Understanding the efficiencies of wealth management front-office activities

There have been many numerous literature about how technology capabilities can increase the efficiency of the relationship managers and operational staff. However, few research have been focused on understanding the efficiencies of relationship managers.

A relationship manager generally covers (but not limited to) the following activities -
1) Prospect management and development
2) Client on-boarding
3) Client book development
4) Client servicing
5) Compliance-related activities
6) Operational issues
7) Human Resource

In addition to the usual ratios such as front/back or cost/income. It is important for organization to review a relationship manager's activities holistically and identify the amount of time spent on the various activities. The objective of such an exercise is not about removing the responsibility of the RM from performing selected activity, it is about striking a right balance and getting management to understand the complexity of managing the costs of the front-office.

Wealth Management - Keeping up with the regulatory challenges

Recently, Singapore launches the private banking code of conduct. A set of guidelines put up by the Association of Banks in Singapore. The code of conduct seek to define a set of standard best practices in competency and market conduct when serving HNWIs (High Net-Worth Individuals). Similarly, Hong Kong regulators are looking to refine the requirements for financial institutions in gathering evidence whether a person qualifies as a high net-worth professional investor.

With the increasing regulations imposed in key wealth management centers around the world, private banks are facing rising operational and compliance costs in meeting the higher standards in regulatory standards. While organization-wide training, technology and operational changes are necessary, sales management is also an important area on how private banks can continue to grow despite the heightened regulatory environment.

Sales managers help to identify changes to the advisory processes for the relationship managers and enhanced the overall client experience. They are the middle men who worked both with the relationship managers and the products and services teams to identify new opportunities to meet the clients' needs.

This is the key to standing out in the competition.

The next big breakthrough in technology

It's been a while since I put down my thoughts on trends on management, technology or business in my blog. My new year resolution is to share my blog to a wider group of audiences. Any suggestions from you are most welcome!

As I review the past 12 months of what has happened in the technology space, one technology that struck me was the exponential rise of ANDRIOD. More and more handset and tablet manufacturers are choosing Andriod as their preferred mobile operating platform. While there are more than 350,000 apps in App Store, Andriod market has more than 250000 apps. The gap between Andriod market and Apps Store is closing.

The question now is what's next?

To me, the natural extension for Andriod is to develop an operating platform for the desktop and notebook market which Microsoft dominates this market. Imagine that Andriod is deployed in your notebook or desktop, the tremendous opportunities in terms of user experiences and applications can be enhanced.

Let's see in the coming 12 months, will we see some indication of where Andriod is heading next.

Happy New Year!
Bernard Tan

Are we going to witness a Black Swan event?

Lately, there have been a slate of negative news coming out from United States:
a) Budget impasse in the Congress to reduce the budget deficit
b) S&P turning negative on United States "AAA"credit ratings
c) The continuing decline of the US Dollar
d) The declining global economic influence of the United States of America

I am not an expert in United States economic or political issues. However, what I do know is :
a) Governments around the world are holding trillions of US Treasuries
b) The preferred choice of currency for economic trade is US Dollar
c) Many economies have pegged their own currencies to the US Dollar

The economic and political impacts to the world should the downgrade of US's AAA credit rating occur cannot be ignored and underestimated. The repercussions could be severe and may lead to a global Depression.

I'm not a pessimist by nature. But the warning signs are clear and unless the Congress and the White House make a concerted effort in dealing with the growing budget deficit, US may not be able to recover from another Black Swan event.

regards,
Bernard

Career management strategies

It is bonus time again. By now, most of us would be either be looking to upgrade your car, looking for the next condominium or reviewing your CVs and preparing to send to the next available headhunter who calls you.

