The Future of Advice

Video transcript

1. These are challenging times for wealth management firms given the economic and market volatility, what is key for success in Asia going forward?

I think in Asia at the moment we see a lot of firms ramping up their focus on the region, which of course, they've been doing for a decade or so, but even more so now. The challenges, when we look and in our dialogues with the industry, we've seen that firms on average have nearly 2X aspirations for revenue in AUM for the next four years. Which, given the market dynamic, is going to be extremely challenging. That's the background, big ambitions. The challenge is, of course, going to be one, the market dynamic, making it very difficult. You've obviously got the return of interest rates, rising inflation, war in Europe. A lot of problems for firms to navigate. On the other hand, you've got clients, ever tricky to retain and acquire and deepen in terms of the relationship. And then the Relationship Manager, often forgotten about. But increasingly, firms are anchoring their growth aspirations to hiring more and more of them, but there aren't that many good high quality Relationship Managers in the industry in the first place. You need to do more of your existing. Stepping back against that for the ambition, the most important thing now is to really understand what is the client in Asia, which is already a misnomer type response. But we do see the conventional wisdom of the Asian investor being speculative, self-directed only, just wanting to use the firm for platform. “Give me products and I will execute” is no longer the dominant persona in our research. And we're coming out with a big piece of thought leadership on the future of Asia wealth management. We see that the number one persona in the industry for an Asian investor is the advisory persona. They want to go back and forth and have ideas shared by their Relationship Manager or bank, even if they retain the final decision-making authority. Which I think is a bit of a change in terms of how firms have looked at this client segment in the past. Then the question becomes, how do you actually build a next gen advisory proposition for these clients, which is part of what our research will cover. The most important takeaway is that if you are able to give a satisfactory advisory proposition to these clients, they reward you in terms of AUM and revenue. We see a strong correlation with being considered the primary wealth management firm, and we know in Asia, clients tend to be multi-banked, and whether you're delivering a satisfactory advisory proposition. And if you deliver a satisfactory advisory proposition, you get up to 11 percentage points more AUM than if you do not. It's a very clear mandate to the industry that, to hit those growth aspirations I mentioned a moments ago, you need to build advisory as part of the core proposition.

2. What are the building blocks of an advisory proposition?

That's the key question to respond to. We see four. The first is the goals. Ultimately, you give advice to deliver an outcome and these outcomes are based on client goals. The second is the proposition itself. What are the actual elements of product and service that a client values? The third is the channel. How do they want their insights, their sales arrangements, or purchase arrangements to be executed and serviced? And last is the fee model. If I take the first on the goals, bottom line is it's not particularly exotic. The top three goals on average for the Asian investor are growing wealth, protecting wealth, securing a comfortable retirement and transferring wealth. These are the bedrock of wealth management and they're the number one goals to align to. It's true there's some difference by segment and by country, but these are the big three. The second element is the proposition. And when we ask across product and service access or investment product access, general advice, specialised advice, e.g. social impact, tax philanthropy, credit custody, and the whole range of wealth services, pretty much everything is very important, which tells you that the end-to-end proposition is key. You can't just give access to product. It has to be wrapped in an advisory wrapper. The third is the channel. By far the number one channel preference is the mobile application, which explains why a lot of the industry has been on this journey to digitize aspects of information, sales and service. But very closely behind is the Relationship Manager. It's a digital first Relationship Manager-enabled model that will be the general setup that you want for success. And so it's again, empowering Relationship Managers to do more with what they've got, but also, weaving them into digital journeys at the right moment of truth. And then lastly, is the fee structure. The first issue to resolve is transparency of fees because nearly one quarter of Asian investors say they don't actually know how much they pay in a given year, which when markets are going up, may be acceptable. When markets start to go down, as they have been doing and investment performance delivery is not so strong, this is where the industry may face some challenges. That's the first part to get right. Afterwards, there's a general ask to be a bit more performance based in fee models, but that's easier said than done. And I think more of a secondary stage after just providing more transparency.

3. We hear a lot about digital assets, how should firms think about these propositions as they move more towards an advisory model?

