To deal with the diverse needs of clients with differing wealth profiles, many money managers use multiple platforms. And that's the the problem, because as a client’s circumstances change, moving them from one platform to another is often often difficult.

Here is a guest article by Peter McKenna, market development director for the investment management solutions division of DST Global Solutions. 

Movement along the wealth continuum, the range where an investor’s wealth rises and falls, has intensified in recent times and brings with it a raft of challenges for wealth managers. Although investors’ portfolios are by nature never stagnant, it is the relative velocity and frequency of this change that can prove tricky to deal with.

The difficulty comes from the shifting requirements of investors as they transition from one notional level of wealth to another. Simply put, the more money and variety of assets a client may have, the more transparency and detailed performance reporting they demand. Fast-changing requirements for analytics, such as exposures, performance, attribution and risk are also major drivers for change.

Supporting this view, the 2011 China Private Wealth Study from Bain & Company found that wealth managers’ objectives are now much more diverse than they were in 2009. While wealth creation remained the top priority of high net worth individuals, wealth safety was a close second. The implication for wealth managers is that portfolio analytics need to be ever more sophisticated as clients become more risk-averse but increasingly demanding.

The rise of the super-rich

To deal with the diverse needs of clients with differing wealth profiles, many money managers are forced to use multiple platforms. And therein lies the problem, because as a client’s circumstances change, moving them from one platform to another is often a painstaking and laborious task. Already a major headache in the US, the rapid rise of incomes amongst the super-rich is exacerbating this issue. This is especially true in Asia, where the number of billionaires has almost tripled in the past two years. According to the Forbes Rich List 2011, the number of billionaires in emerging economies has, for the first time, surpassed the number of those in Europe. This number is also quickly closing in on the US.

In essence, economies with rapid growth rates are producing an ever increasing number of wealthy individuals. While the rise in assets is great news for the client, for wealth managers it is something of a double-edged sword. Satisfying their increasing demands is hugely challenging.

The financial crisis, regulation and scandals

It’s not just the rise of the super-rich that is changing the investment landscape as the financial crisis and increasingly stringent regulatory pressures have left their mark. Since 2008 much of the focus has been on portfolio analytics and compliance technology. Key drivers are the need to reduce operational risk, improve efficiency and meet investor demand.

Wealth managers face a wide variety of regulations around the world to comply with today. These include generic regulations such as “Know Your Customer and Anti-Money Laundering, as well as market-specific ones such as Europe’s Markets in Financial Instruments Directive and the Sarbanes-Oxley accounting laws in the US, among others. In the US, it is regulation, as well as high-profile scandals such as the Madoff affair, that is driving investment in performance and governance technology. As a result, wealth managers are spending more in anticipation of a stringent regulatory environment and increased scrutiny related to due diligence on alternative investments such as funds of funds. These factors are changing the picture of wealth management and the need for higher service levels for clients.

The challenges of complicated migration

If migration between platforms remains challenging, some clients could potentially be enjoying a higher level of service than they should be receiving. An even worse scenario is that the wealth manager may be giving more affluent clients lower services levels – thereby increasing the risk of them defecting to a competitor. Alternatively, the wealth manager may be supplementing the service with laborious manual processes, which could prove to be both error prone and time-consuming.

There is a major concern about maintaining a positive client perception. If the client does not stay on the same system or an integrated analytics platform when making the transition to a new service level, then it is difficult, if not impossible, to give them a similar user experience. The wealth manager might just be giving the client access to more functionality, but the client still needs to see and recognise all the analytics that they previously viewed.

Demand is growing for analytics that can span the whole of the wealth continuum. By providing just one platform bringing together the full range of specialist analytic applications to serve all business units, wealth managers are far more likely to be in a position to deliver a positive client perception, with a similar user experience. It also goes a long way in ensuring a seamless migration between business units.

Looking to the future

It’s essential that wealth managers future-proof their businesses. Clients will always move up and down the wealth continuum and there will be a corresponding shift in analytical needs. And, requirements for superior analytics will increase – as will regulation. So although the wealth continuum can be seen as a double edged sword, there is a way to slash through the complexity. By using one system, bringing together the full range of existing and future analytical applications, with a common operational model and the capability to scale as assets under management increase, wealth managers can improve their business agility and enhance client service while improving operational efficiency.