Wealth Management Service Models Must Evolve as Needs of High Net Worth Individuals Grow Increasingly Complex
27 June 2007
NEW YORK, June 27, 2007 — The annual World Wealth Report, issued today by Merrill Lynch (NYSE: MER) and Capgemini, found that wealth management firms are moving toward more dynamic, needs-based client service approaches, applying advanced segmentation and analysis to the traditional assets under management (AUM) model that was once embraced as industry standard.
“Leading wealth management firms understand that to be successful, their service model must be tailored to the individual needs of the client,” said Robert J. McCann, president of Merrill Lynch’s Global Private Client Group. “A client-centric service model allows the advisor to provide a better wealth management experience, and strengthens the advisor/client relationship.”
The Report found that the world’s nearly 10 million High-Net-Worth Individuals (HNWIs) have undergone significant changes in their sources of income, demographics, and spending goals.
“In financial services we are observing a trend that has already taken root in retail and entertainment industries. Individuals’ characteristics and on going, changing client needs are taking on much greater significance in how Wealth Management firms evaluate the effectiveness of their service models. Traditional service models need to evolve to ensure that advisors are provided with the tools, technology and data to service their clients based on an array of client profiling knowledge that helps them highlight greater opportunities for offering new products and services,” said Bertrand Lavayssière, group director, Capgemini Financial Services. “A needs-based approach provides advisors with the right products and services to offer their investors to achieve their investment goals and enjoy improved client satisfaction.”
Historically, many firms placed HNWIs into one of three types of practice models:
- Brokerage (offering product experts and financial advisors)
- Investment Management (relationship-based approach)
- Wealth Planning (clients are assigned a personal CFO or financial planner)
The Report found HNWIs require a different way of doing business:
- HNWIs are becoming more global in their investment approach, driven by expanded awareness of international developments, portfolio performance and risk mitigation.
- HNWIs are increasing the amount of resources and time they apply to philanthropy, treating their charitable pursuits as investments with social returns.
- HNWIs have increased demands for socially responsible investment screening, shareholder activism and community-focused investment.
There are four key steps that financial services firms are taking to successfully implement a dynamic needs-based approach to client service, including:
- Segmenting and Determining Client Needs in Addition to AUM
Segment clients according to their interests, frequency of firm interaction, communication preferences and financial behavioral attributes.
- Product and Service Selection Based on Firm Strategy and Client Lifetime Value
Analyze client needs and create tailored offerings to meet the unique needs of clients. For gaps between client needs and product and service offerings, the firm must decide to build additional capabilities, partner with a third party, or decline certain business opportunities to ensure consistency with the firm’s overall strategy.
- Selecting a Service Approach and Practice Model
Determine a service approach to fit the needs of clients and deliver service through multiple channels and practice models.
- Staying Current With Client Needs
To effectively address and anticipate ever-changing client needs, firms should continuously monitor and update their clients’ profiles and behavior patterns.
Technology Must Evolve
In order to implement a more dynamic client servicing model, financial service providers will have to significantly improve and update their information technology. Through sophisticated and agile information technology (IT) architecture, armed with data gathering and data analysis capabilities, firms will have a better understanding of client’s changing needs.
Spotlight Conclusions
Within the last few years, HNWIs have become increasingly sophisticated, globally aware, and proactive with their investments. Today, the majority of their assets come from business ownership and other proactive wealth generation activities. These individuals are as active in building their wealth as they are in investing it.
This new generation of HNWIs will require wealth management services to be more dynamic, sophisticated, and diverse. Firms will need to have IT architectures, governance structures, and service models that break down the traditional boundaries between asset classes.
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