MAPPING THE WAY TO WEALTH MANAGEMENT 4.0 Wealth Management Digest 2018
PRIVATE BANKING’S FAST MARCH FORWARD P.6
EVOLVING TO MORE AGILE, INDUSTRIALISED OPERATIONS AND TECHNOLOGY
BUSINESS EXCELLENCE, THE UTOPIAN ASPIRATIONS OF WEALTH MANAGERS
P.12
P.20
EDITORIAL NOTE At Orbium, our guiding principle is to focus on what is most important to our clients - their success. This priority continues to guide us as we evolve our capabilities to support our clients to successfully manage the unprecedented industry disruption. We help navigate these changes by providing a combination of core banking and digital business transformation services, business and regulatory consulting, our own software products along with those delivered through our selected software partnerships. Our core banking systems implementation and services benefit from our strong partnership with Avaloq and the expertise of our delivery team. Over the past year, we have delivered successful go lives across multiple geographies in both Europe and Asia. We have further developed our management consulting capabilities to support clients achieve results with their key change programmes. Underpinning these activities, we invested in effective thought leadership initiatives to provide informed insight, foresight and benchmarking to help our clients assess where they stand and to stay on top of the industry changes. Our signature wealth management C-level survey of 50 wealth management firms across Europe and Asia provided a view of the current state and evolution of the wealth management industry. It also provided a future roadmap for what it will take to be a high performer in this new era for the industry. The findings have proven insightful and have been shared at numerous international industry conferences, executive round tables and at one-to-one discussion sessions. In the quest to support dialogues and thought leadership in the industry, Orbium is pleased to share our first annual Wealth Management Digest 2018, a curated collection of insights, covering business, regulatory and technology trends authored by our experts. We wanted
2
Wealth Management Digest 2018
to share these to help inform executives on the key emerging industry trends, challenges and opportunities. These insights reflect our growing capabilities. They include our C-level survey findings, which show the industry is now moving into a new “4.0� era. Success for wealth management firms will be about adopting more balanced models across three key areas- meeting new customer needs, developing new capabilities and being more effective in complying with tougher regulations. This will be enabled through implementing the right combination of technology and developing more agile ways of working. Our digest provides additional perspectives on each of these themes. At Orbium, we believe that success is a consequence of many factors - culture, people, shared expertise, partnerships and strong relationships. Only when all of these are aligned for mutual benefit is the future assured. This philosophy embodies our way of working with our clients to achieve their success. We hope you find this digest both timely and insightful.
Samir Gherbi Partner
CONTENTS Editorial note
2
Introduction to Orbium
4
Getting to banking 4.0
6
CLIENT FOCUS Private banking’s five new tribes
8
Client focus and data are forging the path for new banks
10
AGILITY AND INDUSTRIALISATION Evolving to more agile, industrialised operations and technology
12
Launching a new private banking business in six months with Avaloq: Industrial Bank Co. Ltd (CIB)
14
Best practices in suitability implementation
16
LEVERAGING NEW CAPABILITIES AND CHANNELS Business excellence, the utopian aspirations of wealth managers
20
What destiny for financial intermediaries during a core system transformation?
24
CHANGE MANAGEMENT Achieving an Agile approach
26
Wealth Management Digest 2018
3
INTRODUCTION TO ORBIUM
EXPERTS IN WEALTH MANAGEMENT TRANSFORMATION Orbium has an impressive reputation as a specialist, global technology and management consultancy, helping banks achieve a balanced and integrated business model fit for private banking and wealth management 4.0.
Founded in 2004, Orbium sits at the intersection of technology, regulation and management consultancy to offer a differentiated service proven to help banks succeed. Led by seven partners, Orbium is an Avaloq premium implementation partner, has 14 offices around the world and employs more than 500 staff working on some of the most important transformation projects in private banking. Together, Orbium helps banks navigate the change sweeping through their sector to ensure their long-term futures. Orbium takes a holistic view. Drawing on our technology heritage and management-consultancy experience and working with a small group of trusted specialist partners, Orbium develops comprehensive solutions for each individual project. Increasingly, these are benchmarked against insights gleaned from our Wealth Management C-level survey. This, with Orbium’s proven methodologies and proprietary software solutions, along with committed and talented teams, allows Orbium to deliver projects on time and on budget, resulting in 90 per cent of Orbium’s clients returning. A BESPOKE APPROACH TO FUTURE-PROOFING YOUR BUSINESS While all banks are trying to achieve transformational change, Orbium understands that all are starting from different places. Orbium knows that each needs to take its own transformational journey. Orbium’s job is to ensure they take the right combination of routes and that the whole bank completes the ride.
4
Wealth Management Digest 2018
To do this, Orbium assesses where a bank is today, and where it wants to go. Orbium focuses on three critical areas: client focus; agility and industrialisation; and leveraging new capabilities. Consistent across these specialities and instrumental to their success is change management. Orbium then build the roadmap and deliver these strategic objectives. CLIENT FOCUS It’s important that when a bank starts its journey towards private banking 4.0 it has a clear business plan. This will centre on which client groups it wishes to serve. The traditional private banking client has been supplemented by five new tribes – emerging markets entrepreneurs, millennials, modern entrepreneurs, high net worth female investors and rich professionals. Each of them demands specific specialisations from a bank. Few, if any, can serve them all equally well. This means choosing which tribe (or tribes) to target and building the business model to fit.
OUR JOB IS TO ENSURE THEY TAKE THE RIGHT COMBINATION OF ROUTES AND THAT THE WHOLE BANK COMPLETES THE RIDE.
