EVOLVING OPERATING MODELS IN WEALTH MANAGEMENT Wealth managers and private banks are rapidly evolving their operating models in response to seismic shifts across a range of business-critical areas and, for many, alternative sourcing models are looking increasingly attractive. When Commitment Meets Dedication Commitment and diligence are essential for your business. Expect delivery – we have a 100 % success rate in the implementation of our solutions. The Avaloq group is an international leader in integrated and comprehensive solutions for wealth management, universal and retail banks. It has a reputation for the highest standards in engineering excellence, is passionate about innovation and invests more in R&D than any other provider for the fi nancial industry. We deliver what we promise. As a result of true partnership paired with full dedication, every single Avaloq implementation is a success story. Learn more on www.avaloq.com Avaloq_AD_Commitment_E_UK_2016.indd 1 17.02.2016 20:39:21 FOREWORD On the face of it, the evolution of operating models in the wealth Another is the proliferation of outsourcing and technology pro- management industry might not seem to be the most prepos- viders, in all their forms, that specifically target their services at sessing of topics - not at a time when there may seem to be so wealth managers. many more exciting developments happening in the front-end. Wealth management is transforming itself from being a highly tra- Firms all over the world are having to work increasingly hard to un- ditional industry that has sometimes appeared almost sceptical derscore the value they add for clients amid heightened transpar- of the positive impact technology can make to one which is now ency on both fees and performance. The thesis of this research taking great strides in digitalising the client experience. is that firms’ need to focus resources (and corporate energy) on activities where they can differentiate will naturally increase their Yet, all these enhancements must be embedded effectively into willingness to outsource those in which they cannot. Outsourc- institutions’ operational structures, and developed and main- ing in areas that clients do not – and moreover should not – notice tained somehow, in practical terms. They must also be funded, is going to become an increasingly compelling prospect in these likely by firms making significant efficiency savings elsewhere. As cost-conscious times. Shakespeare had it: “Nothing can come of nothing.” The evolu- tion of wealth managers’ operating models, particularly as it per- The outsourcing offering for wealth managers may not have been tains to technology, is in fact at the heart of many of the industry’s absolutely perfected as yet, but the ecosystem of outsourcing most pressing issues. and technology providers attuned to their specific needs in serv- ing sophisticated, international private clients has progressed Over the past five years WealthBriefing research has been trac- hugely in recent years. Furthermore, as this report will discuss, ing the technological transformation of the industry, both broadly institutions of all kinds are known to be making impressive gains - through our annual Technology and Trends Report – and by from alternative sourcing models – not only in terms of efficiency examining business-critical areas of operations like client on- savings, but in the quality of their processes too. boarding, KYC and risk-profiling in great depth. The increasing compliance burden has doubtlessly dominated the industry WealthBriefing is proud to have partnered with Avaloq and Deloitte agenda and costs have spiralled for many. But what has also on this project and we are also delighted to have been able to been noticeable is firms’ ambition for necessary spend related to gather insights from such a wide range of senior wealth manage- regulation not to represent a “dead cost” by any means. Senior ment executives, compliance and technology experts, and consul- executives are vocal about seeking gains in operational efficien- tants to illuminate our research. We are most grateful for their input, cy and assets under management as well as mitigating regula- along with that of the wealth management professionals who took tory risk when modernising their systems and processes. part in the survey that forms the basis of this report. But while compliance is the lens through which so many industry We welcome feedback on this or any other research, and would developments must be seen, it is “only” one of the biggest chal- be pleased to discuss any ideas for development readers might lenge facing wealth managers, amid many. In addition to the al- have. phabet soup of new regulations, firms also have to contend with a far