MAPPING THE WAY TO WEALTH MANAGEMENT 4.0
Wealth Management Digest 2018
PRIVATE BANKING’S FAST EVOLVING TO MORE AGILE, BUSINESS EXCELLENCE, MARCH FORWARD INDUSTRIALISED OPERATIONS THE UTOPIAN ASPIRATIONS P.6 AND TECHNOLOGY OF WEALTH MANAGERS P.12 P.20 EDITORIAL NOTE
At Orbium, our guiding principle is to focus on what is most important to our clients - their success. This priority continues to guide us as we evolve our capabilities to support our clients to successfully manage the unprecedented industry disruption. We help navigate these changes by providing a combination of core banking and digital business transformation services, business and regulatory consulting, our own software products along with those delivered through our selected software partnerships. to share these to help inform executives on the key emerging industry trends, challenges and opportunities. Our core banking systems implementation and services These insights reflect our growing capabilities. They benefit from our strong partnership with Avaloq and the include our C-level survey findings, which show the expertise of our delivery team. Over the past year, we have industry is now moving into a new “4.0” era. Success delivered successful go lives across multiple geographies for wealth management firms will be about adopting in both Europe and Asia. We have further developed our more balanced models across three key areas- meeting management consulting capabilities to support clients new customer needs, developing new capabilities achieve results with their key change programmes. and being more effective in complying with tougher regulations. This will be enabled through implementing Underpinning these activities, we invested in effective the right combination of technology and developing more thought leadership initiatives to provide informed agile ways of working. Our digest provides additional insight, foresight and benchmarking to help our clients perspectives on each of these themes. assess where they stand and to stay on top of the industry changes. Our signature wealth management At Orbium, we believe that success is a consequence C-level survey of 50 wealth management firms across of many factors - culture, people, shared expertise, Europe and Asia provided a view of the current state partnerships and strong relationships. Only when all and evolution of the wealth management industry. It of these are aligned for mutual benefit is the future also provided a future roadmap for what it will take to assured. This philosophy embodies our way of working be a high performer in this new era for the industry. The with our clients to achieve their success. findings have proven insightful and have been shared at numerous international industry conferences, executive We hope you find this digest both timely and insightful. round tables and at one-to-one discussion sessions.
In the quest to support dialogues and thought leadership in the industry, Orbium is pleased to share our first annual Wealth Management Digest 2018, a curated collection of insights, covering business, regulatory and Samir Gherbi technology trends authored by our experts. We wanted Partner
2 Wealth Management Digest 2018 CONTENTS
Editorial note 2
Introduction to Orbium 4
Getting to banking 4.0 6
CLIENT FOCUS
Private banking’s five new tribes 8
Client focus and data are forging the path for new banks 10
AGILITY AND INDUSTRIALISATION
Evolving to more agile, industrialised operations and technology 12
Launching a new private banking business in six months with Avaloq: 14 Industrial Bank Co. Ltd (CIB)
Best practices in suitability implementation 16
LEVERAGING NEW CAPABILITIES AND CHANNELS
Business excellence, the utopian aspirations of wealth managers 20
What destiny for financial intermediaries during a core system transformation? 24
CHANGE MANAGEMENT
Achieving an Agile approach 26
Wealth Management Digest 2018 3 INTRODUCTION TO ORBIUM
EXPERTS IN WEALTH MANAGEMENT TRANSFORMATION
Orbium has an impressive reputation as a specialist, global technology and management consultancy, helping banks achieve a balanced and integrated business model fit for private banking and wealth management 4.0.
Founded in 2004, Orbium sits at the intersection of To do this, Orbium assesses where a bank is today, and technology, regulation and management consultancy to where it wants to go. Orbium focuses on three critical offer a differentiated service proven to help banks succeed. areas: client focus; agility and industrialisation; and leveraging new capabilities. Consistent across these Led by seven partners, Orbium is an Avaloq premium specialities and instrumental to their success is change implementation partner, has 14 offices around the world management. Orbium then build the roadmap and and employs more than 500 staff working on some of deliver these strategic objectives. the most important transformation projects in private banking. Together, Orbium helps banks navigate the CLIENT FOCUS change sweeping through their sector to ensure their It’s important that when a bank starts its journey towards long-term futures. private banking 4.0 it has a clear business plan. This will centre on which client groups it wishes to serve. Orbium takes a holistic view. Drawing on our technology heritage and management-consultancy experience and The traditional private banking client has been working with a small group of trusted specialist partners, supplemented by five new tribes – emerging markets Orbium develops comprehensive solutions for each entrepreneurs, millennials, modern entrepreneurs, high individual project. Increasingly, these are benchmarked net worth female investors and rich professionals. Each against insights gleaned from our Wealth Management of them demands specific specialisations from a bank. C-level survey. This, with Orbium’s proven methodologies Few, if any, can serve them all equally well. This means and proprietary software solutions, along with committed choosing which tribe (or tribes) to target and building the and talented teams, allows Orbium to deliver projects on business model to fit. time and on budget, resulting in 90 per cent of Orbium’s clients returning.
A BESPOKE APPROACH TO OUR JOB IS TO ENSURE FUTURE-PROOFING YOUR BUSINESS While all banks are trying to achieve transformational THEY TAKE THE RIGHT change, Orbium understands that all are starting from COMBINATION OF ROUTES different places. Orbium knows that each needs to take its own transformational journey. Orbium’s job is to AND THAT THE WHOLE BANK ensure they take the right combination of routes and that the whole bank completes the ride. COMPLETES THE RIDE.
