Wealth market lure
One of the fastest growing and most profitable segments within financial services, the wealth management marketplace is also highly competitive and fragmented, with independent research showing that no single provider holds more than 2% of the wealth market. Indeed, the top 20 providers globally represent only 12% of financial assets under management.
If this fierce level of competition were not bad enough, PricewaterhouseCoopers’ 2003 Global Private Banking/Wealth Management Survey noted that wealth managers were struggling to deliver the high levels of service expected by clients and had not invested adequately in transforming the front office to remedy this failing.
“Wealth managers have sought to provide too wide a range of products and services to too wide a client base and they have not had the skills to deliver their promise, at least not profitably,” PwC added.
Meanwhile, the regulatory framework, both onshore and offshore, has undergone what PwC described as “a seismic shift”, and consequently regulatory risk is now a major concern to wealth managers, with compliance, anti-money laundering and new regulatory developments topping the agenda.
No surprise, then, that outsourcing has emerged as a compelling option to streamline existing processes, enhance efficiency levels, and reduce discretionary spending within their wealth management businesses while simultaneously stimulating demand for their products in the face of continuing market weakness. “A ‘back to basics’ approach – concentrating on core skills – supports the need to be differentiated for real areas of expertise,” said PwC. “Outsourcing non-core products and services and open product architecture will assist in this focus.”
Little has changed in the two years since the PwC survey, and it is against this background that SEI Investments has launched its long-gestating global wealth management solution (see IPE, February 2004).
One of the leading providers of wealth management services in the US, up until now SEI has been known in UK primarily for its manager of managers offering. That, it hopes, is set to change with the inauguration of what Francis Jackson, the firm’s managing director for global private banking services, describes as a “unique modular offering” that combines a private banking-designed CRM capability with financial management and decision support tools, a portfolio management capability and an outsourced middle and back office processing solution. It is expected that SEI will begin converting their first European client this year.
Jackson says that SEI’s research around behavioural finance has identified a new breed of client for whom ‘wealth’ is no longer merely defined as net worth. “We are seeing a new generation of wealthy, who have earned rather than inherited their wealth and who have much higher expectations and are much more vigorous in terms of the decisions they make,” he says.
“These new wealthy are focused on life fulfilment and are accordingly moving to a ‘goals-based’ investing model: they want their money to perform to meet a certain objective, whether that be maintaining their lifestyle or, less conservatively, allowing them to buy their second yacht,” he adds. “Either way, their financial and non-financial needs are now far more sophisticated and that is putting a lot of pressure on the banks, many of whom are ill-equipped and lack the capital to address those shortcomings.”
An SEI study of the European private banking market shows that only 38% of respondent banks feel they understand clients’ goals and aspirations. “They are not necessarily geared up to provide the range or quality of services these new wealthy individuals are looking for, nor do they understand those clients as clearly as they would like – indeed they acknowledge that the richer the client, the worse they are performing,” says Jackson.
SEI’s new offering therefore seeks to re-orient a bank’s infrastructure and processes towards the fulfilment of these client needs. “This platform will be the first of its kind, built on a deep understanding of the new wealthy client and how advisers must adapt to serve them,” says Jackson. “It provides true end-to-end functionality, all residing on a single global platform, which allows for a holistic view of client relationships and their activities with control metrics enabling banks to monitor activities, all on a real-time basis.”
The launch of SEI’s new solution coincides with the appointment by State Street of Sinclair Scholfield as its new head of its wealth management services operation in London. “Sinclair’s job will be to grow the UK business and ensure that we understand our clients’ strategic objectives so we can best align our products and services,” says Meg Kelleher, senior vice-president of wealth manager services at State Street in Boston.
“We have spent a lot of time converting the business we took on last year. When we enter into an outsourcing arrangement we are effecting a transformation of that client’s business, there is always a period of change and a need for stabilisation, so we didn’t want to bring on more business during that period. However, those clients are now in good stead and so we are back in the market talking to prospects.”
Kelleher identifies “significant and continuing” trends around product diversification and a need for more comprehensive and robust asset allocation. She agrees that advisers are now embracing a more holistic approach to client servicing. “Advisers and private banks are looking at how they can best satisfy those needs so they can retain and grow their business but do it in a more predictable way in terms of infrastructure and costs,” says Kelleher. “We have spent a lot of time with the clients we have already taken on and in building up the technology they needed, so at this point in time we have a platform which is in place, proven and ready to take on more business.”