For those who are dead set on moving on, don't jump the ship prematurely. It is always easy to throw in the towel and call it quits. There are couple of simple steps to assess whether it is time for you to move:

1) Take stock of what you have accomplished;
2) What are your strengths and weaknesses;
3) Review your career objectives. Every company perform some form "strategic review" exercise every few years. We should also perform some form of strategic review as well. Look at the soft factors such as "do you enjoy predictable tasks or variety of tasks", "are you a team player or an independent team member". These questions will help you in assessing your next career move.

(Part 2) : Post Financial Crisis - A review of the business model of wealth management industry in Asia

Apologise for the late posting of my reviews. Over the past few months, I have been tied down with customer engagements and I had a major surgery. Finally, I have some breather to continue my article.

Like the 1997 financial crisis that happened in Asia, clients experienced sharp declines in AUM (Asset under Management).

Consequently, many clients were either asked to top-up their account to meet the minimum AUM size or risk getting downgraded to a lower-tier service within the Bank. We are seeing the same happening in this crisis.

How should private banks manage clients who fall below the minimum AUM criteria as a result of depreciated market values of their clients' assets without permanently damaging relationship?

This crisis has created an opportunity need for Bank's to review their relationship with their clients. However, should private banks conveniently downgrade the relationship whenever AUMs fall below the minimum threshold? Are there other options available?

On one hand, clients are complaining that they were ill-advised by their relationship managers. On the other hand, Banks are defending vigorously that the clients understood the risk of the products and "choose" to invest in these products.

The underlying argument is whether private banks owe a fiduciary duty to their clients when they offer an advise to them. Of course, ultimately the Client "chooses and decides" whether to invest in the product. However, if the Bank can offer a quality advice, would the AUMs be reduced significantly?

Despite the number of benefits presented by many private banks, the present model of offering an open-architecture product platform does not seems to bring about benefits in terms of wealth preservation and portfolio diversification.

Secondly, the client-driven advise model are not catching up fast in Asia. In this case, asian clients are partly responsible. Most asian clients are very hands-on in their investments. Most discretionary-driven models do not cater well with asian investors. It is not surprising that discretionary business contributes less than 30% to the bottom-line of most private banks.

(Part 1) : Post Financial Crisis - A review of the business model of wealth management industry in Asia

It's been more than 18 months since the world witnessed the financial meltdown that started in the United States. Many studies have been conducted to understand the impact on the wealth management industry and the possible lessons that can be learned. However, not many studies have been done on the impact to the wealth management industry in Asia. I shall share my views and observations how the various wealth management models have evolved in Asia.

Despite the diverse markets in Asia, it is surprisingly easy to categories the different types of wealth management business models here.

1. Independent Financial Advisors, eg First Principal
2. Standalone private banks, eg Julius Baer
   
3. Large private banks that exist as a separate business unit under a larger banking group, eg Citi Private Bank
4. Wealth management arm of investment banks, eg Morgan Stanley Smith Barney
   
5. Wealth management arm of brokerage companies, Sun Hung Kai Financial
   
6. Private banking arm of asset management companies, eg Schroders Private Banking
7. Private banking arm of local banks, eg, OCBC Private Bank (a.k.a. BOS or Banking of Singapore)
   

The financial crisis was essentially a crisis of declining in confidence and lost of trust. The consequences of these 2 factors can be summarized below:

1. Reduced AUMs (Asset Under Management) - Clients have to be downgraded to a lower tier service offerings, or even terminated relationship as a result of steep declines in AUMs.
   
2. Flight to Safety - Clients prefer to move into Deposits or capital-protected products
3. Flight to Quality - Clients move out of foreign institutions and into local banks
4. Tightening of regulation - Financial regulatory and enforcement reforms are expected to govern how financial institutions sell investment products to clients
   
5. Aligning compensation and rewards schemes with good risk management practices

Such consequences have far-reaching implications for all the wealth management players in Asia. Costs of operating a wealth management business in Asia are expected to significantly increase. The pre-crisis business models of operating a wealth management business needs to change.

In the next part, I will elaborate on the individual consequences and provide arguments on the current deficiencies of some of the business models.