May 27, 2003

Two studies prove that wealth management tools help firms gain customer-share among the affluent

Anxious to rebuild their portfolios in the wake of the dot-com bubble and the Sept.11 terrorist attacks, investors have turned to banks and brokers for advice. Firms best-positioned to aid these clients will feature a wealth management information technology that focuses on a customer- and advice-centric approach.

Approximately 73 million individuals had $100,000 or more of investable assets worldwide at the end of 2001, totaling approximately $42 trillion, according to Celent Communications.

Financial institutions pursuing the assets of affluent clients can reap close to $800 billion in management fees by the end of 2007, with the high net worth segment accounting for the bulk of the fees at 37 percent, followed by the mass affluent segment (those with assets of $100,000 to $1 million) at 33 percent, according to Celent.

Approximately half of the nation's households are invested in the stock market, through 401(k) plans, stocks, bonds, mutual funds, IRAs and other managed assets.

Wealth management provides the methodology to monitor customer activity in a holistic manner and enables firms to service clients at the right time or stage in their wealth cycle. Defined as a suite of services and products designed to assist in the accumulation, management and transfer of wealth for individuals, wealth management tools can build long-term relationships and help customers reach their financial goals over the course of their lifetimes.

This approach helps institutions cross-sell more products, increase share of customer wallet, and attract and retain assets. Further, wealth management tools help firms become primary advisers who coordinate all investment activities, including those conducted by other advisers with whom the client may have a relationship.

"During the dot-com boom, consumers assumed, 'Who needs an adviser to make the right decisions,'" said Sang Lee, analyst at Celent Communications. "As consumers become more careful, they are taking a step back, and want professional guidance to maintain their wealth and do better financially during the tough times. This is refueling the interest in seeking financial advice from professional institutions."

A wealth management strategy is founded on technology. Technology can provide a better customer view, increase adviser productivity, service and communication, support consistency and control across the organization in managing client assets, and help the firm to remain competitive in the marketplace.

Banks and brokers are also learning that these tools help to service customers through a multichannel approach.

"Banks need to have better conversations with customers and this is supported by technology," said Shaw Lively, research manager at Financial Insights and author of a report, Making the Case for Advice and Wealth Management What's Driving Customer Need? The report analyzes the results of the 2001 Federal Reserve Survey of Consumer Finances in the United States for implications for financial institutions' wealth management and advice strategies.

"Customer interactions can be conducted either online, during a conversation with a call center representative who can pull up their history and work through an application, or even when companies send a workbook that guides the customer through an application via the Web," said Lively.

While the software tends to carry an expensive price tag and a lengthy installation time, firms that are using wealth management technology are beginning to reap the benefits.

This vision supports the industry's latest buzzword: collaborative advice. Some define collaboration as the ability for the adviser and client to look at the same information online and discuss details over the phone. Others define it as the ability to mark up documents online or send clients to specific pages of a Web site. Collaboration, especially for the wealthiest individuals, may also include the ability to include outside advisers, such as lawyers and accountants.

The technology ranges from specific point solutions, such as financial planning tools and contact management systems, to robust wealth management platforms that provide a technical framework for comprehensive wealth management.

These solutions are typically built around a central database and can integrate with any in-house or third-party application. Account aggregation software, for example, allows financial institutions to create a holistic view of their customers' finances including checking accounts, investment accounts and retirement assets. Most institutions combine this data with general customer information such as age, household income, and number of children. All the information resides in a central data repository. The data can be refreshed on a daily basis or, in some cases, in real-time.

The consumer database must extend across all product lines and should be configured to accept external account data, the Financial Insights study said.

Web access and Web-based tools are also gaining traction as banks seek ways to augment their adviser relationship. Assuming that market recovery occurs within the next two years, IT spending in the wealth management marketplace could reach well over $1.5 billion by 2007, according to Celent.

Yet before these installations take place, the industry must achieve data integration, a task complicated by at least 10 years of mergers and acquisitions, which have added at least two or three different types of systems across the enterprise, further deepening siloed information.

"Many financial institutions are driven by products within segregated divisions like credit card groups, or checking and savings groups for example," Lee said. "Companies need to integrate all data together to gain a comprehensive plan for clients. If you want to be an adviser, people need to trust your bank. And a clear picture of the customer will gain that trust."

While wealth management may resemble customer relationship management on the surface, both tools must coordinate for optimal results. CRM tools, which help users measure the value of a customer's past and present relationship, focuses on moving data across the enterprise with workflow tools.

"CRM tools are more customer-facing; wealth management applications really define the customer needs, compared to the demand," Lee said. "Wealth management tools sit on top of CRM."

The industry is still waiting for a leader to step up to validate the strategy, however. "This technology is still in the very early stages," said Lee. "While there has been little adoption over the last six months, hopefully by the end of the year there will be some banks using the system and gaining early benefits.