Revenue enchancements
Agi lity &
Unified digital proposition
Regulatory compliance
m
e
ls
manage
N
ew
ge
en
an
t
Smart leadership
Ch
Empowered relationship manageres
Banking platforms
tio rialisa n ust ind
ce rvi e s on i
Client fo diffe cus & ren tia t
Client service & interaction
Standardisation & automation
ca
pabi
ha lit ie s & c
nn
Data & customer insights
Sourcing & partnerships
For example, women often want communication without jargon and prefer to take a holistic view of their financial situation. Relationship managers need to be trained and equipped accordingly. Similarly, banks looking to attract rich professionals need to be able to deliver firstclass cross-border advice, global data warehousing and dynamic tax reporting. AGILITY AND INDUSTRIALISATION This is all about preparing the bank for delivering the services – existing and new – at the required scale
as efficiently as possible to protect margins and profitability. This means developing the right platform and introducing standardisation and automation where possible. Functions such as tax reporting and regulatory compliance can be automated along with investment suitability requirements, bringing not only lower cost but also lower risk. LEVERAGING NEW CAPABILITIES The technology that delivers all this can do so much with careful planning and forethought. This is where it’s important to examine new capabilities and channels to make sure the bank is maximising potential.
Orbium looks to providing flexibility and agility to allow for scale and growth, enabling a future proofed roadmap. Orbium also recommends fintech and regtech partners that complement the offering from the bank’s main software vendors, extending the scope of the transformation to cover niche but important areas such as fraud mitigation, portfolio analysis and the launch and delivery of new products. Just as important are data capture, storage and analytics capabilities. CHANGE MANAGEMENT Finally, Orbium make sure that the transformation isn’t limited to the techies – that the whole bank comes along for the ride. Orbium recommend adopting the Agile way of working – a set of principles that helps create a dynamic workplace, promoting trust, autonomy and responsibility to foster innovation and value creation. Agile is about encouraging people to try new things and be unafraid of failure – a critical mindset when you’re trying to transform a traditional player into a digital private bank 4.0.
Wealth Management Digest 2018
5
GETTING TO BANKING 4.0
PRIVATE BANKING’S FAST MARCH FORWARD by Ian Woodhouse Head of Strategy and Change ian.woodhouse@orbium.com
Private banking has undergone titanic change in the past decade, with more to come. We identifiy the forces shaping the future of the industry. The 20th century was one of tumultuous change for just about every industry – from manufacturing to retail, construction to health, journalism to travel. But not private banking. This most traditional of services quietly went about its business unconcerned by the arrival of mass communications, the internet, digitalisation and more. At the start of the century we were still very much at private banking 1.0 (PB 1.0). The financial crisis of 2007/8 changed all that. In the decade or so since, private banking has gone from 1.0 to 4.0, forced on by successive waves of regulation, consolidation and technological and social change. Each wave brought painful and difficult adjustments, with each successive wave moving faster than the one before. It was a crisis that exposed bad financial products and weak banks, and prompted global regulators to draft and implement new rules to restore trust. Their aim was to protect customers and stop such devastation
6
recurring. MiFID and its like were drafted to increase transparency and accountability. The aims were laudable but expensive to implement. They were also potentially ruinous if a bank failed to comply. In response, the industry embarked on a round of mergers and acquisitions to shore up balance sheets, cut risk and rebuild trust. Merrill Lynch merged with Bank of America and Julius Baer acquired Merrill Lynch’s international private wealth management business in 2012, to name but two. For the seven years of PB 2.0, banks focused on complying with new regulations. Yet more regulation and new technology thrust private banking into PB 3.0. From 2014 onwards, private banks strove to develop new business models, restructuring and repositioning their offerings in response to the UK’s Retail Distribution Review, MiFID II and the various Basel capital adequacy rules, the erosion of banking secrecy and the rise of cross-border regulation.
Stage 1
Stage 2
Stage 3
Stage 4
Traditional model and advantages
Regulatory driven transparency (post crisis and erosion of banking secrecy)
Restructuring, repositioning and rise of new models
Adapting to differentiated, client focused and rationalised models
Wealth Management Digest 2018
At the same time, digitalisation and automation were challenging the bespoke personalised service of private banks while dramatically raising IT costs. High net worth clients were being offered new products with lower fees, such as exchange-traded funds (an investment fund traded on a stock exchange), which were less profitable for such banks. There was also new competition from family offices and high-street banks, which could now target under-served affluent clients with robo advisers and investment products designed for the mass affluent market. The response from the private banking industry has been yet more restructuring to deliver a better service and innovative products. Scale has really started to count. Between 2007 and 2017, Switzerland saw the number of private banks fall by 25% as a result of consolidation and many sold out of sub scale Asian operations to refocus on Europe and scaling up. Société Générale sold its private banking arm in Asia to DBS and acquired KB in Europe; ABN Amro sold its Asian and Middle East business to LGT and bought Credit Suisse private bank in Germany; UBP bought Coutts International; and EFG bought BSI. All the while, the customer base of private banks has been evolving, with five new “tribes” gaining prominence in the high net worth club. The newcomers include high net worth female investors, who are increasingly seeking more control over their fortunes and wealth management services tailored to their needs; emerging markets entrepreneurs; the growing corpus of rich professionals; millennials; and the modern entrepreneur. Each group looks for new and different services. These new tribes are accustomed to high levels of service, transparency and personalisation in every aspect of their lives, and they expect the same from their wealth managers. They want access to their portfolios from anywhere in the world, 24/7. This is forcing the industry to undergo a new permutation, PB 4.0, as wealth managers put technology to use to tailor their products
and services to the increasingly diverse needs of these tribes, as well as new generations of old money. Data lies at the heart of PB 4.0. Leveraged effectively, it will help banks sell more, sell better and manage their costs. To do this they need to introduce front-to-back digital technology, and to do it well they may have to specialise in one or just a few client segments. Yet the pace of transformation will not end there. By 2020 – just two years from now – we expect to see another seismic shift in private banking, driven by demands for transparency from customers and regulators. PB 5.0 will be all about outcomes rather than products. It will be about the ability to show fair value, comparable performance, social investing and audit trails. Think accountability.
