Responding To Megatrends For Future Success
Responding to megatrendsfor future successWealth Management Digest 2020Wealth Management Digest 20201
Executive summary2020 has been a year like no other.Although we had expected to witnesssignificant global change thanks tomajor elections and the inevitableassociated stockmarket volatility, noone predicted COVID-19 or the waysin which it would force us to radicallyadapt how we live and work.Just ahead of the pandemic, Accenture andOrbium talked to C-level executives from morethan 50 private banking and wealth managementfirms in Europe and Asia for our second flagshipAccenture – Orbium Wealth Management C-LevelSurvey. This gave us invaluable insight into thetrends – strong and emerging – that were alreadyshaping their businesses. From subsequentdiscussions with the participants and fromour ongoing client work, we were able to seehow the pandemic was affecting these trendsand how wealth managers (WMs) were adjustingin response.Wealth Management Digest 2020Before the pandemic, WMs were facing significantstructural challenges including margin pressure,increased competition, evolving client priorities,rising legacy IT costs and a shortage of advisers.Unanimously, they reported they were adoptingnew and remote ways of interacting with theirclients, enhancing cybersecurity and eradicatingpaper communication where they could. Whenwe spoke to them again after the pandemichad broken, it was clear they had ratcheted upthe speed at which they are pursuing thesenew strategies in the face of the toughereconomic environment.At Orbium and Accenture, we have been ableto put into practice what we have learned. Weare helping clients progressively reshape theirbusinesses across key dimensions to help delivera differentiated client experience, adopt a moreintelligent approach to operations and technology,practise responsible leadership, and developa more skilled and empowered workforce. Byreshaping their businesses and making theappropriate moves at the appropriate timeand pace, wealth management firms can expectto be well positioned for what comes next.We are happy to introduce our WealthManagement Digest, a collection of articlesthat looks at the key business, regulatory andtechnology drivers of change facing the sector.It addresses how responses to these drivers needto evolve over time, reimagining the WM modelso that it can thrive as we head towards 2025.We believe that it is timely, insightful andinvaluable reading to anyone in the sector.We hope you agree.Samir GherbiManaging Director,Orbium Switzerlands.gherbi@orbium.com2
ContentsSurvive and thrive to 20255Introduction to the C-Level Survey8Four focus areas for successResponsible leadership10Getting pricing right is a win-win forwealth managers and clients13Wealth managers need to embrace responsibleleadership and ESGIntelligent operations and technology24It’s time for hybrid transformation26Making advisory fit32Case Study: Reinventing DBS Bank’s advisory offering,leading to more transparency and better decision makingDifferentiated client experience34Stem the outflow of wealth by listening to theyounger generation37The emergence of non-bankable assetsIndustry viewsEmpowered talent and change40Asian wealth managers and the digital imperativeto maintain growth17Wealth managers need to get real with remote4320Financial advice reimaginedDigital technology helps NatWest Wealth Businessdeliver great client valueWealthWealth ManagementManagement DigestDigest 2020202033
Survive andthrive to 2025Wealth Management Digest 20204
Introductionto the C-LevelSurveyOur flagship C-LevelSurvey found a disconnectbetween ambition and theability to seize the massiveopportunity presentingitself to the wealthmanagement industry,says Ian Woodhouse.The latest Orbium survey, Survive and thrive to2025 – Insights from the Wealth ManagementC-Level, paints a fascinating picture of a muchwider 260 trillion potential opportunity for thewealth management sector today.ownership, to help their clients leverage theirnon-bankable and private assets as a meansto open up new revenue streams – just at a timewhen growth within the traditional WM marketis stagnating.The bullish sentiment captured in the survey,however, reveals that some wealth managers(WMs) have not yet come to grips with theexistential threats looming over the industryover the next five years.When these non-bankable assets are included,the wealth of those served by private banks andWMs grows to a sizable 260 trillion.Learnings from the front-runnersFirst, the good news. More and more, WMsare finding ways to work with non-bankableand private assets such as real estate, privatebusinesses, fine art, wine, property and evenyachts. Traditionally, these illiquid assets couldnot be monetised by WMs, only coming on totheir radars when used as collateral. Buttechnology is changing that.The survey reveals that forward-thinking WMs arestarting to discover methods, such as connectingbuyers and sellers, tokenisation and fractionalWealth Management Digest 2020But navigating this shift is not easy, particularlyas along with it comes the need to adapt tokey megatrends: hyper-personalisation; the riseof ethical investing; the need for greater valuegeneration; utilising personal data effectivelywhile maintaining privacy and safety; and the riseof platform ecosystems. Indeed, it’s clear from oursurvey that many WMs are finding the shift to bea larger challenge than they originally anticipated.Even more startling is the faith they have in theirown ability to succeed: the majority of WMsbelieve their own growth could outpace thatof their peers; clearly, some are overestimatingwhat’s possible in a tougher environment.5
