.WMs should acquire a license to provide services in the target market wherever possible (FoS license) close and less regulated markets. Rep. office model Medium since activities are limited to prospecting and corporate communication. No banking or investment services allowed. Medium related to premises and personnel cost Medium. Potential regulatory breaches on restricted activities. Potential fiscal risk on transfer pricing issues
- Rep. office manuals describing permitted activities within the target market and as to BC • Cross border 1st level of defense controls to be performed Being proximity medium, client prospecting and retention is easier. Client maintenance is not possible • Rep. office model is often run together with remote model. Rep. Office model for secondary markets is an option. Latent regulatory and fiscal risk however is a concern The branch model High due to full fledge activities allowed within target market Medium to high due to premises/personnel/platform costs. Outsourcing activities to mother Co. are permitted reducing cost basis High. All activities are licensed. Potential fiscal risk on transfer pricing issues. Commingling branch and remote model may hinder regulatory and fiscal risk
- BEPS and transfer pricing issue to be closely monitored • Cross border 1st level of defense controls to avoid commingling branch and remote model
- Being proximity high and all activities permitted, client prospecting, retention and maintenance are optimal Branch model is optimal for core markets Affiliate/legal entity model High due to full fledge activities allowed within target market High due to premises/personnel/platform and governance costs High. All activities are licensed. Potential fiscal risk on Transfer pricing issue to be closely monitored • Cross border Being proximity high and all activities permitted,
While this underlines the subordinate role of innovation as a management discipline in Wealth Management, it also shows that innovation cannot be forced or applied according to desire – it takes a systematic approach and much leadership to foster innovation CHAPTER 4: WM VALUE CHAIN AND CLIENT CYCLE How is the “value” of Private Banking communicated? The promise to: create value, be fair, protect your wealth, build on an exclusive relationship. Personalized financial and banking services for wealthy individuals (HNWI) where the private bank provides tailored advice and access to a larger variety of conventional and alternative investments. Further to investment services the bank provides solutions to structure, protect, and transfer wealth to the next generation, integrating corporate advisory and family business advisory services or special financing. What are the elements of the WM value chain? Products and solutions require a seamless execution , under legal, operational and reputational risk mitigation , in order to be delivered to clients, through an efficient organizational set up and profitably. Clients, on their end, need to entrust their wealth to people and institutions. What are the relevant views in a private banking relationship and how do they match together?
Bank view:
- KYC and AML compliance • Cross border compliance • Suitability compliance • Risk management • Market Management • Client segmentation • Offering deployment • Segment specific offering • Team approach in client delivery • Client profitability • Cost control Client view: Trust and reputation • Ability to understand own needs • Investment performance • Risk control • High quality products/services • Broad product and solution availability • Access to expertise • Pricing transparency • Convenience Relationship manager view: • Personal client relationship • Client focus and needs • Client profitability • Client risk management • Portfolio management • Adviser not administrator Functional processes of the relationship manager Client prospecting process
- Prospecting can be performed relying on a personal network, via referrals from third parties, sharing life-style events or educational event.
- Building relationships : empathy and authenticity are necessary elements to build a relationship. Soon after you need a qualified interaction on topics which are of prospect interest. A frequent qualified interaction is key for a successful relationship
- Why you ?: identify those triggers to raise prospect attention is key and a necessary step before pitching. This requires interpersonal skills to gain a quick and in-depth view of client asset/liabilities situation to suggest remedies for a given challenge
- Pitch : a well coordinated pitch with a clear agenda and qualified speakers is the showcase of the bank capabilities for the selected topics. Extra-mile, tailoring, high touch and true commitment are the factors which matter most in this phase. Negotiation and pricing will follow soon Client onboarding
- KYC : the RM gathers critical information about client personal background, profession, source of wealth and yearly income. The purpose of account opening must be also cleared. Sources available are direct information from the client and public and private databases like World Check or EBIC
- Anti money laundering : the RM must comply with AML rules. The information gathered must exclude the criminal origin of generated wealth. If this case cannot be cleared because of indicia the relationship must be notified via the internal service to MROS
- Money Laundering Reporting Office Switzerland : Under the provisions of the AML Act, it receives and analyses suspicious activity reports in connection with money laundering, terrorist financing, money of criminal origin or criminal organisations and, where necessary, forwards them to the law enforcement agencies for follow-up action. Advisory process
- Need Analysis : the RM aims at understanding the overall financial situation of the client, namely investments, wealth creation, liabilities, wealth attrition
- Financial Concept : creating the “balance sheet” of the client with dedicated assets fulfilling planned liabilities and free assets not bound to liabilities
- Client risk profile : previous steps allow to establish both the risk ability and the risk tolerance of the client. Upon client’s profile the asset allocation and investments choice is executed
- Strategy : the RM defines the asset allocation of the client distinguishing a strategic approach (long term) and a tactical one (short medium term)
- Implementation : free assets are invested according to the asset allocation. Dedicated assets will be also invested matching planned liabilities requirements Suitability process
Increased tailoring: The ability to visualize client behavior data, through specific algorithms, allows to cluster them according to other more relevant criteria than asset volume or age • Consequently tailoring of services and products according to client cluster can be more effective and rewarding Seamless client interaction: Redesigning workflows around digital processes allows to be quicker and more responsive to client requests • More interaction channels can be established delivering easier and more frequent interaction between the WM and clients Improved client experience: Increased tailored solutions together with a seamless client interaction will deliver a superior client experience • The approach based on “client” centricity instead of “product/service” centricity will deliver higher client retention and firm profitability cost effectively. CHAPTER 5: ROLE OF THE RELATIONSHIP MANAGER Relationship manager functions within WM Relationship Managers Mid Office Specialists
- Client due diligence
- Client investment attitude and risk profile assessment
- Client needs assessment
- Sales management
- Client prospecting and acquisition
- Investing solutions deployment
- Client share of wallet development
- Client maintenance
- KYC and client onboarding
- Risk profile execution
- Investment services execution
- Client reporting
- 1° line of defence controls
- Account management Delivery of: - Investment services - Wealth planning - Wealth structuring - Family advisory - Credit facilities - Corporate advice In green we have activities that support revenue generation, in red they support control % management. How does the role of the RM evolve following the increasing client centricity and facing the challenges transparency and digitalization? As client-centricity becomes increasingly important, the role of the relationship manager (RM) needs to evolve to meet the new demands of customers. In order to maintain effective relationships with clients, RMs must be able to provide more personalized services, understand their needs and requirements, and be able to respond to them quickly. Transparency is another challenge that RMs need to tackle in their role. Customers want transparency in pricing, fees, and other financial information. RMs must be able to communicate this information clearly and honestly to clients and be able to provide them with the information they need to make informed decisions about their investments. Digitalization is also changing the role of the RM. Customers now expect to be able to access their account information online, use digital tools to manage their investments, and communicate with their RMs via digital channels. RMs must be able to adapt to these changes and be comfortable using digital tools to manage their relationships with clients. Overall, the role of the RM is evolving to become more customer-centric, transparent, and digitally-savvy. RMs who are able to adapt to these changes and stay up-to-date with the latest technology and customer trends will be the most successful in the future.