BY 2020 – JUST TWO YEARS FROM NOW – WE EXPECT TO SEE ANOTHER SEISMIC SHIFT IN PRIVATE BANKING Along with effective use of data, the core of PB 5.0 will be an ecosystem of fintechs, regtechs and service providers that will help banks satisfy their customers’ needs. This will demand new business models again and open IT systems. Private banks will become more involved by helping in many aspects of a client’s life well beyond investment. Proactive customer management and service will be the order of the day. Inevitably, there will be further consolidation. In less than two decades, the wealth management industry will have become unrecognisable. With so little change before that, there was certainly a lot to do. Banks have learnt fast – that they must be on the front foot, be proactive or lose out to the competition. PB 5.0 is already at our doorstep, and surely 6.0 is not far behind.
Wealth Management Digest 2018
7
CLIENT FOCUS
PRIVATE BANKING’S FIVE NEW TRIBES by Piotr Zboinski Head of Strategy and Operations, APAC piotr.zboinski@orbium.com
The traditional wealth management client has been joined by five new personas, each looking to the industry to satisfy very different needs. Who are they? What are they looking for and how do banks respond?
1 Emerging markets entrepreneur Digital interface
5
Global 24/7
4 3
70/30
Firstgeneration wealth Tends to be illiquid and less diversified
AGE
35-50s
1
Data
Specialisation
• Used to high growth – up to 30% pa – from own business • Small circle of trust
Transparent reporting
Tools
• Domestic/regional focus • New to WM • Investment profile either high risk for big returns or very safe • Succession wealth planning – protection and distribution • Diversification – IPOs, private placements, secured lending to enable investment beyond their own business Bank response Combine investment, corporate and private banking teams to offer a tailored service that covers investment management and diversification, inheritance planning, tax, and capital market services such as IPOs and debt capital markets
8
2
Wealth Management Digest 2018
Technology capabilities Digital interface A modern digital interface with video and chat, omnichannel, online verification
Business capabilities Global 24/7
5 = most important Digital interface
5
coverage with some digital service, night desks, RM buddy systems etc
Global 24/7
4 3
Specialisation
2
Data An integrated, global data warehouse and data analytics
Tools Automated regulatory tools for cross-border and tax
1
Data
Specialisation
Tools
Transparent reporting
1 = least important
Tailored business and operating models
Transparent reporting Clear fees, performance benchmarking
2 Millennial
3 Modern entrepreneur Millennial Mix of inherited (particularly in Europe and US) and self-made money
AGE
50/50
20smid 30s
Global outlook and highly mobile
50/50
• Diversified wealth with an element of old money
Well educated and financially literate
• Well educated and networked • Still accumulating wealth
• Time poor
• Financially literate and highly digitally aware
• Probing on fees and performance
• Weak loyalty to family WM • Probing on fees and performance
• Values transparency and service – 24/7, global, simple
• Values transparency and service – 24/7, global, simple • Awareness of social impact
Digital interface
Bank response A modern, global, digital omni-channel WM service that Data includes risk/return portfolio modelling, dynamic tax reporting, minimal paperwork, dynamic data leverage, tailored investment strategies including impact investing, and transparent and tailored performance-based pricing
5
• Willing to take lower returns for fully audited social impact investment
Global 24/7
4 3 2
Digital interface
1
Specialisation
5
3 2 1
Data
Specialisation
Transparent reporting
Tools
Transparent reporting
30s-50s
Well educated
Highly educated
Diverse mix of old and new money, self-made and acquired wealth
70/30
Global and highly mobile
30+
- 30s taking career-enhancing loans – medical, partnership, postgraduate - 40s paying down loans
• Full range of financial literacy
- 50s paid up
• Majority (67%) feel misunderstood by WM industry
• Easily professionally conflicted by investments e.g. auditors
• Significant focus on gender policies within investments
• Complex retirement needs
• Considered investors willing to take their time and use own networks beyond WM for advice and research
• Likes clarity; dislikes jargon
AGE
• Wealth distribution fragmented by age:
• Global outlook
• Willing to take lower returns for fully audited social impact investments
Bank response First-class, cross-border advice 24/7, global data warehousing according to regional regulations, omni-channel WM that includes risk/return portfolio modelling, tailored investment strategies that include impact investing, dynamic tax reporting, minimal paperwork, dynamic data leverage
5 Rich professional
4 High net worth female investor 0/100
Global 24/7
4
Tools
AGE
AGE
30s-50s
• Fairly diversified investors • Reasonably financially literate
Digital interface
• Seeking appropriate networks
5
• Time poor
Global 24/7
4
Digital interface
3
• Risk averse • Trusts WM but will monitor and intervene
4
2
Bank response Data A modern, global, digital omni-channel WM service that includes risk/return portfolio modelling, dynamic tax reporting, minimal paperwork, dynamic data Tools leverage, tailored investment strategies including impact investing, approprirate communication styles, transparent and tailored performance-based pricing, access to a network of like-minded peers and female RMs
5
Global 24/7
3
1
2
Specialisation
• Element of social impact investing
1
Data
Specialisation
Transparent reporting Tools
Transparent reporting
Bank response Globally attuned service, ability to spot and manage potential conflicts, transparency, first-class, cross-border advice 24/7, global lifelong financial planning, global data warehousing according to regional regulations, omni-channel WM with risk/return portfolio modelling, dynamic tax reporting, dynamic data leverage
Wealth Management Digest 2018
9
CLIENT FOCUS
CLIENT FOCUS AND DATA ARE FORGING THE PATH FOR NEW BANKS by Zabeen Moser Partner zabeen.moser@orbium.com
With new competition and customers demanding outstanding service, specialisation is proving the only way to succeed in private banking 4.0. Private banks and wealth managers have tried hard to stay in an increasingly tough game over the past five years. Some have bought up competitors to gain scale, others have launched new services aimed at the mass affluent. But it seems that many are still struggling. Could it be that the future lies more in client specialisation and solutions rather than in mega one-stop product-driven shops? We have recently seen a number of banks, big and small, refocus their wealth management business as they face a perfect storm of rising costs, new competition and more demanding clients. UBS closed its UK Smart Wealth robo-advice arm aimed at mass affluent clients, citing the unit’s ‘limited short-term potential’. The Swiss bank indicated it would refocus its efforts within wealth management towards the top-end clients.
excelled in client focus and improving the client journey and experience enabled by data insight and adviser digital interactions. For some, refocusing means geographic and product divestments – Barclays and Coutts sold all or some of their international operations, while Hoare & Co sold its investment management arm to Schroders. Others are still making acquisitions to grow their chosen client focus, such as Rathbone Brothers’ takeover of Speirs & Jeffrey and SocGen’s acquisition of Kleinwort Benson’s wealth management arm. The diversity of strategies in play appears to indicate that banks are still trying to work out how to survive in the rapidly changing business of wealth management.