I think the first message is that it's not just cryptocurrency and it's not just Bitcoin. It includes a range of digital assets, including NFTs or non-fungible tokens, stable coins, and a whole range. Nonetheless, of course it gets the headlines from cryptocurrency. We actually asked in our survey of 3,200 Asian investors, how do you feel about digital assets and how much are you investing in these? And the biggest surprise to me in a way of the whole report is that it's already the number five asset class in Asia. Any investor who's got USD100,000 or more to invest in Asia already has 7% of their total financial wealth in digital assets. That's a big number and not something that, if you're a firm, you can easily ignore. The second element is that when I look at the industry and again, we spoke to a range of firms and asked them about how they think about digital assets, 70% said that they have no plans to offer any service or proposition in the digital asset space, from advisory, to execution, to custody. That's one of those really rare white spaces in the industry where you have huge client demand and very few firms focused on it. And I understand why they're not focused on it. It's prioritisation, it's complexity, there's regulatory ambiguity about how you do it, but it’s a very, very big white space. And the third dimension is that we see Relationship Managers increasingly aware that their clients want to talk about digital assets, but similar to the story on ESG, they don't feel they have the empowerment from their firms in terms of content, ideas, and the willingness to have that conversation with clients. This may be okay now, but as wealth starts to transfer to the next generation who do hold more of their wealth in digital assets come through, it could be a deciding point about whether a client stays with the firm or chooses to go elsewhere.

4. Why have firms struggled to-date to transform their business in relation to new advisory models?

I think there's four reasons in general. I'll go a bit deeper on the last one. The first is just capability to transform to next-gen advice, digital advice, necessitates that you have advanced research functions, your legacy IT stack, data being aggregated in a single place so you can do the automation of insights and things that allow you to deliver advisory at scale. That all needs to be in place. And so, in a way, there's a lot of enabling capability that needs to be in place to get the most out of next-gen digital advice. That's probably point number one, just a lack of capability and improving that as a prerequisite. The second is around resourcing and talent. The issues around change. Either you don't have enough resources to deliver all the programs and the skills that you need. And we know the job market is extremely tight in some markets in Southeast Asia at the moment. The second is the general resistance to change, especially in the front line. There is the so-called conventional wisdom that a lot of Relationship Managers don't want change and don't want to be part of digital initiatives. We have a slightly contrarian view where we see in the data that RMSs who we interview are keen to get involved in digital transformation. It's then the question of how you engage them early, find the right ones who will be advocates for the change later, or a range of change management techniques. And the third is just the resistance to new incentive models. We know that many Relationship Managers are incentivised on a commission basis. And until that changes top down, it's going to be hard to fully embrace the potential of next-gen digital advisory. The fourth, which I call special attention to, is just transformation management in general. In my experience, most firms are staffed with very smart people and know what to do. It's the how to do it that sometimes is where these initiatives fall down. And that could be because of lack of governance, lack of methodology, lack of budget, changing priorities over the course of a multi-year roadmap that undercuts the foundation that you've invested in for the first year or two before something goes live. And so, we see transformation management and really having a robust transformation management office that stitches it all together across business lines and people, is key to actually getting a ROI out of what you do. These would be the big four reasons why I think transformation sometimes doesn't go as well as we'd like in Asia. Capability, new incentive models, always being difficult to overcome, change management and lack of talent and transformation management as a methodology.

5. What about the RM – how can firms make better use of their human capital?

This is something I feel quite strongly about. A couple of points related to the Relationship Manager. Number one, on average, and again there's a range depending on the type of bank, private bank versus more affluent banking. But on average in Asia, revenue per Relationship Manager is USD1 million. Over the next four years, when we look at the projections that firms have, it'll go to USD1.2 million which, if my memory is correct, is about 4% annual growth. Not very much. Because at the same time, as I mentioned earlier, revenue in AUM aspirations top line are projected at a 10 to 12% Kiger. I think the Relationship Manager number is nowhere near going up as much as it needs to be in terms of productivity, to enable that. A big reason why Relationship Managers struggle to be more productive is that they spend 50% of their time on non-direct revenue generating activities. And again, in our survey, we not only spoke to Asian affluent investors, we also spoke to about 600 Relationship Managers in the eight markets we cover in Asia. And that's how their daily life breaks down across these different blocks. And 50% non-revenue generating, which is not good enough. This creates frustration, it creates inefficiencies. And what we see is that 80% of Relationship Managers want a cockpit solution that brings all of the capability they might require from advisory to execution, to practice management, to servicing into the same portal, so they don't have to swivel chair as much between different applications. But more importantly, it means that all of the rich data about the client, about the portfolio can be surfaced and stitched together into a common place for them to say, "Okay, next best action. I should go speak to Mr. or Mrs. Client X about this, Mr. and Mrs. X client about that." Very powerful. This is where we see the model. And in our experience, having delivered these types of projects, we see three to sevenX ROI on the investment of actually going down that path. And that's at a project level. More importantly, this is fundamental as part of next gen advice and hitting those revenue aspirations to enable your Relationship Managers so that you don't have to rely so much on the challenging direct to client acquisition channel to hit those AUM targets.