Client view on key drivers to deliver a truly valuable experience ( holistic : refers to considering the entire system or the whole person rather than looking at parts or individual components of the system or person.) Proactivity - clients value relationship managers who take a proactive approach to managing their accounts, identifying opportunities and risks, and offering timely advice and guidance Personalization - clients expect their relationship manager to understand their unique needs and preferences and provide tailored solutions that meet those needs. Overall, clients want their relationship managers to be competent, trustworthy, responsive, and proactive, and to be able to provide personalized solutions that meet their specific needs and preferences. Increasingly clients are looking for holistic solutions which encompass not only the bankable assets, but all dimension of their professional and family life. What RM value most when it comes to retain the client Value, relevance trust and technology are for relationship manager the key to retain clients.
To build trust with UHNWI and FO clients, a trusted advisor must have a thorough understanding of their financial situation, risk tolerance, and long-term goals. They should also be transparent about their fees and provide clear and concise advice that is in the best interests of their clients. Overall, a trusted advisor for UHNWI and FO should be a reliable and knowledgeable partner who can help their clients navigate the complexities of managing wealth and help them achieve their financial goals. Client profiling is key to create value for the client/prospect: how to scout opportunities Client profiling is an essential tool in relationship management that allows businesses to create targeted strategies to answer to the specific needs and preferences of their clients. This technique involves creating a detailed profile of each client by gathering information about their demographic, psychographic, and behavioural characteristics. Wealth governance Wealth governance in relationship management refers to the oversight and management of the financial capital and assets of families, individuals, and organizations. It involves advising clients on how to preserve and grow their wealth, mitigate risks, and achieve their financial goals. In wealth governance, relationship managers work closely with their clients to understand their objectives and needs, and develop customized strategies to help them achieve their goals. This includes a deep understanding of the client's financial situation, risk tolerance, investment preferences, and philanthropic aspirations. Wealth governance also involves setting up effective structures, processes, and policies to manage wealth effectively across generations. Relationship managers may advise clients on estate planning, trust formation, tax planning, and wealth transfer strategies. Banking platform The banking platform in client profiling activity of relationship management refers to the system used by banks to gather and analyse customer data to better understand their financial needs and provide personalized solutions. The platform typically includes a range of tools and features that help relationship managers build a profile of each client, including their financial goals, investment preferences, risk appetite, and overall financial health. Family office (vedi capitolo inerente) Family offices are dedicated entities that manage the wealth and financial affairs of high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs). These institutions provide personalized services to their clients, including investment management, tax planning, estate planning, and philanthropy.
The family office's relationship managers use this information to create customized investment plans that suit each client's needs and objectives. They also use the data to provide clients with regular reports on their investment performance, review their portfolios, and make adjustments as needed. The family office's relationship managers use this information to create customized investment plans that suit each client's needs and objectives. They also use the data to provide clients with regular reports on their investment performance, review their portfolios, and make adjustments as needed. Owner/Decision Maker Owner/Decision Maker activity in profiling activity of relationship management refers to the process of identifying the people who have the ultimate decision-making authority within a targeted organization. These are the individuals who have the power to approve or reject proposals, make purchasing decisions, and enter into contracts. They are typically the key stakeholders in the sales process and, as such, are the most important people to establish a relationship with. Relationship manager and Specialists role within holistic advisory Anamnesis Diagnosis Therapy Needs assessment Solutions review Solutions implementation Team RM RM+ specialists Specialists + RM Role Business developer Specialists coordinator Quality and work flow controller The role of the RM is to scout and identify the business opportunity for the bank in a holistic framework. The RM orchestrates specialists, controls execution, correct course and guarantees delivery. The RM grows in the role of “trusted advisor” towards the client, bringing value and relevance into the relationship. Client maintenance: how to follow up and look for further business Process:
- Client contact: RM solicits meeting regularly or triggered by new event
- Agenda: RM propose topics of discussion and decisions are confirmed by the client
- Meetings: client meets with RM and specialist according to an approved agenda. This is a key approach to ensure enhanced client experience and value creation for client and WM organization. Deals in the Pipeline management (pipeline= condotto, la strada per..) Effective pipeline management involves tracking each deal's progress, identifying potential roadblocks or delays that could hinder the sale, and taking steps to move the deal forward. This can include tasks such as nurturing leads, conducting follow-up meetings, providing proposals, negotiation.