UBS and others have begun to realise that they stand a better chance of controlling costs, protecting margins and developing successful products and services if they now target specific client groups – be they ultra high net worth individuals, the high net worth, entry-level private banking clients or the mass affluent.
In terms of maturity, private banking has reached level 4.0, the insights to enable advisers to tailor services, digitally enabled model with data at its heart. Only data can deliver the insights to enable advisors to tailor services to meet the needs of exacting customers while keeping costs down to protect margins.
Another truth that has recently come to light is that no one bank can profitably hope to provide every service required by clients across all these segments any more. Those that are doing best in terms of growth have
Figures from Credit Suisse reveal a dramatic shift in the ranking of banks by growth of assets under management. Between 2011 to 2015, JP Morgan was kingpin at 11%, followed by Goldman Sachs at 10%,
10 Wealth Management Digest 2018
In terms of maturity, wealth management has reached level 4.0, where success depends on having a highly customer-centric, digitally enabled model with data at its heart. UBS at 8% and Credit Suisse at just 4%. From 2015 to the end of the third quarter of 2017, Credit Suisse jumped to joint first place with Goldman Sachs at 11%, JP Morgan sunk to third at 9% growth, UBS was fourth at 8% growth and Deutsche Bank, with bank restructuring, shrunk to negative growth. Credit Suisse, the big winner, has done a lot of work to reposition itself to serve the ultra high net worth market – those with liquid assets of at least $30 million. This market requires very specific services, including the type of corporate finance advice found in investment banking. The Swiss giant, along with UBS, JP Morgan, Goldman Sachs and, much more recently, Deutsche Bank, have been refashioning their investment banking arms to support their wealth management activities. Down a tier, banks without an investment banking arm, such as Julius Baer, are concentrating instead on the high net worth market. These customers want portfolio management and more personal advice on questions such as tax and inheritance planning. At the other end of the spectrum, traditional fund providers such as Fidelity and Vanguard have been able to develop mass-produced standardised products
and services that can be delivered cheaply to the mass affluent. Fintechs such as Betterment have also developed these robo-advice type services that can be delivered in an automated way cheaply. Even within the four main wealth segments, banks are finding they must specialise further. The five new tribes of private banking clients each demand specific skills. For example, banks such as EFG and Pictet have moved to provide specialist services for first-generation entrepreneurs, such as coaching to help clients grow their successful businesses to unicorn status (a privately owned start-up worth at least $1 billion). Royal Bank of Canada hopes its focus on women will pay off. None of this is easy. It is expensive, complex and time consuming and several banks, including UBS, are now on their second digital model, underscoring the importance of getting it right. At Orbium, we believe the fragmentation of the wealth management industry is just beginning. Specialisation and focus will be key to staying in the game. Whether you are a big global name, a mid-tier player or a boutique, the use of data and the honing of in-house skills to meet the needs of your target market segment will be essential to thrive in this new era.
Wealth Management Digest 2018 11
AGILITY AND INDUSTRIALISATION
EVOLVING TO MORE AGILE, INDUSTRIALISED OPERATIONS AND TECHNOLOGY by Ian Woodhouse Head of Strategy and Change ian.woodhouse@orbium.com
How addressing legacy core systems can unlock the full potential of data management and insights. The Orbium Wealth Management C-level survey offers an insider’s view of the current and future look of the wealth management industry in Europe and Asia. Respondents were C-level executives from nearly 50 leading private banking and wealth management firms who together manage private wealth assets of more than $2.5 trillion. Data collection for the survey took place between September and December 2017. The survey findings highlight the key opportunities and challenges identified by C-level executives and reveal their views on how to succeed in an uncertain and fast-changing environment. It also provides insights into the key gaps, blind spots and gamechangers affecting their efforts. One particular theme found in the survey was the shift towards more agile, industrialised operations and technology. This must be achieved through addressing legacy core systems, providing improved data management and insight as well as driving standardisation and automation to gain greater efficiencies. CORE BANKING AND DATA EVOLUTION Today’s systems are a mixed bag: nearly 40% of firms have modern core applications; nearly 40% still have legacy systems but are adapting them with satellite applications; just over 10% still have primary
12 Wealth Management Digest 2018
legacy systems with little adaptation; nearly 10% are considering core application replacements. Majority respondents see their old legacy systems as a constraint to becoming more flexible, adaptable and scalable in the face of ever faster changing markets and client needs. Accordingly, they plan to adapt their systems: by 2020 more than 70% will have modern core applications that will provide increased agility, scalability and cost efficiency. IT APPLICATION FOCUS
(Percentage of participants)
Today 2020
100
75
50
25
Core applications supporting rapid scalability
Considering core application replacement
Legacy systems with satellite applications
Primary legacy systems
However, there is limited appetite for long, expensive and risk-loaded legacy renewal projects and participants are looking for alternative ways to manage the transition, including introducing APIs, micro services and RPA (robotic process automation). Priority IT areas for investment are core banking, omnichannel and digital, as well as client reporting. Further ahead, respondents plan to shift their investments to the front and middle office areas and focus on omni-channel and digital, client relationship management regulatory support systems, and client relationship management marketing support systems. There is a real need for tools that can help deliver client-centric specialisms and enable relationship managers to deliver more specialised and personalised advice and solutions. For much of the industry, data management has traditionally been fragmented. Multiple sources of data in legacy systems have required quasimanual approaches and were focused on traditional indicators. To make matters worse, data was kept in silos and much of it repeatedly collected from clients for different ends. The future will see more interactive relationship management enabled by greater levels of client data and knowledge. The data that is collected will be stored centrally, accessible for different ends without recourse anew to the client. While this requires new approaches to governance in areas such as data privacy and cyber security, it will improve the customer experience and allow firms to leverage the data more widely. Greater data availability will also lead to more transparency in the way the business is run as real time becomes the norm and batch processing is progressively replaced. When it comes to tracking the business, respondents cited risk
and compliance, employee engagement and client satisfaction along with the traditional financial indicators as key metrics today. The rise in prominence of client satisfaction and people metrics reflects the expected evolution of more digitally enabled client relationship management processes. Additionally, firms realise that in the future they will have to share data and work closely with third parties to make the most of opportunities. DRIVING STANDARDISATION AND AUTOMATION IN THE OPERATING MODEL Funding change is a prevalent feature of the C-suite agenda. Investing in front-end innovation and technology demands that the back end is lean and capable of enabling integration of agile business processes in a cost-effective manner. Traditional on-premise solutions are now being complemented or even replaced by cost effective offsite services to provide a platform for growth. Standard back-office services are no longer viewed as differentiators and by reducing costs here investment can be redirected to the front.