Understanding the solutionsAt the heart of the opportunity lies new technology.WMs need digital platforms to capture and retaina share of the wider growth and client potential.But they are also expected to need new skills anda change in culture from the boardroom down totake advantage of this technology. Without these,they will likely struggle.The survey shows that just over 20% of WMs areconsidering wholesale change to their businessmodels in response to the remodelled landscape.But in what we believe is a significant finding, nearly80% believe they can survive by just tweaking theirmodel. The scale of the opportunity and the speedand magnitude of change suggests success is byno means a given.For example, responses reveal that WMs expectto see some 1.5 trillion a year on average inassets leave their firms as wealth is inheritedbetween generations. Stemming this outflow willbe critical to thriving in the future. Firms need tomeet new demands so they can better, and moreaccurately, tailor their services to prevent clientsfrom taking their business elsewhere.Wealth Management Digest 2020Over time, and thanks to data analysis, WMsshould even be able to serve the market ofone – a level of hyper-personalisation that runsto products as well as services and advice. Moreinteractive and remote dialogue between advisersand clients, the tokenisation of assets and smartuse of data would have roles to play in attractingand retaining clients. But so would being the rightsort of wealth manager. Clients are expected toincreasingly look for responsible wealth firms withrobust policies and knowledge of environmental,social and ethical investing that chime with theirown. Marketing yourself as sustainability expertsbut having board members associated withairlines, the oil and gas industry or tobaccocould jar.6
New skills for a fresh approachHaving the vision and capabilities to deliverrequires very different skills from thosetraditionally found within WMs. It also requiresa business model focused on technology anddata to be able to provide the level ofpersonalisation that clients expect.People with the necessary skills are in shortsupply, making it harder to attract and retainthem. Cultivating an environment whereinnovation – not a word traditionally linked towealth management – is encouraged shouldmake it easier. Staff training and career pathscould be affected, too, as would keyperformance indicators.The survey also shows that WMs understandhow successful transformation programmescould deliver revenue growth and lower costs –with, on average, an anticipated revenue growthof up to 30% and a reduction in costs of up to25%. But again, these programmes are dependenton technology that, applied appropriately, allowsfor automation and innovation. In itself, thetechnology doesn’t deliver either – somethingperhaps overlooked by the 80% mentioned above.Wealth Management Digest 2020This is the crux of the paradox thrown up bythe survey’s participants and their responses.They know they need to adapt, but few yetunderstand the full scope of the transformationrequired to discover new value opportunities,co-create and innovate with partners and scalesustainably at speed. Although the survey wasundertaken before the COVID-19 pandemic tookhold, the trends it deals with – including slowgrowth, rising costs, the rise of ethical investing,significant intergenerational outflows of wealthand hyper-personalisation – are only likely to beaccentuated at a faster pace as a result, makingthe lessons that can be drawn even more valuable.The full survey Survive and Thrive to 2025 –Insights from the Wealth Management C-Levelis available to download here.Ian WoodhouseHead of Strategy and Change,Orbium UKian.woodhouse@orbium.com7
Four focus areasfor successParticipants in our recent C-Level Surveyacknowledge that megatrends should inform theirstrategy, in some cases even their purpose, andultimately reshape whole areas of their businessto give the best chance of future success.Tech enabled trendsTech trendsEmergenceof newtechnologiesShift from supportto value generationenabled throughtechnologyRise ofplatformecosystemsResponsibleleadership andstrategyWealth Management Digest 2020By distilling these megatrends into tech trends,tech enabled trends and responsible impacttrends, we could assess the likely future impactand highlight four key focus areas of successfor a WM business.Growingimportance ofhuman-machineinteractionTrend towardshyperpersonalisationEmpoweredtalent andchangeParadox ofpersonaldateEvolvingpricingmodelsMoving towardsnew participationand sharing modelsIntelligentoperations andtechnologyResponsible impact trendsShiftinvaluesRise of multigenerational,individualisedsocietyEcological andenvironmentalconcernsErosionRise of newcollaboration of trust entexperience8
