Spotlight falls on advisers’ profitability

Advisers’ productivity, measured in annual fees and commissions generated through their clients, is becoming a top priority for firms, as they focus on positioning themselves in the upper end of the mass affluent as well as the high net worth segment. “These are the areas that will see significant growth in investible assets.” says Alois Pirker, senior analyst at Aite Group, a Boston-based independent research and advisery firm. “But serving mass affluent and high net worth clients is becoming a numbers game.” Firms need to arm themselves with an integrated front office technology platform to increase productivity and to attract and retain top adviser talent, says Mr Pirker in his recent report evaluating wealth management front office platforms. The effort that advisors spend on administration work is starting to eat into the time they should dedicate to their core activities, he says. The private banking market historically focuses on service quality and personalised advice. But this advice-centric model has not necessarily involved so much front office technology so far, especially in Europe, where firms have tended to move down from the upper end of the wealth spectrum. “A lot of firms which move top down from the high net worth segment to the mass affluent are surprised how quickly advisers’ profitability decreases, if the systems and the product tuning are not right,” says Mr Pirker. In the US, the implementation of a front office wealth management platform is much more advanced than in Europe, says Mr Pirker, who has also many years’ experience of managing the development of business solutions for UBS Wealth Management in London. US firms have moved to the wealth management space from the bottom up. These brokerages and retail banks are some of the most heavy users of that type of technology, as they have always considered efficiency as part of their core business, he says. But there is no platform that fits all needs. In picking the right one, wealth managers must decide what segment they want to serve. “One platform could be ideal for one segment but not for the other,” says Mr Pirker. In particular, in the mass affluent segment, where the number of clients is so high, automation is paramount. “Automation means efficient interfaces, so for example in the area of CRM (Customer Relationship Management) advisers don’t need 500 parameters of variables, they might only need 30 or 40. “This is because clients’ cases are not that complex. It would be inefficient to let the advisers collect a huge amount of data. Automation means, therefore: guide the adviser as quickly as possible.” In the high net worth space there is much more emphasis on sophistication and tailor-made solutions. So the system must allow the adviser to enter as much data as required in each particular case. Advisers’ profitability has attracted new interest in light of the large amount of money spent by private banks on front office technology. Merrill Lynch, reportedly spent $2bn (?1.5bn) on implementing a front office wealth management system with Thomson Financial in the US. With ML advisers reported to generate over $700,000 in revenue per year, firms which can generate as low as $250,000 per adviser have started to measure themselves against that record target. The level of revenue made by the adviser depends of course on several factors, not least the firm’s level of fees and commission, but it is also dependent on the number of clients the advisor can deal with. “That is the trade-off,” says Mr Pirker. “Firms want to keep a high level of quality when servicing and advising clients, buy they also want to increase the number of clients they serve.” There are also two basic approaches of implementing the platform. One is to go for a pre-integrated platform such as the one offered by SunGard. This type of platform has a lower risk of implementation and it is much faster to implement. The second approach is the integration framework, where firms can choose the tools they prefer through a best-of-breed approach. In the latter case the level of integration is probably lower and takes longer. If the first approach is more suitable for new entrants to the market who have not deployed much front-office technology, the second enables leveraging earlier investments which were done in the past. However, the pre-integrated platforms do have functionalities which allow the user to switch modules off or on. Scaling your business is key, but these platforms don’t come cheap. The big decision is when to start investing.

Pirker: service is a numbers game