PwC predicts a new era of nouveau classic banking for private banks and wealth managers. Both must focus on technology, their processes and their people if they want to remain competitive in a world of increasing political, fiscal and regulatory pressures.
Private banks and wealth managers have seen their profits plummet in the wake of unprecedented financial turmoil, investment scandals and a decline in world wealth, according to a new report published by PwC.
Damage has been done to the critical element of trust at the heart of the relationship between clients and their wealth managers. With increasing demand for transparency around all aspects of the investment process and performance, a growing regulatory compliance burden and the need to control costs, wealth managers face enormous challenges as they try to redefine their role and regain 'trusted adviser' status.
The report, entitled "A New Era: Redefining the Way to Deliver Trusted Advice" identifies significant changes affecting wealth managers, how they are responding to changes in their business and what senior private bankers and wealth managers see happening in the industry in the future as well as the impacts of the financial crisis in terms of service quality over the first quarter of 2009. The report draws on insight from a survey of 238 private banks and wealth managers, of which 16 are in Belgium, and is the latest instalment in a global bi-annual survey that started in 1993.
Clients have raised the bar and are now demanding more from their wealth managers, including peace of mind. More than half (53%) of the high-net-worth clients surveyed say that their primary source of financial advice is now their own research capabilities and independent knowledge of the financial markets, an indication of their scepticism about the quality of the advice they have actually been getting.
Josy Steenwinckel, partner and financial services leader at PricewaterhouseCoopers Belgium, confirms: "Transparency is the new gold standard of wealth management. How clients are kept informed around not just performance of their assets but also the integrity, financial health and processing status from their wealth managers and all their service providers will be brand differentiating."
Client relationship managers (CRMs) are integral to meeting this raised bar of client demand. However, according to survey results, 20% of CRMs admit to not fully understanding their clients' needs. This is juxtaposed against CRMs' claims that, while they are spending more time with their clients (40% of their time allocation versus 30% in 2007), 75% of them admit this amount of time is insufficient to provide an adequate level of service.
The survey identifies the three most-common areas of weakness for CRMs as being a lack of sector experience, an inability to adapt quickly to change, and a lack of leadership. Although these shortcomings are clearly present, more-technical competences such as wealth transfer down the generations, improvements in level as regards statutory and regulatory requirements or even soft skills to improve client relationships head up the list of areas where they would most like to receive additional training, the same view as was expressed in the 2007 survey.
In such an essentially client-driven market, wealth managers must review their level of knowledge and action renewed training programmes. This conclusion is further reinforced by the fact that only 17% of CEOs consider their CRMs of high calibre in meeting the needs of their clients, yet, in spite of this, acquisition and retention of talent has fallen from being CEOs' number one priority in 2007 to seventh today, a concerning fall.
Denis Caprasse, director of financial services at PricewaterhouseCoopers Belgium, explains as follows: "Wealth managers must lay their cards on the table. The industry is at an historic watershed. Quality of advice is the real differentiator and wealth managers need to arm their CRMs with the relevant skills, tools and training so that they can fully meet the needs of their clients and rebuild the trust that is so essential in today’s market environment.
"The impact of the crisis and the breach of trust have been profound and have cut to the core. While the client and asset attrition of today will eventually pass, the future will be very different. The DNA of the world of wealth management has changed in terms of what clients want, demand and expect from wealth managers and service providers.
"The winners will be high-net-worth clients and those firms that can provide them with performance and extraordinary levels of information and analysis and indisputable transparency around the management of their assets while becoming once again a preferred adviser. It is a significant challenge and will require serious investment in technology, talent and improved operating processes."
Main findings from the 2009 survey include:
- Boutiques and closer client relationships will play a significant role
- Clients are demanding transparency
- A desire to stick to the core segment
- Opportunities exist to capture inter-generational wealth transfers
- Sector consolidation and a period of growth are inevitable
- A ruthless drive for operational efficiency and cost reduction
- Wealth managers need to invest in the latest new technology
- The era of absolute banking secrecy is over
A full copy of the report is available for download on the PwC website.