4 Wealth Management Digest 2018 as efficiently as possible to protect margins and profitability. This means developing the right platform
Revenue Standardisation and introducing standardisation and automation enchancements automation where possible. Functions such as tax reporting and regulatory compliance can be automated along with investment suitability requirements, bringing not A Client ice gi only lower cost but also lower risk. rv lit Banking service e y platforms s n interaction io i t n s ia d u t u LEVERAGING NEW CAPABILITIES c n s o e t f r r The technology that delivers all this can do so i a t e f l n f i i s much with careful planning and forethought. e
i d a
l
t C
i This is where it’s important to examine new
o Smart n Empowered leadership Regulatory capabilities and channels to make sure the relationship C t compliance manageres h n bank is maximising potential. a e ng m e manage Orbium looks to providing flexibility and agility N ls ew e to allow for scale and growth, enabling a future c nn ap ha abilit s c proofed roadmap. Orbium also recommends ie Data Unified digital customer fintech and regtech partners that complement the proposition insights offering from the bank’s main software vendors,
Sourcing extending the scope of the transformation to cover partnerships niche but important areas such as fraud mitigation, portfolio analysis and the launch and delivery of new products. Just as important are data capture, storage and analytics capabilities. For example, women often want communication without jargon and prefer to take a holistic view of their financial CHANGE MANAGEMENT situation. Relationship managers need to be trained Finally, Orbium make sure that the transformation isn’t and equipped accordingly. Similarly, banks looking to limited to the techies – that the whole bank comes along attract rich professionals need to be able to deliver first- for the ride. Orbium recommend adopting the Agile way of class cross-border advice, global data warehousing and working – a set of principles that helps create a dynamic dynamic tax reporting. workplace, promoting trust, autonomy and responsibility to foster innovation and value creation. Agile is about AGILITY AND INDUSTRIALISATION encouraging people to try new things and be unafraid of This is all about preparing the bank for delivering the failure – a critical mindset when you’re trying to transform services – existing and new – at the required scale a traditional player into a digital private bank 4.0.
Wealth Management Digest 2018 5 GETTING TO BANKING 4.0
PRIVATE BANKING’S FAST MARCH FORWARD
by Ian Woodhouse Head of Strategy and Change [email protected]
Private banking has undergone titanic change in the past decade, with more to come. We identifiy the forces shaping the future of the industry.
The 20th century was one of tumultuous change for just recurring. MiFID and its like were drafted to increase about every industry – from manufacturing to retail, transparency and accountability. The aims were laudable construction to health, journalism to travel. But not but expensive to implement. They were also potentially private banking. This most traditional of services quietly ruinous if a bank failed to comply. went about its business unconcerned by the arrival of mass communications, the internet, digitalisation and In response, the industry embarked on a round of more. At the start of the century we were still very much mergers and acquisitions to shore up balance sheets, at private banking 1.0 (PB 1.0). cut risk and rebuild trust. Merrill Lynch merged with Bank of America and Julius Baer acquired Merrill Lynch’s The financial crisis of 2007/8 changed all that. In the international private wealth management business in decade or so since, private banking has gone from 1.0 2012, to name but two. For the seven years of PB 2.0, to 4.0, forced on by successive waves of regulation, banks focused on complying with new regulations. consolidation and technological and social change. Each wave brought painful and difficult adjustments, with each Yet more regulation and new technology thrust private successive wave moving faster than the one before. banking into PB 3.0. From 2014 onwards, private banks strove to develop new business models, restructuring It was a crisis that exposed bad financial products and and repositioning their offerings in response to the UK’s weak banks, and prompted global regulators to draft Retail Distribution Review, MiFID II and the various Basel and implement new rules to restore trust. Their aim capital adequacy rules, the erosion of banking secrecy was to protect customers and stop such devastation and the rise of cross-border regulation.
Stage 1 Stage 2 Stage 3 Stage 4
Traditional model Regulatory driven Restructuring, Adapting to differentiated, and advantages transparency (post repositioning and client focused and crisis and erosion of rise of new models rationalised models banking secrecy)
6 Wealth Management Digest 2018 At the same time, digitalisation and automation were and services to the increasingly diverse needs of these challenging the bespoke personalised service of private tribes, as well as new generations of old money. banks while dramatically raising IT costs. High net worth clients were being offered new products with lower fees, Data lies at the heart of PB 4.0. Leveraged effectively, it such as exchange-traded funds (an investment fund will help banks sell more, sell better and manage their traded on a stock exchange), which were less profitable costs. To do this they need to introduce front-to-back for such banks. digital technology, and to do it well they may have to specialise in one or just a few client segments. There was also new competition from family offices and high-street banks, which could now target under-served Yet the pace of transformation will not end there. affluent clients with robo advisers and investment By 2020 – just two years from now – we expect to products designed for the mass affluent market. see another seismic shift in private banking, driven by demands for transparency from customers and The response from the private banking industry has been regulators. PB 5.0 will be all about outcomes rather than yet more restructuring to deliver a better service and products. It will be about the ability to show fair value, innovative products. Scale has really started to count. comparable performance, social investing and audit Between 2007 and 2017, Switzerland saw the number of trails. Think accountability. private banks fall by 25% as a result of consolidation and many sold out of sub scale Asian operations to refocus on Europe and scaling up. BY 2020 – JUST TWO YEARS Société Générale sold its private banking arm in Asia FROM NOW – WE EXPECT TO to DBS and acquired KB in Europe; ABN Amro sold its Asian and Middle East business to LGT and bought Credit SEE ANOTHER SEISMIC SHIFT Suisse private bank in Germany; UBP bought Coutts International; and EFG bought BSI. IN PRIVATE BANKING
All the while, the customer base of private banks has been evolving, with five new “tribes” gaining prominence Along with effective use of data, the core of PB 5.0 in the high net worth club. The newcomers include high will be an ecosystem of fintechs, regtechs and service net worth female investors, who are increasingly seeking providers that will help banks satisfy their customers’ more control over their fortunes and wealth management needs. This will demand new business models again services tailored to their needs; emerging markets and open IT systems. Private banks will become more entrepreneurs; the growing corpus of rich professionals; involved by helping in many aspects of a client’s life well millennials; and the modern entrepreneur. Each group beyond investment. Proactive customer management looks for new and different services. and service will be the order of the day. Inevitably, there will be further consolidation. These new tribes are accustomed to high levels of service, transparency and personalisation in every aspect In less than two decades, the wealth management of their lives, and they expect the same from their wealth industry will have become unrecognisable. With so little managers. They want access to their portfolios from change before that, there was certainly a lot to do. Banks anywhere in the world, 24/7. This is forcing the industry have learnt fast – that they must be on the front foot, be to undergo a new permutation, PB 4.0, as wealth proactive or lose out to the competition. PB 5.0 is already managers put technology to use to tailor their products at our doorstep, and surely 6.0 is not far behind.