more demanding and discerning client base. In short, they are seeking to do more – to deliver more to clients – with less. Corre- WENDY SPIRES spondingly, in recent years our research has documented an ac- Head of Research companying shift in wealth managers’ approaches to putting to- WealthBriefing gether and running their operations, with an increased openness to alternative sourcing models being a particularly marked trend. Thibaut Jacquet-Lagreze Patrik Spiller Wendy Spires Head of Marketing, Avaloq Partner, Deloitte Consulting AG Head of Research, WealthBriefing [email protected] [email protected] [email protected] Published by: CLEARVIEW FINANCIAL MEDIA Heathman’s House 19 Heathman’s Road London, SW6 4TJ United Kingdom In association with: AVALOQ Allmendstrasse 140 8027 Zurich Switzerland In association with: DELOITTE CONSULTING AG General-Guisan-Quai 38 PO Box 2232 8022 Zurich Author: Wendy Spires, Head of Research, ClearView Financial Media Data Analyst: Anna Hallissey, Researcher, ClearView Financial Media Graphic Designer: Jackie Bosman, ClearView Financial Media © 2016 ClearView Financial Media Ltd, publishers of WealthBriefing. All rights reserved. No part of this publication may be reproduced in any form or by any means, electronic, photocopy, information retrieval system, or otherwise, without written permission from the publishers. CONTENTS EXECUTIVE SUMMARY 6 RESEARCH ORIGINATORS & EDITORIAL PANEL 8 SECTION ONE Where Institutions are Outsourcing and How They Rate BPO Provision 12 SECTION TWO Barriers to BPO - Data Security Tops Wealth Managers’ Worries 19 SECTION THREE Quality, Cost-Savings and Core Business the Top BPO Drivers 23 SECTION FOUR Re-Deploying Resources to Focus on Adding Value 26 CONCLUSION 30 6 Evolving Operating Models in Wealth Management EXECUTIVE SUMMARY 1. WEALTH MANAGERS HAVE A STRONG DESIRE TO STEP 5. RELATIONSHIPS, INVESTMENT ADVISORY AND CRM AWAY FROM STANDARDISED PROCESSES TO FOCUS REMAIN CLOSELY HELD MORE ON VALUE-ADDS Unsurprisingly, institutions are least keen to outsource in the Some 56% of institutions regard reducing the effort they spend areas they believe they deliver most value to clients or which on standardised processes in order to focus on value-added constitute a touchpoint. ones as an important or critical priority. Fewer than a tenth of respondents said that this was not on the agenda at their firm. Almost nine-in-ten (89%) do not outsource relationship manager CRM and advisory workplace. The survey also showed high reluctance to outsource investment advisory processes and 2. FOCUSING ON CORE BUSINESS THE BIGGEST BPO portfolio management. Respectively, 86% and 83% have chosen DRIVER to keep these activities in-house. Of all the potential drivers towards outsourcing, a desire to focus Unsurprisingly, over half (52%) said that relationship and quality on core business ranked top, with some 85% of respondents service is where their firm provides most value for clients, with rating this as an important or very important driver. this belief even stronger among the UK and Asian respondents, (Correspondingly, only just over a tenth of institutions have and those working at private banks. offered or are considering offering BPO services to their peers.) 6. CLIENT-FACING ELEMENTS MOST CUSTOMISED 3. QUALITY AND EFFICIENCY CLOSE BEHIND Portfolio management is regarded as a customised/very Institutions’ second- and third-biggest drivers towards BPO are customised activity by almost half (48%) of participants, closely accessing best-in-class processes (82%) and improving followed by investment advisory processes (47%) and product efficiency through industrialisation (80%). management and services (46%). 4. FIRMS ARE EYING EFFICIENCY GAINS OF AT LEAST 7. PAYMENTS, CORPORATE ACTIONS AND 20% SECURITIES-TRANSACTION PROCESSING RIPE FOR BPO In assessing the business case for BPO, over nine-in-ten (93%) The most standardised processes at institutions are payments institutions would seek efficiency gains of at least 20% to enter a processing (deemed standardised/very standardised by 70%); contract, and 58% of respondents would want 30% or more. corporate actions processing (68%); securities-transactions execution routing (66%) and bank accounting and regulatory reporting/tax reporting (63%). Interestingly, the most standardised processes were also where BPO offerings are seen to be most mature, yet actual adoption levels appear lower than might be expected on this basis. Similarly, while client reporting is where the survey respondents really expect outsourcing providers to excel, as yet there is fairly muted take-up of outsourcing here. Executive Summary 7 8. COST-SAVINGS FROM ALTERNATIVE SOURCING 9. TAX SERVICES, STANDARDISED PROCESSES TOP THE EARMARKED FOR