KEY PRIORITIES FOR INDUSTRIALISATION
Today 2020
(Percentage of participants)
Digitise and automate processes
75%
33%
16.7% 25%
8.3% 25% Standardise key processes
Centralise key activities in-house to reduce duplication 17% Others
Wealth Management Digest 2018 13
AGILITY AND INDUSTRIALISATION
LAUNCHING A NEW PRIVATE BANKING BUSINESS IN SIX MONTHS WITH AVALOQ: INDUSTRIAL BANK CO. LTD (CIB) by Loïc Wymann Partner loic.wymann@orbium.com
According to the 2017 Hong Kong Private Wealth Management Report, total AUM in Hong Kong was estimated to be over US$800 billion. As such, the Hong Kong market provides wealth management institutions with ample opportunities to establish themselves as industry leaders.
Industrial Bank
Hong Kong
2018
20+ Orbium FTEs
It was the case for CIB, which chose Avaloq to be its private banking front to back platform of choice and Orbium as the implementation partner to support the creation of its private banking business in Hong Kong. SITUATION With a time to market of six months, it was one of the fastest Avaloq projects ever implemented in the Asian market. This was a greenfield project, implying no data migration and minimal peripheral system integration. The objective was to leverage on Avaloq’s extensive wealth management offerings to provide a cutting-edge platform enabling the launch of CIB’s new private banking arm with a very short time to market. The key success factors for this impressive achievement included: • Alignment and commitment: a clear direction and a strong commitment from CIB’s senior management were crucial for this time-driven project such that an early alignment on the project’s scope and principles was achieved. The project team stressed the ‘must-have’ functionalities required for banking operations and adopted a strong adhesion approach to the Avaloq standard baseline. Availability of the key business users was also decisive.
14 Wealth Management Digest 2018
• ABR/S baseline: Avaloq’s ‘Ready for Banking’ starter kit offered a comprehensive set of pre-configured products and functionalities, enabling a faster implementation without compromising on the offering. Together with a complete set of use cases – pre-defined functional test cases – the project lead time was significantly reduced. These factors were especially important in achieving quality results from testing. • Avaloq platform and local market expertise: Orbium’s project team seamlessly combined strong implementation experience with expertise on the Avaloq core banking platform. The team had deep knowledge of the specific needs of the Hong Kong private banking market in terms of products, services and regulatory requirements, enabling the solution delivered to be compliant with CIB’s business needs. • Project methodology: Orbium’s proven implementation project methodology was key to success. Early and continuous involvement of business users, detailed planning, an iterative and collaborative approach, daily progress tracking and adjustment to changes enabled a smooth delivery, on time and on budget. • Close team collaboration: establishing a trustworthy relationship and strong partnership with all stakeholders was critical to project success. To facilitate this, regular communication updates were planned to include all levels from team members to senior management. Transparency, a can-do attitude and continuous alignment of interests were highly beneficial in achieving a fruitful collaboration.
ACHIEVEMEMENT Delivery of a fully operational cutting-edge private banking platform powered by Avaloq, supporting CIB’s growth plans by providing clients with a wide range of new products and services, all within a six-month time period. AREAS COVERED A rich scope of functionalities and products was delivered including end-to-end client onboarding, investment advisory, trading, portfolio management, investment suitability, financial accounting and client reporting, as well as the regulatory and compliance requirements and related reporting. A full range of products such as money market, equities, bonds, funds, derivatives, structured products, Lombard loans, foreign exchange products and options were part of the implementation. ORBIUM ROLE Orbium had the privilege of being responsible for the end-to-end solution design and implementation management, where more than 20 Avaloq and private banking experienced Orbium consultants were engaged. Orbium could also leverage on its remote development and delivery teams.
Abbreviations ABR/S
AUM
CIB
UHNWI
Avaloq Banking Standards Starter Kit
Assets Under Management
Industrial Bank Co. Ltd
Ultra High Net Worth Individuals
Wealth Management Digest 2018 15
AGILITY AND INDUSTRIALISATION
BEST PRACTICES IN SUITABILITY IMPLEMENTATION by Amar Bisht Head of Wealth Strategy and Advisory, APAC amar.bisht@orbium.com
Many private banks have invested in costly suitability enhancement programmes that have not delivered the expected results. For such programmes to succeed and deliver the desired outcomes, they must be designed to assist private bankers and investment advisors rather than focus on merely tightening controls. Conversations with the Chief Operating Officers (COO) of private banks have shown executives are focused on getting investment suitability right. Their concerns persist even though private banks have already allocated substantial resources to suitability enhancement programmes. The changes initiated have been significant, with sales processes revamped and additional risk and compliance personnel hired. Despite the spend on suitability, private banks are still not fully deriving the benefits of their investments and only a select few appear to be getting suitability right. The lack of success can be attributed to an ineffective implementation approach that ignores key best practices. A HOLISTIC AND RIGOROUS FRAMEWORK IS AN ESSENTIAL PREREQUISITE The starting point for getting suitability right is for private banks to adopt a robust suitability framework that encompasses five dimensions. Orbium’s framework incorporates lessons learnt and stresses the importance of a holistic approach by avoiding the creation of silos in departments with competing priorities. The emphasis is on embracing automation, where appropriate, across all five dimensions. The good news is that many COOs are now convinced of the importance of a holistic framework and the automation debate is also settled. Our deliberations with COOs are now geared towards incorporating industry best practices in suitability implementation.