Wealth Management Digest 2018 7 CLIENT FOCUS
PRIVATE BANKING’S FIVE NEW TRIBES
by Piotr Zboinski Head of Strategy and Operations, APAC [email protected]
The traditional wealth management client has been joined by five new personas, each looking to the industry to satisfy very different needs. Who are they? What are they looking for and how do banks respond?
1 Emerging markets entrepreneur
Digital 5 Global 24/7 interface 4
3 AGE 2 70/30 1 35-50s Data Specialisation First- generation • Used to high growth – up to wealth 30% pa – from own business Tends to be • Small circle of trust Tools Transparent reporting illiquid and less • Domestic/regional focus diversified • New to WM • Investment profile either high risk for big returns or very safe Technology capabilities Business capabilities
• Succession wealth planning – Digital interface Global 24/7 protection and distribution 5 = most important A modern digital coverage with some • Diversification – IPOs, private interface with video digital service, night Digital 5 Global 24/7 placements, secured lending to and chat, omni- interface desks, RM buddy enable investment beyond their channel, online 4 systems etc own business veri cation 3 2 Bank response Specialisation Data 1 Tailored business Combine investment, corporate Data Specialisation and private banking teams to offer An integrated, and operating a tailored service that covers global data models investment management and warehouse and diversification, inheritance data analytics Transparent planning, tax, and capital market Tools Transparent reporting services such as IPOs and debt Tools reporting Clear fees, capital markets Automated regulatory performance tools for cross-border 1 = least important benchmarking and tax
8 Wealth Management Digest 2018 2 Millennial 3 Modern entrepreneur Millennial Mix of inherited AGE (particularly in Global AGE 50/50 50/50 20s- Europe and US) outlook and 30s-50s mid 30s and self-made money highly mobile • Well educated and networked Well educated • Diversified wealth with an and financially element of old money • Still accumulating wealth literate • Time poor • Financially literate and highly digitally aware • Probing on fees and • Weak loyalty to family WM performance • Probing on fees and performance • Values transparency and service • Values transparency and service – – 24/7, global, simple 24/7, global, simple • Willing to take lower returns Digital 5 Global 24/7 • Awareness of social impact interface for fully audited social impact 4 investment Bank response 3 2 Digital Bank response A modern, global, digital 5 Global 24/7 1 interface omni-channel WM service that 4 First-class, cross-border advice Data Specialisation includes risk/return portfolio 3 24/7, global data warehousing
modelling, dynamic tax reporting, 2 according to regional regulations, minimal paperwork, dynamic data 1 omni-channel WM that includes leverage, tailored investment Data Specialisation risk/return portfolio modelling, strategies including impact investing, tailored investment strategies that Tools Transparent and transparent and tailored reporting include impact investing, dynamic performance-based pricing tax reporting, minimal paperwork, dynamic data leverage Tools Transparent reporting
4 High net worth 5 Rich professional female investor Well educated AGE Highly 70/30 30+ Diverse mix of educated AGE old and new 0/100 30s-50s money, self-made Global and • Wealth distribution fragmented by age: highly mobile and acquired - 30s taking career-enhancing loans – wealth medical, partnership, postgraduate • Global outlook - 40s paying down loans • Full range of financial literacy - 50s paid up • Majority (67%) feel misunderstood by WM industry • Easily professionally conflicted by • Significant focus on gender policies within investments investments e.g. auditors • Considered investors willing to take their time and use • Complex retirement needs own networks beyond WM for advice and research • Fairly diversified investors • Willing to take lower returns for fully • Reasonably financially literate audited social impact investments Digital 5 Global 24/7 • Time poor • Likes clarity; dislikes jargon interface 4 Digital 5 Global 24/7 • Risk averse • Seeking appropriate networks 3 interface 4 2 • Trusts WM but will monitor 3 and intervene Bank response 1 2 Data Specialisation • Element of social impact investing A modern, global, digital 1 omni-channel WM service that Data Specialisation includes risk/return portfolio Bank response modelling, dynamic tax reporting, Globally attuned service, ability to minimal paperwork, dynamic data spot and manage potential conflicts, Tools Transparent leverage, tailored investment strategies reporting transparency, first-class, cross-border including impact investing, approprirate Tools Transparent advice 24/7, global lifelong financial reporting communication styles, transparent and tailored planning, global data warehousing performance-based pricing, access to a network of according to regional regulations, like-minded peers and female RMs omni-channel WM with risk/return portfolio modelling, dynamic tax reporting, dynamic data leverage
Wealth Management Digest 2018 9 CLIENT FOCUS
CLIENT FOCUS AND DATA ARE FORGING THE PATH FOR NEW BANKS
by Zabeen Moser Partner [email protected]
With new competition and customers demanding outstanding service, specialisation is proving the only way to succeed in private banking 4.0.
Private banks and wealth managers have tried hard to excelled in client focus and improving the client journey stay in an increasingly tough game over the past five years. and experience enabled by data insight and adviser Some have bought up competitors to gain scale, others digital interactions. have launched new services aimed at the mass affluent. But it seems that many are still struggling. Could it be that For some, refocusing means geographic and product the future lies more in client specialisation and solutions divestments – Barclays and Coutts sold all or some of rather than in mega one-stop product-driven shops? their international operations, while Hoare & Co sold its investment management arm to Schroders. Others We have recently seen a number of banks, big and small, are still making acquisitions to grow their chosen client refocus their wealth management business as they focus, such as Rathbone Brothers’ takeover of Speirs & face a perfect storm of rising costs, new competition Jeffrey and SocGen’s acquisition of Kleinwort Benson’s and more demanding clients. UBS closed its UK Smart wealth management arm. Wealth robo-advice arm aimed at mass affluent clients, citing the unit’s ‘limited short-term potential’. The Swiss The diversity of strategies in play appears to indicate that bank indicated it would refocus its efforts within wealth banks are still trying to work out how to survive in the management towards the top-end clients. rapidly changing business of wealth management.
