Asia Pacific's wealth management sector mired in massive challengesBY FRAN THOMPSON
Asia Pacific has overtaken North America for the first time as the region with the highest number of high net worth individuals (HNWI), 3.37 million in 2011, according to the latest World Wealth Report, jointly published by RBC Wealth Management and Capgemini, and this figure is set on an upward trend. Welcome statistics for wealth managers. Saying that, this explosion in the HNWI segment can also present a thorny challenge for the industry.
As growth, or indeed losses, reposition investors further up or down the 'wealth continuum' (or the scale of an investor’s relative wealth), they will start to rethink their attitude towards the volume, regularity and detail of analytics they require, such as exposures, performance, attribution and risk. Although naturally an investor’s portfolio will always fluctuate, the current speed and frequency of change is putting significant pressure on the wealth manager’s resources.
Typically, having multiple technology platforms has allowed wealth managers to handle the varied needs of their clients with different wealth profiles, providing a level of service fitting to their level of assets, expectations and activity. With clients’ profiles now evolving so rapidly, this is no longer an effective solution. The process of transferring a client from one platform to the next can be a challenging undertaking. Not only that, the gap in service delivery expectations is closing as investor demands for transparency and detailed reporting converge more than ever.
The new super-rich are not the only factor that is causing huge changes in the investment landscape. The financial crisis in 2008 and new tighter regulations being introduced are also having an effect. Wealth managers must deal with a diverse set of new regulations on a global scale as well as new national legislation. The new regulations combat money-laundering and promote better customer knowledge, as well as those such as MiFID in Europe and Sarbanes-Oxley in the US that deal with individual markets. Investment in performance measurement and governance technology is growing in the US in the wake of stricter regulation and scandals such as the Madoff affair and this trend will likely follow suit in Asia.
If managing movement between platforms continues to be an issue, some investors could conceivably be benefitting from better levels of service than they qualify for. This is not an issue but what if wealth managers are giving wealthier investors lower service levels than they deserve? This could prompt clients to move their money elsewhere. In addition to this, laborious manual processes associated with such administration are error-prone, costly and time consuming which compounds the problem for wealth managers.
Positive client perception is also becoming increasingly difficult to sustain. As a client moves from one system or integrated analytics platform to another during the process of transferring to a new service level, continuity in user experience is near impossible to achieve.
There is a growing need for analytics that can accommodate the entire wealth spectrum. By providing a single platform that combines the full range of specialist analytic applications to serve all business units on demand, wealth managers become much more likely to be able to provide a consistent user experience and generate a positive client perception. A singular platform also offers the ability to migrate clients between service offerings smoothly.
Future-proofing for wealth managers is becoming increasingly critical. Investors will sometimes move up or down the wealth continuum, and their analytical needs will also develop over time. There are also the regulatory pressures to be compliant and protect the end investors such as “know your client” and suitability testing to build into investor profiles.
Therefore, the challenges faced by wealth managers in relation to the wealth continuum and regulatory compliance can be effectively solved by using one system that combines the full range of existing and future analytical applications with a common operational model. In addition, the ability to scale assets under management and be competitive would also increase. This would allow wealth managers to differentiate themselves, improve their business agility and introduce better client service in line with greater operational efficiency. One could also argue that smart use of technology in this way could be a less costly over time.