16 Wealth Management Digest 2018
ACCELERATING AND OPTIMISING IMPLEMENTATION Based on our experience on multiple mandates, we share three critical considerations that can help ensure a successful implementation. FRONT OFFICE EASE OF USE MUST BE THE STARTING PREMISE OF THE IMPLEMENTATION AND NOT AN AFTER-THOUGHT To date, suitability enhancement programmes remain largely reactive. We have observed that many private banks launch enhancement programmes after internal or external inspections. In most cases, the programme’s mandate is to work through a checklist of findings and remediation items and the project team is pressed for time to meet deadlines. The enhancements are often driven by limited front office participation and ease of use quickly becomes an afterthought. The results are inevitably inflexible solutions that fall far short of user expectations and deliver poor user experience. Ultimately this approach leaves the front office staff disgruntled. These outcomes can be avoided if front office users are actively engaged and play a vital role in the programmes. • A proactive approach makes front office ease of use the starting premise of the solution. At innovative clients, we have seen the creation of a Relationship Manager Suitability Workbench. Such a dashboard actively encourages use by relationship managers or investment advisors by enabling them to prefilter suitable recommendations for a specific client portfolio. The suitable products are shortlisted and displayed on the screen for reference and solicitation by front office staff. • Recommendations from the advisory team are also seamlessly integrated into the dashboard. • The relationship manager or investment advisor can simulate the effect of a transaction on the client portfolio and determine potential suitability violations. Simulations help identify concentration mismatches that can be disclosed pre-trade to the client. • Unfortunately, there are several examples in the industry where banks have ignored the front office perspective and adopted a reactive and restrictive approach to suitability. A few have chosen to
prohibit or block transactions at the point where the banker is ready to book the transaction in the core banking system. This inevitably leads to a poor client experience when a trade is flagged by the system and further disclosures must be made to the client. EMBRACE A SUITABILITY ECOSYSTEM APPROACH TO LEVERAGE BEST OF BREED SOLUTIONS. SUCH AN APPROACH IS MORE COST EFFECTIVE AND LEADS TO A BETTER USER EXPERIENCE We observe that historically banks have built bespoke inhouse suitability solutions. Such an approach can quickly unravel because they were never designed to cater to complex suitability obligations that are now becoming prevalent. We have seen examples in the industry where simple changes in suitability rules can take up to six months to implement. • By adopting an ecosystem approach, banks can reduce costs, increase ease of use and provide significantly better user experience. External and readily available services can be utilised with inhouse solutions to offer a comprehensive and userfriendly suitability offering. • Working with external partners, including fintech and regtech firms, Orbium has created a model ‘suitability ecosystem’. This allows banks to plug in innovative solutions across all five multiple dimensions of the suitability framework to complement in-house services. • Many private banks now rely on a business rules engine to host the suitability checks. Business rule engines depict the rules visually and are easy to set up and update. Business risk functions can rapidly respond to regulatory changes without having to wait for months to make changes to suitability rules in legacy IT systems. • The benefits of an ecosystem approach can easily extend downstream. For example, we see banks adopting a robo-surveillance solution analysing all transactions and identifying trades that need further investigation, eliminating the risks associated with the traditional sample-based methodology.
Wealth Management Digest 2018 17
BUILD DIGITAL CAPABILITIES WITH EMBEDDED REGULATORY OBLIGATIONS Private banks are rapidly building digital capabilities and accelerating the adoption of digital channels. This presents a unique opportunity for banks to build regulatory safeguards into their digital solutions and leverage the lessons learnt previously. We observe that many private banks are making a push for digital engagement with clients and are increasing the breadth of their products available online. This digital push must consider and incorporate the guidance provided by regulators on the design and operation of online and digital platforms. In late March, the Securities and Future Commission (SFC) of Hong Kong, released consultation conclusions on proposed Guidelines on Online Distribution and Advisory Platform. • A best practice observed in banks that have digital capabilities is to review all aspects of the suitability of a transaction. A digital solution enables the relationship manager or investment advisor to first assess cross-border suitability and if the trade does not violate any cross-border guidelines, the trade is then seamlessly evaluated to determine product and investment suitability. • As private banks start rolling out online platforms, they must pay attention to the design and operation of these platforms. A proactive approach will ensure that meeting suitability obligations does not become a time-consuming exercise and client experience remains uncompromised while meeting all regulatory obligations.
18 Wealth Management Digest 2018
CONCLUSION There is a lot at stake in rolling out a suitability enhancement programme. Our experience and insights suggest that private banks undertaking such a programme maximise their chance of success by designing solutions that enhance the front office ease of use and complement in-house capabilities by embracing an ecosystem approach. Banks that are willing to break away from the typical checklist approach to suitability programmes will gain a strategic advantage enabling their relationship managers and investment advisors to provide better client experiences while meeting suitability obligations. As observed in the industry, poor implementation approaches prove costly in the long term with delays and cost overruns, and have even led to expensive remediation exercises. For banks looking to tighten their suitability regime, it is imperative to move from frameworks to accelerated implementation – and to do so now.