UBS and others have begun to realise that they stand In terms of maturity, private banking has reached level a better chance of controlling costs, protecting margins 4.0, the insights to enable advisers to tailor services, and developing successful products and services if they digitally enabled model with data at its heart. Only data now target specific client groups – be they ultra high net can deliver the insights to enable advisors to tailor worth individuals, the high net worth, entry-level private services to meet the needs of exacting customers while banking clients or the mass affluent. keeping costs down to protect margins.
Another truth that has recently come to light is that no Figures from Credit Suisse reveal a dramatic shift one bank can profitably hope to provide every service in the ranking of banks by growth of assets under required by clients across all these segments any more. management. Between 2011 to 2015, JP Morgan was Those that are doing best in terms of growth have kingpin at 11%, followed by Goldman Sachs at 10%,
10 Wealth Management Digest 2018 In terms of maturity, wealth management has reached level 4.0, where success depends on having a highly customer-centric, digitally enabled model with data at its heart.
UBS at 8% and Credit Suisse at just 4%. From 2015 and services that can be delivered cheaply to the to the end of the third quarter of 2017, Credit Suisse mass affluent. Fintechs such as Betterment have also jumped to joint first place with Goldman Sachs at developed these robo-advice type services that can be 11%, JP Morgan sunk to third at 9% growth, UBS was delivered in an automated way cheaply. fourth at 8% growth and Deutsche Bank, with bank restructuring, shrunk to negative growth. Even within the four main wealth segments, banks are finding they must specialise further. The five new Credit Suisse, the big winner, has done a lot of work to tribes of private banking clients each demand specific reposition itself to serve the ultra high net worth market – skills. For example, banks such as EFG and Pictet have those with liquid assets of at least $30 million. moved to provide specialist services for first-generation entrepreneurs, such as coaching to help clients grow This market requires very specific services, including their successful businesses to unicorn status (a privately the type of corporate finance advice found in investment owned start-up worth at least $1 billion). Royal Bank of banking. The Swiss giant, along with UBS, JP Morgan, Canada hopes its focus on women will pay off. Goldman Sachs and, much more recently, Deutsche Bank, have been refashioning their investment banking None of this is easy. It is expensive, complex and time arms to support their wealth management activities. consuming and several banks, including UBS, are now on their second digital model, underscoring the importance Down a tier, banks without an investment banking arm, of getting it right. such as Julius Baer, are concentrating instead on the high net worth market. These customers want portfolio At Orbium, we believe the fragmentation of the wealth management and more personal advice on questions management industry is just beginning. Specialisation such as tax and inheritance planning. and focus will be key to staying in the game. Whether you are a big global name, a mid-tier player or a boutique, the At the other end of the spectrum, traditional fund use of data and the honing of in-house skills to meet the providers such as Fidelity and Vanguard have been needs of your target market segment will be essential to able to develop mass-produced standardised products thrive in this new era.
Wealth Management Digest 2018 11 AGILITY AND INDUSTRIALISATION
EVOLVING TO MORE AGILE, INDUSTRIALISED OPERATIONS AND TECHNOLOGY
by Ian Woodhouse Head of Strategy and Change [email protected]
How addressing legacy core systems can unlock the full potential of data management and insights.
The Orbium Wealth Management C-level survey offers an legacy systems with little adaptation; nearly 10% are insider’s view of the current and future look of the wealth considering core application replacements. management industry in Europe and Asia. Respondents were C-level executives from nearly 50 leading private Majority respondents see their old legacy systems as banking and wealth management firms who together a constraint to becoming more flexible, adaptable and manage private wealth assets of more than $2.5 trillion. scalable in the face of ever faster changing markets Data collection for the survey took place between and client needs. Accordingly, they plan to adapt their September and December 2017. systems: by 2020 more than 70% will have modern core applications that will provide increased agility, scalability The survey findings highlight the key opportunities and and cost efficiency. challenges identified by C-level executives and reveal their I APP ICA I N CUS a views on how to succeed in an uncertain and fast-changing e entage a ti i ants 2020 environment. It also provides insights into the key gaps, 100 blind spots and gamechangers affecting their efforts.
One particular theme found in the survey was the shift towards more agile, industrialised operations and technology. This must be achieved through addressing legacy core systems, providing improved data management 0 and insight as well as driving standardisation and automation to gain greater efficiencies.
2 CORE BANKING AND DATA EVOLUTION Today’s systems are a mixed bag: nearly 40% of firms have modern core applications; nearly 40% still have legacy systems but are adapting them with e a li ati ns nsi e ing ega s stems ima s ting a i e a li ati n ith satellite lega s stems satellite applications; just over 10% still have primary s ala ilit e la ement a li ati ns
12 Wealth Management Digest 2018 However, there is limited appetite for long, expensive and and compliance, employee engagement and client risk-loaded legacy renewal projects and participants are satisfaction along with the traditional financial indicators looking for alternative ways to manage the transition, as key metrics today. including introducing APIs, micro services and RPA (robotic process automation). The rise in prominence of client satisfaction and people metrics reflects the expected evolution of more digitally Priority IT areas for investment are core banking, omni- enabled client relationship management processes. channel and digital, as well as client reporting. Further Additionally, firms realise that in the future they will have ahead, respondents plan to shift their investments to the to share data and work closely with third parties to make front and middle office areas and focus on omni-channel the most of opportunities. and digital, client relationship management regulatory support systems, and client relationship management DRIVING STANDARDISATION AND marketing support systems. There is a real need for AUTOMATION IN THE OPERATING MODEL tools that can help deliver client-centric specialisms and Funding change is a prevalent feature of the C-suite enable relationship managers to deliver more specialised agenda. Investing in front-end innovation and technology and personalised advice and solutions. demands that the back end is lean and capable of enabling integration of agile business processes in a For much of the industry, data management has cost-effective manner. Traditional on-premise solutions traditionally been fragmented. Multiple sources of data in are now being complemented or even replaced by cost legacy systems have required quasimanual approaches effective offsite services to provide a platform for growth. and were focused on traditional indicators. To make Standard back-office services are no longer viewed as matters worse, data was kept in silos and much of it differentiators and by reducing costs here investment repeatedly collected from clients for different ends. can be redirected to the front.
