In a recent seminar hosted by Lombard International Assurance, the business guru Professor Costas Markides outlined why the industry needs to think more about delighting than satisfying its clients.

“How often in the wealth management industry do we hear about delighting clients?” This was the question posed by Professor Costas Markides, the business guru, at Lombard International Assurance’s Eighth Annual Private Banking Seminar in Luxembourg. And, according to Professor Markides, the answer is not often enough.

The topic is a pertinent one for the industry: client confidence is still suffering after the heavy losses of 2008 and events such as the Bernard Madoff Ponzi fraud, and this year’s Merrill Lynch/Capgemini World Wealth Report showed that clients still had not regained their faith in the industry. Indeed, a number of figures in the wealth management space have spoken out about the need to improve trust in the sector’s services. To overcome this, the focus needs to shift from “not disappointing clients”, or merely “satisfying” them, to exceeding their expectations and actually “delighting them”, said Professor Markides.

Commenting on Professor Markides’ presentation, Lombard's chief executive David Steinegger told WealthBriefing: “Lombard's goal has always been to delight partners and their clients, and Professor Markides has motivated us to take this to an even higher level."

And there is a lot at stake: winning in the market is not just about innovation in product development, but about devising and delivering overall solutions that solve the complex problems of high net worth customers.

Working with partners

Very often the firm which develops a product isn’t the one which becomes rich and famous from it, said Professor Markides. This is because delivering an end product relies on the use of partners, each playing to their own strength and working together. One example, he said, was Apple’s new iPad. He examined the components of it and found that, of the 90 components, not a single one was manufactured by Apple. However, the firm did what it does best: it designed a beautiful product and marketed it expertly.

Another example he gave was of consumer products giant Procter and Gamble, which in the period 1999 – 2000 fired two chief executives, then brought in a third chief executive who introduced a new rule that 50 per cent of the firm’s new products had to originate from outside the firm.

Working with partners takes trust, and collaboration does not come naturally to people, said Professor Markides. This is something professionals have to practise at and improve upon.

In the context of wealth management specifically, this seems to touch on the open versus closed architecture debate, which was stoked by counterparty issues over the financial crisis – particularly relating to Lehman Brothers-backed products. Data from Scorpio Partnership, the consultancy firm, released at the beginning of the year showed the "open architecture" model of wealth management had come under strain, with the aggregate allocation to in-house products rising to 40 per cent at the end of last year from 22 per cent at the start of the year.

On the other hand, using external products can help reduce conflicts of interest and, assuming the fee structure is appropriate, make advisors’ choices of investments for their clients more objective. It also increases the scope of products available to clients.

Listening to clients

An essential part of exceeding a customer’s expectations is understanding what that customer wants, something that only comes from thinking like or actually being a customer in your market. It takes real understanding of the client’s problem, not what you think the problem is, or what products you would like to sell them, said Professor Markides.

Essentially, the solution needs to be led by the problem, not by sales targets. An example of a firm which has delivered innovative solutions to problems is Charles Schwab, said the Professor, citing its discount brokerage and fund supermarket services. And these were simply services the founder thought he would like to have.

Listening to the customer is an obvious starting point. However, humans have eight different ways of listening according to psychological experiments, and these range from passive listening to empathetic listening, with people spending 90 per cent of their time in passive listening mode, said Professor Markides.

As well as understanding customers’ problems, and working with the best partners possible to deliver solutions, it also takes confidence to think creatively and not just conform to industry norms. Unfortunately, like individualistic thinking (as opposed to collaboration) and passive (as opposed to active) listening, conformity is deeply embedded in the human psyche, said Professor Markides. But to deliver solutions that “delight” clients, wealth managers must retrain their minds to accommodate these virtuous habits.

The conference was held last week, and is an annual event hosted by Lombard International Assurance to, according to Steinegger, “celebrate the close relationship it enjoys with partners and discuss issues in the industry”. Lombard offers life assurance as wealth structuring products through a network of partners globally.