An optimised suitability implementation must incorporate industry proven best practices to ensure success. – Amar Bisht, Head of Wealth Strategy and Advisory, APAC
Wealth Management Digest 2018 19
LEVERAGING NEW CAPABILITIES AND CHANNELS
BUSINESS EXCELLENCE, THE UTOPIAN ASPIRATIONS OF WEALTH MANAGERS by Katharina Mohr and Olivier Grandjean Senior Managers katharina.mohr@orbium.com olivier.grandjean@orbium.com
As new digital propositions continue to permeate the wealth management industry, how can the tension with traditional offerings be correctly managed? Banking executives struggle to decide the degree and direction of innovation required to remain relevant. Following established industry sentiment, cost reduction and industrialisation are at the forefront of their minds. However, IT and business process outsourcing take precedence on their agendas. Without aligning and synchronising their ultimate objectives, outsourcing initiatives can become obstacles, delaying or putting innovation at risk. Rapid innovation requires the flexibility of both IT systems and operational teams whereas, traditionally, outsourcing identifies ITO or BPO opportunities to accelerate process standardisation and deliver existing offerings at a lower cost. In the future, an organisation’s success (or excellence) will be determined by its effectiveness in surfing this ‘outsourced innovation paradox’. New integrated business models of high-performing firms will be characterised by an agile organisation that: 1. Supports core client propositions and services. 2. Outsources non-core propositions and partner services. 3. Achieves seamless integration in a unified digital delivery model embedding the necessary regulatory compliance frameworks.
20 Wealth Management Digest 2018
The envisioned balanced and integrated business model then becomes the central decision criterion for initiating long-term investments and innovation. Banks must innovate their offering while also developing a vision and culture that supports digital transformation. By successfully leveraging disruptive technologies, organisations can outperform both their peers and new market entrants. For most firms today, new propositions differ significantly from traditional offerings and cannot be delivered by simply enhancing existing operating models, therefore calling for deeper business model transformation. The critical success factor in such a transformation is choosing the right sequence and nature of (smaller) changes in order to already deliver benefits during the transition. As newer models are more efficient, their operating costs can be funded by the optimisation opportunities they unlock within the continued traditional models. Such a journey requires a bivariant approach to change that not only focuses on new outcomes, but how these outcomes can benefit current models. This allows the creation of transient states where the organisation continuously improves traditional and newer offerings through a succession of delivery models that become
more and more seamless and lean. Other initiatives to improve traditional processes are still likely to exist for short-term outcomes, but they are no longer deemed strategic and must therefore align to and ultimately leverage innovation (e.g. digitalisation). The graphic below illustrates how such transient states allow the integration of new capabilities to progressively augment traditional channels, legacy platforms and
products. On the one hand, by balancing traditional and innovated propositions, the core offering is optimised. On the other hand, mature secondary or partner offerings that are part of the revisited offering are outsourced (e.g. IT infrastructure, non-core business processes) while still retaining the ability to be integrated in a digital banking layer. Emerging IT system architecture leverages the potential of a digital layer to both unify customer propositions and (partially) replace traditional systems.
An optimal transient state in the journey towards future business model
Value proposition
•Fragmented offering •Inconsistent •proposition
Systems & processes
Existing traditional business model
•Central core system •Fragmented data •Back to Front ` processes
Envisioned future business model
Innovate core proposition Optimise core processes in-house
•Unified value proposition •Seamless utility services
Outsource non-core proposition & noncore processes (BPO) Outsource non-core IT (ITO)
•Unified digital layer •Front to front or Front to Backprocesses •Integrated partner & utility services from external cores
Consolidate & Activate value of data Unify model in a unique digital layer Embed model in a regulatory compliance framework
Example of an optimal transient operating model Transformation of value proposition... • Unified new offering partially • replacing traditional offering • Non-migrated traditional • services remain • fragmented
...and its supporting systems & processes • Operating model partially transformed into a unified model • Innovative processes augment and optimise traditional model
Wealth Management Digest 2018 21
When defining change initiatives and striving for business excellence, key principles are often still ignored.
22 Wealth Management Digest 2018
Through the concept of transient states, business excellence can be evaluated in the way stable business model changes are prioritised, sequenced and continuously delivered. It is characterised by: 1. An efficient organisation where scalable IT and data architectures support functional teams in their evolution towards new operating models. 2. An offering where innovative value propositions, state-of-the-art partner offerings and outsourced utility services are unified in a digitally enabled delivery model. 3. A strong change (adoption) and risk management culture driving the organisation’s evolution with its governance framework.
Characteristics of business excellence
B
E iness xcellen us
ce
Inno va
ore & Partner dC O te
ices erv ys ilit Ut
n
ring ffe
Value pro po sit io
Partner offerings
Bank Vision
cie
ti o
n
E
f fi
nt O rg a nisa
Target Operating Model Functional Organisation
IT Architecture
Data Models
Governance Regulatory Responses
Change Management
Bank Management
Business Excellence Dimensions: Digital Innovation – Sourcing & Partner Opportunities – Risk Appettite & Thresholds
When defining change initiatives and striving for business excellence, key principles are often still ignored. For example, wealth managers rarely build front to front (a set of processes that do not interact with legacy or core systems to communicate, allowing quicker decisioning and accelerated innovation) business management frameworks to benefit their traditional processes. The majority rather digitise existing processes, creating digital silos on top of legacy frameworks and multiplying back to front digital integration layers. This in turn increases the embedded operational risk as such frameworks are neither smart nor fast enough to keep up with the digital pace and the need for seamlessly interconnected journeys. Looking at the wealth management industry today, firms face unprecedented market disruption and they need to transform their businesses to remain relevant. An organisation-wide change culture for innovation adoption with central governance and a stronger, more agile change management have emerged as key prerequisites to survive in such conditions. They enable firms to find a timely and evolutive balance between their digital and traditional offering. They also propel a holistic and intelligent transformation approach that forces organisations to synchronise the innovation of their offering with the required operational and organisational optimisation to support and deliver it. In this context, the ultimate objective to achieve business excellence can be defined as an organisation’s ability to successfully evolve through a continuum of transient business models and to optimally operate traditional, outsourced and innovative offerings within the appropriate risk, revenue and cost targets. In comparison to the traditionally used term ‘operational excellence’, business excellence strives further, enabling real C-level change journeys, and is critical to navigating and managing change for the future.
Achieving business excellence, however, implies that a firm’s change journey comes to an end. It must therefore be understood as a moving target, an aspiration organisations strive for but never reach.