The future will see more interactive relationship management enabled PRI RI I S R IN US RIA ISA I N a 2020 by greater levels of client data e entage a ti i ants and knowledge. The data that is Digitise an collected will be stored centrally, a t mate esses accessible for different ends without recourse anew to the client. While this requires new approaches to governance in areas such as data privacy and cyber security, it will improve the customer experience 1 and allow firms to leverage the data more widely. Greater data availability 2 will also lead to more transparency ent alise e in the way the business is run as real a ti ities in h se t 8 e e li ati n time becomes the norm and batch processing is progressively replaced. 2 1 tan a ise When it comes to tracking the e esses business, respondents cited risk the s
Wealth Management Digest 2018 13 AGILITY AND INDUSTRIALISATION
LAUNCHING A NEW PRIVATE BANKING BUSINESS IN SIX MONTHS WITH AVALOQ: INDUSTRIAL BANK CO. LTD (CIB)
by Loïc Wymann Partner [email protected]
According to the 2017 Hong Kong Private Wealth Management Report, total AUM in Hong Kong was estimated to be over US$800 billion. As such, the Hong Kong market provides wealth management institutions with ample opportunities to establish themselves as industry leaders.
It was the case for CIB, which chose Avaloq to be its private banking front to back platform of choice and Orbium as the implementation partner to support the creation of its private Industrial Bank banking business in Hong Kong.
SITUATION With a time to market of six months, it was one of the fastest Avaloq projects ever implemented in the Asian market. This was a greenfield project, implying no data migration Hong Kong and minimal peripheral system integration. The objective was to leverage on Avaloq’s extensive wealth management offerings to provide a cutting-edge platform enabling the launch of CIB’s new private banking arm with a very short time to market.
The key success factors for this impressive achievement included: 2018 • Alignment and commitment: a clear direction and a strong commitment from CIB’s senior management were crucial for this time-driven project such that an early alignment on the project’s scope and principles was achieved. The project team stressed the ‘must-have’ functionalities required for banking operations and adopted a strong adhesion approach 20+ Orbium FTEs to the Avaloq standard baseline. Availability of the key business users was also decisive.
14 Wealth Management Digest 2018 • ABR/S baseline: Avaloq’s ‘Ready for Banking’ starter kit ACHIEVEMEMENT offered a comprehensive set of pre-configured products Delivery of a fully operational cutting-edge private banking and functionalities, enabling a faster implementation platform powered by Avaloq, supporting CIB’s growth plans without compromising on the offering. Together with a by providing clients with a wide range of new products and complete set of use cases – pre-defined functional test services, all within a six-month time period. cases – the project lead time was significantly reduced. These factors were especially important in achieving AREAS COVERED quality results from testing. A rich scope of functionalities and products was delivered • Avaloq platform and local market expertise: including end-to-end client onboarding, investment Orbium’s project team seamlessly combined strong advisory, trading, portfolio management, investment implementation experience with expertise on the suitability, financial accounting and client reporting, as Avaloq core banking platform. The team had deep well as the regulatory and compliance requirements and knowledge of the specific needs of the Hong Kong related reporting. A full range of products such as money private banking market in terms of products, services market, equities, bonds, funds, derivatives, structured and regulatory requirements, enabling the solution products, Lombard loans, foreign exchange products and delivered to be compliant with CIB’s business needs. options were part of the implementation.
• Project methodology: Orbium’s proven implementation ORBIUM ROLE project methodology was key to success. Early and Orbium had the privilege of being responsible for continuous involvement of business users, detailed the end-to-end solution design and implementation planning, an iterative and collaborative approach, daily management, where more than 20 Avaloq and private progress tracking and adjustment to changes enabled banking experienced Orbium consultants were engaged. a smooth delivery, on time and on budget. Orbium could also leverage on its remote development • Close team collaboration: establishing a trustworthy and delivery teams. relationship and strong partnership with all stakeholders was critical to project success. To facilitate this, regular communication updates were Abbreviations planned to include all levels from team members to ABR/S AUM CIB UHNWI senior management. Transparency, a can-do attitude Avaloq Banking Assets Under Industrial Ultra High and continuous alignment of interests were highly Standards Management Bank Co. Ltd Net Worth Starter Kit Individuals beneficial in achieving a fruitful collaboration.
Wealth Management Digest 2018 15 AGILITY AND INDUSTRIALISATION
BEST PRACTICES IN SUITABILITY IMPLEMENTATION
by Amar Bisht Head of Wealth Strategy and Advisory, APAC [email protected]
Many private banks have invested in costly suitability enhancement programmes that have not delivered the expected results. For such programmes to succeed and deliver the desired outcomes, they must be designed to assist private bankers and investment advisors rather than focus on merely tightening controls.
Conversations with the Chief Operating Officers (COO) of private banks have shown executives are focused on getting investment suitability right. Their concerns persist even though private banks have already allocated substantial resources to suitability enhancement programmes. The changes initiated have been significant, with sales processes revamped and additional risk and compliance personnel hired. Despite the spend on suitability, private banks are still not fully deriving the benefits of their investments and only a select few appear to be getting suitability right. The lack of success can be attributed to an ineffective implementation approach that ignores key best practices.
A HOLISTIC AND RIGOROUS FRAMEWORK IS AN ESSENTIAL PREREQUISITE The starting point for getting suitability right is for private banks to adopt a robust suitability framework that encompasses five dimensions.
Orbium’s framework incorporates lessons learnt and stresses the importance of a holistic approach by avoiding the creation of silos in departments with competing priorities. The emphasis is on embracing automation, where appropriate, across all five dimensions. The good news is that many COOs are now convinced of the importance of a holistic framework and the automation debate is also settled. Our deliberations with COOs are now geared towards incorporating industry best practices in suitability implementation.