ResponsibleleadershipWealth Management Digest 20209
Getting pricingright is a win-winfor wealthmanagers andclientsAn accurate pricing strategycan help wealth managersboost annual revenuesand profits as well asbuild valuable trust in anincreasingly competitivemarket, according toJacqueline Teoh andAmar Bisht.Wealth Management Digest 2020Rising competition and costs have preventedmany Wealth Managers (WMs) in Asia fromgrowing revenues and profits even as their ownclient base has become richer. While personalassets of the wealthy have almost tripled in thepast 20 years, WMs’ cost-to-income ratios havesteadily climbed, reaching 77% by 2018. Someexperts project further rises to as high as 85%.1This strong growth in wealth offersgreat opportunities for WMs in Asiato increase the size of their businesses,but they must first find ways to reducethe pressure on margins in order tohelp achieve a profitable, sustainablebusiness model.One area most WMs in Asia have historically notaddressed with the required rigour is their pricingpolicy. This is an oversight that might not onlyimpact revenue, but also could damage clienttrust and retention – and could lead to troublewith regulators. The good news is that quick winscan be achieved by working with experiencedthird parties.85%projection ofpossible cost-toincome ratioExpert insights for positive changeFrom our experience it appears that there areadditional dollars to be earned by implementing acarefully constructed pricing strategy.Whilst reviewing one of our client’s pricing strategywe found that their custody fees were below themarket level; as were its discretionary fees, whichaffected more than 1,000 legacy accounts. Withequities, we found that prices could be raised incertain markets; while in funds and bonds therewas insufficient spread and price differentiation.When it came to foreign exchange, we found lowmargins, inconsistent fee enforcement and feewaivers on secondary trades that were adding upto 5 million a year in lost revenues alone.10
Based on those insights, we were able to helpour client implement a series of measures to stopthem undercharging and to control the discountsoffered by its relationship managers. Thanksto this, most of the additional revenue gainedfrom our measures fell straight to the bottomline as leveraging them incurred minimal costs.Furthermore, this is recurring revenue, and notone-off additions.Other areas for improvement we often comeacross during client pricing strategy reviewsinclude poor documentation of bilateralagreements between manager and client aswell as poor pricing analytics in real or near realtime. We also see firms over-relying on Excelspreadsheets rather than adopting innovative(fintech) solutions that provide essential analyticson profitability and spend.Trust gained throughcompetitive pricingThe upside of pricing reviews goes even furtherthan capturing lost revenue. For example, firmsthat benchmark pricing and impose strict controlson fees could significantly reduce the risk ofWealth Management Digest 2020overcharging clients and, consequently, avoidfines meted out by regulators.Correct pricing also builds trust – and when itcomes to client retention, trust has never beenmore important than it is today. The industry iscurrently facing the biggest intergenerationaltransfer of wealth ever seen. Over the next10 years, almost 20% of wealth held by high networth individuals is expected to change hands –that’s about 15 trillions.2Our recent Accenture – Orbium WealthManagement C-Level Survey shows that onaverage 32% of wealth is expected to leak awayfrom retained WMs over the next five years.Some of the losses can be accounted for bythe megatrends identified in our survey, such asclients looking for digital services, environmental,social and corporate governance (ESG) advice andproducts, and next-generation advisers. But poorreputation and lack of trust could surely play a partas well. Clients might shop around to find good11
