Technology and Wealth Management Best Practices for Capturing Profitability

Technology and Wealth Management Best Practices for Capturing Profitability

The combination of an accelerated growth in the ranks of the wealthy, demographics of global aging, increasing access to quality information on the wealthy and their portfolios, and the sophistication in technology solutions, have all made wealth management one of the fastest growing and highly competitive segments in the financial services industry. The question is how to pursue what seems to be a lucrative market opportunity and achieve sustainable profitability targets. As wealth passes to the new generation, either from a huge intergenerational transfer or from the enormous shift as baby boomers retire, it will move into the hands of the “new wealthy” who are more technologically skillful and accustomed to making financial decisions and participate actively in the management of their wealth. To compete successfully, financial firms need to develop technology friendly solutions to drive their business models. Along with the new “smart” technology platforms, is the need for wealth managers to build personal relationships with the new wealthy on a larger scale than ever before. Wealth managers need to demonstrate how to increase investment returns, create sustainable high quality client experiences, use business intelligence toolkits to prospect new clients, increase advisor productivity while institutionalizing client loyalty, and above all, achieve profitability — even while driving down operational and vendor support costs.

To meet all these challenges effectively, wealth management service providers need an integrated wealth management platform that is seamlessly interconnected---using a "componentized architecture" as a lever for sustaining profitability and competitive advantage. These component-based platforms also offer sophisticated data services for managing the flow of data from internal sources across the wealth manager’s operations, as well as from external sources relevant to managing a customer’s total global portfolio of assets. This highly rules-based architecture also needs to harvest and make optimum use of existing technology assets that are a differentiating “secret sauce” of the wealth manager, and allow continuous integration of new, value-added, crucial functionality either through third party components or bespoke development.

Wealth management is a huge market opportunity, but the question is who will be in the winners’ circle for achieving the desired level of profitability?

Wealth Management Services - Huge Opportunity

Global wealth has been growing at an astonishing rate, both in the numbers of wealthy individuals, and their investable assets under management (AUM). Global wealth is expected to top US$44 trillion (6% compound annual growth rate - CARG) for High Net Worth (HNW) and Ultra High Net Worth individuals (UHNW) by 2010, and by some estimates will exceed US$75 trillion by 2012. From 1996 to 2005, the wealth of HNWs grew at a CARG of 8%. Over just the last 5 years into 2007, growth accelerated to 11% per annum exceeding previous estimates, reaching US$50 trillion. North America is still the world’s largest pool of wealthy individuals, with 2.7 million HNW individuals holding US$20 trillion in financial assets. This segment is followed by Europe and Asia Pacific, totaling respectively 2.8 and 2.4 million HNW individuals with financial holdings of US$17 and 9 trillion. However, this growth is expected to slow to an overall CAGR of 9% over the next 4 years.

With this size of assets underpinning the activities of wealth managers, it is no wonder that market players are ramping up their business platforms to launch into more aggressive rounds of attracting and retaining the business of the wealthy. And with an estimate that shows only 50% of these wealthy individuals currently under professional management, the opportunity for wealth managers is huge.

The Baby Boomers Transition

Within the next two decades, mortality and inheritance events will globally transfer an estimated $12 to $18 trillion to a new generation. This shift, combined with the baby boomer generation's mass conversion from accumulation into retirement distributions, will add to the large number of opportunities for global wealth managers, as well as present new challenges.

The world is now witnessing the greatest inter-generational wealth transfer in history, as baby boomers retire and execute their estate plans over the next decade, coupled with the wealth transfer associated with the mortality of the currently retired generation.

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