16 Wealth Management Digest 2018 ACCELERATING AND OPTIMISING IMPLEMENTATION prohibit or block transactions at the point where the Based on our experience on multiple mandates, we banker is ready to book the transaction in the core share three critical considerations that can help ensure a banking system. This inevitably leads to a poor client successful implementation. experience when a trade is flagged by the system and further disclosures must be made to the client. FRONT OFFICE EASE OF USE MUST BE THE STARTING PREMISE OF THE IMPLEMENTATION EMBRACE A SUITABILITY ECOSYSTEM APPROACH AND NOT AN AFTER-THOUGHT TO LEVERAGE BEST OF BREED SOLUTIONS. SUCH AN To date, suitability enhancement programmes remain APPROACH IS MORE COST EFFECTIVE AND LEADS TO largely reactive. We have observed that many private A BETTER USER EXPERIENCE banks launch enhancement programmes after internal We observe that historically banks have built bespoke in- or external inspections. In most cases, the programme’s house suitability solutions. Such an approach can quickly mandate is to work through a checklist of findings and unravel because they were never designed to cater to remediation items and the project team is pressed for complex suitability obligations that are now becoming time to meet deadlines. The enhancements are often prevalent. We have seen examples in the industry where driven by limited front office participation and ease of simple changes in suitability rules can take up to six use quickly becomes an afterthought. The results are months to implement. inevitably inflexible solutions that fall far short of user • By adopting an ecosystem approach, banks can expectations and deliver poor user experience. Ultimately reduce costs, increase ease of use and provide this approach leaves the front office staff disgruntled. significantly better user experience. External and These outcomes can be avoided if front office users are readily available services can be utilised with in- actively engaged and play a vital role in the programmes. house solutions to offer a comprehensive and user- • A proactive approach makes front office ease of use friendly suitability offering. the starting premise of the solution. At innovative • Working with external partners, including fintech clients, we have seen the creation of a Relationship and regtech firms, Orbium has created a model Manager Suitability Workbench. Such a dashboard ‘suitability ecosystem’. This allows banks to plug actively encourages use by relationship managers in innovative solutions across all five multiple or investment advisors by enabling them to pre- dimensions of the suitability framework to filter suitable recommendations for a specific client complement in-house services. portfolio. The suitable products are shortlisted and displayed on the screen for reference and solicitation • Many private banks now rely on a business rules by front office staff. engine to host the suitability checks. Business rule engines depict the rules visually and are easy to set • Recommendations from the advisory team are also up and update. Business risk functions can rapidly seamlessly integrated into the dashboard. respond to regulatory changes without having to wait • The relationship manager or investment advisor can for months to make changes to suitability rules in simulate the effect of a transaction on the client legacy IT systems. portfolio and determine potential suitability violations. • The benefits of an ecosystem approach can easily Simulations help identify concentration mismatches extend downstream. For example, we see banks that can be disclosed pre-trade to the client. adopting a robo-surveillance solution analysing all • Unfortunately, there are several examples in the transactions and identifying trades that need further industry where banks have ignored the front office investigation, eliminating the risks associated with perspective and adopted a reactive and restrictive the traditional sample-based methodology. approach to suitability. A few have chosen to
Wealth Management Digest 2018 17 BUILD DIGITAL CAPABILITIES WITH EMBEDDED CONCLUSION REGULATORY OBLIGATIONS There is a lot at stake in rolling out a suitability Private banks are rapidly building digital capabilities enhancement programme. Our experience and and accelerating the adoption of digital channels. insights suggest that private banks undertaking such This presents a unique opportunity for banks to build a programme maximise their chance of success by regulatory safeguards into their digital solutions and designing solutions that enhance the front office leverage the lessons learnt previously. ease of use and complement in-house capabilities by embracing an ecosystem approach. We observe that many private banks are making a push for digital engagement with clients and are increasing Banks that are willing to break away from the typical the breadth of their products available online. This checklist approach to suitability programmes will gain a digital push must consider and incorporate the guidance strategic advantage enabling their relationship managers provided by regulators on the design and operation of and investment advisors to provide better client online and digital platforms. experiences while meeting suitability obligations.
In late March, the Securities and Future Commission As observed in the industry, poor implementation (SFC) of Hong Kong, released consultation conclusions approaches prove costly in the long term with delays and on proposed Guidelines on Online Distribution and cost overruns, and have even led to expensive remediation Advisory Platform. exercises. For banks looking to tighten their suitability • A best practice observed in banks that have digital regime, it is imperative to move from frameworks to capabilities is to review all aspects of the suitability accelerated implementation – and to do so now. of a transaction. A digital solution enables the relationship manager or investment advisor to first assess cross-border suitability and if the trade does not violate any cross-border guidelines, the trade is then seamlessly evaluated to determine product and investment suitability. • As private banks start rolling out online platforms, they must pay attention to the design and operation of these platforms. A proactive approach will ensure that meeting suitability obligations does not become a time-consuming exercise and client experience remains uncompromised while meeting all regulatory obligations.
18 Wealth Management Digest 2018 An optimised suitability implementation must incorporate industry proven best practices to ensure success.
– Amar Bisht, Head of Wealth Strategy and Advisory, APAC
Wealth Management Digest 2018 19 LEVERAGING NEW CAPABILITIES AND CHANNELS
BUSINESS EXCELLENCE, THE UTOPIAN ASPIRATIONS OF WEALTH MANAGERS
by Katharina Mohr and Olivier Grandjean Senior Managers [email protected] [email protected]
As new digital propositions continue to permeate the wealth management industry, how can the tension with traditional offerings be correctly managed?