service at a cheaper cost. Faith that one’s WM iscompetitive when it comes to pricing could plugat least some of that loss.Trust is also vital when it comes to attracting newmoney – something WMs are finding increasinglyhard across the globe due to growing competitionfrom fintechs and new challengers. Those with areputation for competitive and fair pricing wouldlikely find it easier to sign up new customers.Understanding the challengesThus, getting pricing right is a key to sustainablerevenues. But it’s not easy, particularly if a bankwants to offer relationship pricing, where clientsWealth Management Digest 2020are charged according to the size and profitabilityof their relationship with the firm.Relationship pricing requires even more: A wellthought through data selection, collection andanalysis, and therefore investments in the rightnew technology. Without that, a firm cannothope to know which client is profitable or mightbe deserving a discount. Given the risks offines for overcharging and lost revenues due toundercharging, fees should no longer be left to thediscretion of a relationship manager.Relationship pricing also demands a carefullyconstructed and benchmarking framework, withthe appropriate controls in place. These controlscould and should be implemented through thebank’s order entry system via its core bankingplatform. As a company, we have been able toadvise clients in Asia on the importance and orderof implementing these controls and have helpedthem adapt their IT systems accordingly.Given that the pressure on margins is likely tocontinue, that clients are increasingly pricesensitive and that regulators could punishovercharging, the benefits of a thorough pricingreview and strategy could not be underestimated.In working with the right partner, quick wins couldeasily be identified that could add to the bottomline, while greater data transparency helps ensurethat the price is right for the client and their bank.Jacqueline TeohManaging Director,AccentureAmar BishtAssociate Director,Orbium ht@orbium.com12
Responsibleleadership is nolonger an ESGissue; it’s amanagementmustResponsible leadership hasbecome central to the successof companies in every sector,including wealth management.Not only does it affect thevalue and reputation of acompany, but goes furtherto impact staff retention andclient loyalty, writes ZabeenMoser-Mawji.Wealth Management Digest 2020Just a few years ago, ethical, social and corporategovernance (ESG) – or responsible – investing verymuch focused on sustainability issues; and morespecifically on the environment. ESG investorsdemanded that companies cut waste and reducetheir carbon footprint. And many have.But the lens through which investors viewresponsible corporate leadership has beenexpanding. Today’s ESG investors are increasinglyhoming in on ethics and governance, taking intoaccount a company’s policies on diversity andremuneration, its impact on local and regionalcommunities, and even its purpose. Companiesthat don’t match up are ditched or avoided.Other stakeholder groups, such as staff,communities, governments, regulators andindependent third parties, are also weighing inon corporate leadership, looking for evidenceof responsibility across a similarly wide range offactors. Any absence of it is seen as a risk.This means that wealth managers (WMs) arenow not only under pressure to provide suitableand trusted ESG investments for their clients butalso to live up to ESG values and demonstrateresponsible leadership principles themselves. 8 trillion worth of debtis exposed to “social risks”The need for responsible leadershipLast year, the international rating agency Moody’sreviewed 78 trillion worth of debt and calculatedthat 8 trillion of it was exposed to what it calls“social risks” – such as income inequality, pooraccess to essential services, violence and crime.3This is interesting because Moody’s inclusionof social risks in its assessment of a companycould have an effect on that company’s rating,which affects the cost and access to capital andtherefore profitability and growth. This, in turn,affects valuations.Various governments and regulators are alsopromoting responsible leadership. The European13
Union (EU), for example, has been working onregulations and frameworks, included under MiFIDII, designed to help investors access reliable,comparable information to help them in theirdecision-making. The aim is to funnel investmentmore effectively towards companies that aregenuinely sustainable. This, the EU believes,would help it meet its commitments to both theUnited Nations’ Sustainable Development Goalsand the Paris Agreement to keep global warmingto a maximum of 1.5 C.4 Companies able todemonstrate compliance are expected to maintainthe widest access to investment; failing to do socould restrict that access. Non-compliance is alsolikely to lead to fines and reputational damage, allof which undermine value.The power of employeesand customersEmployees, too, are playing an increasinglyimportant role in advocating responsibleleadership – and exposing the lack of it.Companies working in areas with skill shortages,such as leading technology players with theirneed for data scientists and top-level softwareengineers, are particularly vulnerable to this kindWealth Management Digest 2020of pressure. But every employer should safeguardits re
than 50 private banking and wealth management firms in Europe and Asia for our second flagship . s.gherbi@orbium.com. Wealth Management Digest 2020Wealth Management . 8 Four focus areas for success Responsible leadership 10 Getting pricing right is a win-win for younger generation wealth managers and clients 13 Wealth managers need to .
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