Banking executives struggle to decide the degree and The envisioned balanced and integrated business direction of innovation required to remain relevant. model then becomes the central decision criterion for Following established industry sentiment, cost initiating long-term investments and innovation. Banks reduction and industrialisation are at the forefront must innovate their offering while also developing a of their minds. However, IT and business process vision and culture that supports digital transformation. outsourcing take precedence on their agendas. Without By successfully leveraging disruptive technologies, aligning and synchronising their ultimate objectives, organisations can outperform both their peers and new outsourcing initiatives can become obstacles, delaying market entrants. or putting innovation at risk. Rapid innovation requires the flexibility of both IT systems and operational teams For most firms today, new propositions differ significantly whereas, traditionally, outsourcing identifies ITO or BPO from traditional offerings and cannot be delivered by opportunities to accelerate process standardisation simply enhancing existing operating models, therefore and deliver existing offerings at a lower cost. In the calling for deeper business model transformation. The future, an organisation’s success (or excellence) will critical success factor in such a transformation is choosing be determined by its effectiveness in surfing this the right sequence and nature of (smaller) changes in ‘outsourced innovation paradox’. order to already deliver benefits during the transition. As newer models are more efficient, their operating costs can New integrated business models of high-performing be funded by the optimisation opportunities they unlock firms will be characterised by an agile organisation that: within the continued traditional models. 1. Supports core client propositions and services. Such a journey requires a bivariant approach to change 2. Outsources non-core propositions and that not only focuses on new outcomes, but how these partner services. outcomes can benefit current models. This allows the 3. Achieves seamless integration in a unified digital creation of transient states where the organisation delivery model embedding the necessary regulatory continuously improves traditional and newer offerings compliance frameworks. through a succession of delivery models that become
20 Wealth Management Digest 2018 more and more seamless and lean. Other initiatives to products. On the one hand, by balancing traditional and improve traditional processes are still likely to exist for innovated propositions, the core offering is optimised. On short-term outcomes, but they are no longer deemed the other hand, mature secondary or partner offerings strategic and must therefore align to and ultimately that are part of the revisited offering are outsourced leverage innovation (e.g. digitalisation). (e.g. IT infrastructure, non-core business processes) while still retaining the ability to be integrated in a digital The graphic below illustrates how such transient states banking layer. Emerging IT system architecture leverages allow the integration of new capabilities to progressively the potential of a digital layer to both unify customer augment traditional channels, legacy platforms and propositions and (partially) replace traditional systems.
An optimal transient state in the journey towards future business model
xistin traditional business model nvisioned future business model
Innovate e siti n agmente e ing Optimise e esses in h se ni ie al e siti n n nsistent alue alue eamless tilit se i es siti n Outsource n n e siti n n n proposition e esses Outsource n n e ent al e s stem Consolidate Activate al e ata ni ie igital la e nt t nt nt t agmente ata Unify m el in a ni e igital la e a esses a t nt Embed m el in a eg lat m lian e nteg ate a tne tilit processes
Systems esses ame se i es m e te nal es
xample of an optimal transient operatin model
ransformation of value proposition...... and its supportin systems ni ie ne e ing a tiall processes e la ing t a iti nal e ing e ating m el a tiall t ans me int a ni ie n mig ate t a iti nal m el se i es emain agmente nn ati e esses a gment an timise t a iti nal m el
Wealth Management Digest 2018 21 When defining change initiatives and striving for business excellence, key principles are often still ignored.
22 Wealth Management Digest 2018 Through the concept of transient states, business When defining change initiatives and striving for business excellence can be evaluated in the way stable business excellence, key principles are often still ignored. For model changes are prioritised, sequenced and example, wealth managers rarely build front to front (a continuously delivered. It is characterised by: set of processes that do not interact with legacy or core 1. An efficient organisation where scalable IT and systems to communicate, allowing quicker decisioning and data architectures support functional teams in their accelerated innovation) business management frameworks evolution towards new operating models. to benefit their traditional processes. The majority rather digitise existing processes, creating digital silos on top of 2. An offering where innovative value propositions, legacy frameworks and multiplying back to front digital state-of-the-art partner offerings and outsourced integration layers. This in turn increases the embedded utility services are unified in a digitally enabled operational risk as such frameworks are neither smart nor delivery model. fast enough to keep up with the digital pace and the need 3. A strong change (adoption) and risk management for seamlessly interconnected journeys. culture driving the organisation’s evolution with its governance framework. Looking at the wealth management industry today, firms face unprecedented market disruption and they need to transform their businesses to remain relevant. An Characteristics of business excellence organisation-wide change culture for innovation adoption with central governance and a stronger, more agile change management have emerged as key prerequisites rtner offerin Pa gs to survive in such conditions. They enable firms to find n U io ti a timely and evolutive balance between their digital it P li s re art ty o o ne p C r s o d O e and traditional offering. They also propel a holistic r e r t f v p f i a e c e v s Ex r nes cel i e and intelligent transformation approach that forces u o i le n s l n s n a u c g n B e V I organisations to synchronise the innovation of their Bank Vision offering with the required operational and organisational optimisation to support and deliver it.
E f n fic tio In this context, the ultimate objective to achieve ien isa t Organ business excellence can be defined as an organisation’s Target Operating Model ability to successfully evolve through a continuum of Functional Organisation IT Architecture Data Models transient business models and to optimally operate traditional, outsourced and innovative offerings within Governance the appropriate risk, revenue and cost targets. In Regulatory Change Bank Responses Management Management comparison to the traditionally used term ‘operational
Business Excellence Dimensions excellence’, business excellence strives further, enabling Digital Innovation – Sourcing Partner Opportunities – Risk Appettite Thresholds real C-level change journeys, and is critical to navigating and managing change for the future. Achieving business excellence, however, implies that a firm’s change journey comes to an end. It must therefore be understood as a moving target, an aspiration organisations strive for but never reach.
Wealth Management Digest 2018 23 LEVERAGING NEW CAPABILITIES AND CHANNELS
WHAT DESTINY FOR FINANCIAL INTERMEDIARIES DURING A CORE SYSTEM TRANSFORMATION?
by Olivier Grandjean Senior Manager [email protected]
No one should be left out when banks change their core systems.
This means that when the dust settles on a transformation project, EAMs are often left out in the cold. They are expected to use the same e-banking front end as the According to 13% of respondents to bank’s customers, which does not offer the depth and flexibility they need, together with some bolted-on external the Orbium C-level survey, developing tools. Worse, they are sometimes given access to the strategic partnerships with financial bank’s back end systems, which are far too complicated intermediaries is among the top three for them and require a lot of support. priorities to drive revenue growth and The result is that EAMs lose satisfaction with the bank unlock further B2B client segments. and, in some cases, make less use of their accounts. In turn, the bank sees a drop in income or a rise in support costs – sometimes both. When a bank undertakes a core banking transformation project, one easily overlooked group are the external It doesn’t need to be this way. One of the key products in asset managers (EAM). Trust managers, insurers and the market differentiates itself by offering front workplace other intermediaries, whether they are single users or technology with a flexible real-time web platform to meet large corporations, all need great services. They want the growing needs of a bank’s intermediaries. Avaloq real-time reporting and adapted investment services, meets client needs by providing a user experience design just as bank staff do. framework that can be easily customised for specific types of external user. However, by their nature, external stakeholders are remote from the team running transformation projects Implementing the EAM workplace as part of a digital and so are not always consulted. Perceived as external transformation project or as a complement to a core relationship managers, transformation teams also tend transformation project doesn’t just mean a better to assume all EAMs’ needs will be covered by a set of partner experience compared to the alternatives. The existing relationship manager’s capabilities. workplace framework offers granular features that can
24 Wealth Management Digest 2018 be customised to deliver something truly personal for the Orbium’s team of Avaloq-certified consultants have various intermediaries and can become a differentiating worked from the inception of Avaloq web technology proposition versus other banks. in pilot programmes and are strongly involved in customising the first EAM workplaces. As the only Avaloq Avaloq’s multi-user, browser-based solution is secure and training partner, we successfully lead EAM training for, fast, but uses minimal bandwidth and has lower costs and on behalf of, banks. than many of the leading contenders. Orbium has structured its digital services to deliver a Its flexibility makes it easy to add only those features each complete final product: client needs, from standard ones such as financial-situation • Subject-matter experts with strong expertise in overviews, trading and client group management, to front office. investments, electronic documents and, in a forthcoming update, advisory offerings, employee entitlements, • Customer and financial-intermediary needs to corporate-action administration or chat services. support product owners and customer experience (CX) design. More complex features can be offered through targeted • Managers using agile development methodologies marketing, allowing for the possibility of different pricing to deliver maximum business value in the short models for different services. term and drive remote teams effectively. • Fully-owned near-shore and offshore centres delivering Implementing a strong initial solution can take as little as complex projects at the company’s high standards. six months, depending on agreed scope. But many bank IT departments will not have the experience of running a The result of a well-implemented platform for EAMs is project like this, which is why partnering with an external that they will be more active and independent, meaning expert such as Orbium can help. As an official premium lower support costs and more income for banks. It’s an implementation partner for Avaloq, Orbium is actively opportunity that too many banks are missing. supporting banks to provide effective tools for EAMs.
Wealth Management Digest 2018 25 CHANGE MANAGEMENT
ACHIEVING AN AGILE APPROACH
by John Okoro Head of Agile Practice, APAC [email protected]
Big financial services companies are often like oil tankers – huge and hard to manoeuvre. But with digital disruption making waves, these regional financial giants might soon be encountering a perfect storm. By becoming Agile, such groups have a chance not only to navigate choppy waters, but to steer a new course.
For all the talk of rapid change in financial services – thanks create a dynamic workplace which promotes trust, to fintech and altered customer expectations – we haven’t autonomy and responsibility to foster innovation and seen anything yet. Prepare to experience warp-speed value creation. change after Alibaba’s Ant Financial, China’s largest online payments operator, secured $14 billion in new funding. The Agile way of working can be traced back to the 1950s, with Toyota and its eponymous production system. The While the funding will help Ant Financial expand car manufacturer’s goal was to eliminate waste, be that overseas and reinforce its leading position at home, it in design, production, delivery or management. At its will also act as a spur to fintech aspirants to innovate in core was the idea that applying learning would deliver a an attempt to catch up. The result: an accelerated rate competitive edge. Its principles were: the goal is value, of change in a sector that has already seen a revolution respect for people and culture, optimise flow, innovation, over the past decade. continuous improvement and the foundation of leadership.
The pace of change poses considerable problems for In 2001, a grassroots movement of independent traditional banks. These are huge, well-established software developers came up with the Agile Manifesto. organisations with strong cultures and time-honoured Its own principles borrow from the Toyota Production practices – both powerful hindrances to change. System: individuals and interactions over processes For banks in Asia – the key focus of Ant Financial’s and tools; working software over comprehensive expansion – this is a particular concern. documentation; customer collaboration over contract negotiation; responding to change over following a plan. In response, these big financial institutions are beginning Modern Agile adds the organisational Agile principles: to change course. Some have already adopted the Agile make people awesome; deliver value continuously; make way of working – a set of principles that helps companies safety a prerequisite; experiment and learn rapidly.
26 Wealth Management Digest 2018 Taken together, they allow people to become their best Similar results could be achieved in Asia by financial and help companies navigate change smoothly and services firms adopting Agile at scale. Orbium, with its efficiently. They encourage people to try new things best-of-breed partners Scaled Agile, the Business Agility without fear of failure. Some of these new things create Institute and the International Consortium for Agile (IC value. By trying and failing, people learn fast. People will Agile), can help. become awesome. The company benefits. By working with clients who want to implement Agile But typically, companies get stuck in the first wave of working at scale, we can provide the right training, Agile, restricting its implementation to a few teams tasked coaching, leadership consulting and certification. We with developing a new product or service. This works for enable the digital delivery and transformation that allow small companies. But for the big guns, having a handful our clients to thrive, rather than just play catch-up with of Agile teams in a vast workforce is hardly a recipe for Ant Financial and fintechs. organisational change. The existential threat posed by the likes of Alibaba and others demands that they implement Agile on a far wider scale, certainly across IT departments (wave 2), but ultimately across the whole organisation, in order to change and thrive (wave 3). IT’S TIME Some global companies that have already adopted Agile on a broad scale have shared their experiences in case studies published by Scaled Agile, an Orbium partner and the provider of SAFe, a leading framework for company- TO BECOME wide Agile programmes. These include Fannie Mae, Intel, Capital One, Standard Bank, AstraZeneca, Swisscom, Philips and the UK’s NHS. AGILE! Cited benefits include $12 million savings and projects coming in 18 months ahead of schedule, a halving of time to market, the release cycle cut by two-thirds, faster delivery, happier teams and increased customer satisfaction.
Wealth Management Digest 2018 27 ABOUT ORBIUM
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