Wealth Management Digest 2018 23
LEVERAGING NEW CAPABILITIES AND CHANNELS
WHAT DESTINY FOR FINANCIAL INTERMEDIARIES DURING A CORE SYSTEM TRANSFORMATION? by Olivier Grandjean Senior Manager olivier.grandjean@orbium.com
No one should be left out when banks change their core systems.
According to 13% of respondents to the Orbium C-level survey, developing strategic partnerships with financial intermediaries is among the top three priorities to drive revenue growth and unlock further B2B client segments. When a bank undertakes a core banking transformation project, one easily overlooked group are the external asset managers (EAM). Trust managers, insurers and other intermediaries, whether they are single users or large corporations, all need great services. They want real-time reporting and adapted investment services, just as bank staff do. However, by their nature, external stakeholders are remote from the team running transformation projects and so are not always consulted. Perceived as external relationship managers, transformation teams also tend to assume all EAMs’ needs will be covered by a set of existing relationship manager’s capabilities.
24 Wealth Management Digest 2018
This means that when the dust settles on a transformation project, EAMs are often left out in the cold. They are expected to use the same e-banking front end as the bank’s customers, which does not offer the depth and flexibility they need, together with some bolted-on external tools. Worse, they are sometimes given access to the bank’s back end systems, which are far too complicated for them and require a lot of support. The result is that EAMs lose satisfaction with the bank and, in some cases, make less use of their accounts. In turn, the bank sees a drop in income or a rise in support costs – sometimes both. It doesn’t need to be this way. One of the key products in the market differentiates itself by offering front workplace technology with a flexible real-time web platform to meet the growing needs of a bank’s intermediaries. Avaloq meets client needs by providing a user experience design framework that can be easily customised for specific types of external user. Implementing the EAM workplace as part of a digital transformation project or as a complement to a core transformation project doesn’t just mean a better partner experience compared to the alternatives. The workplace framework offers granular features that can
be customised to deliver something truly personal for the various intermediaries and can become a differentiating proposition versus other banks. Avaloq’s multi-user, browser-based solution is secure and fast, but uses minimal bandwidth and has lower costs than many of the leading contenders. Its flexibility makes it easy to add only those features each client needs, from standard ones such as financial-situation overviews, trading and client group management, to investments, electronic documents and, in a forthcoming update, advisory offerings, employee entitlements, corporate-action administration or chat services. More complex features can be offered through targeted marketing, allowing for the possibility of different pricing models for different services. Implementing a strong initial solution can take as little as six months, depending on agreed scope. But many bank IT departments will not have the experience of running a project like this, which is why partnering with an external expert such as Orbium can help. As an official premium implementation partner for Avaloq, Orbium is actively supporting banks to provide effective tools for EAMs.
Orbium’s team of Avaloq-certified consultants have worked from the inception of Avaloq web technology in pilot programmes and are strongly involved in customising the first EAM workplaces. As the only Avaloq training partner, we successfully lead EAM training for, and on behalf of, banks. Orbium has structured its digital services to deliver a complete final product: • Subject-matter experts with strong expertise in front office. • Customer and financial-intermediary needs to support product owners and customer experience (CX) design. • Managers using agile development methodologies to deliver maximum business value in the short term and drive remote teams effectively. • Fully-owned near-shore and offshore centres delivering complex projects at the company’s high standards. The result of a well-implemented platform for EAMs is that they will be more active and independent, meaning lower support costs and more income for banks. It’s an opportunity that too many banks are missing.
Wealth Management Digest 2018 25
CHANGE MANAGEMENT
ACHIEVING AN AGILE APPROACH by John Okoro Head of Agile Practice, APAC john.okoro@orbium.com
Big financial services companies are often like oil tankers – huge and hard to manoeuvre. But with digital disruption making waves, these regional financial giants might soon be encountering a perfect storm. By becoming Agile, such groups have a chance not only to navigate choppy waters, but to steer a new course. For all the talk of rapid change in financial services – thanks to fintech and altered customer expectations – we haven’t seen anything yet. Prepare to experience warp-speed change after Alibaba’s Ant Financial, China’s largest online payments operator, secured $14 billion in new funding. While the funding will help Ant Financial expand overseas and reinforce its leading position at home, it will also act as a spur to fintech aspirants to innovate in an attempt to catch up. The result: an accelerated rate of change in a sector that has already seen a revolution over the past decade. The pace of change poses considerable problems for traditional banks. These are huge, well-established organisations with strong cultures and time-honoured practices – both powerful hindrances to change. For banks in Asia – the key focus of Ant Financial’s expansion – this is a particular concern. In response, these big financial institutions are beginning to change course. Some have already adopted the Agile way of working – a set of principles that helps companies
26 Wealth Management Digest 2018
create a dynamic workplace which promotes trust, autonomy and responsibility to foster innovation and value creation. The Agile way of working can be traced back to the 1950s, with Toyota and its eponymous production system. The car manufacturer’s goal was to eliminate waste, be that in design, production, delivery or management. At its core was the idea that applying learning would deliver a competitive edge. Its principles were: the goal is value, respect for people and culture, optimise flow, innovation, continuous improvement and the foundation of leadership. In 2001, a grassroots movement of independent software developers came up with the Agile Manifesto. Its own principles borrow from the Toyota Production System: individuals and interactions over processes and tools; working software over comprehensive documentation; customer collaboration over contract negotiation; responding to change over following a plan. Modern Agile adds the organisational Agile principles: make people awesome; deliver value continuously; make safety a prerequisite; experiment and learn rapidly.
Taken together, they allow people to become their best and help companies navigate change smoothly and efficiently. They encourage people to try new things without fear of failure. Some of these new things create value. By trying and failing, people learn fast. People will become awesome. The company benefits. But typically, companies get stuck in the first wave of Agile, restricting its implementation to a few teams tasked with developing a new product or service. This works for small companies. But for the big guns, having a handful of Agile teams in a vast workforce is hardly a recipe for organisational change. The existential threat posed by the likes of Alibaba and others demands that they implement Agile on a far wider scale, certainly across IT departments (wave 2), but ultimately across the whole organisation, in order to change and thrive (wave 3). Some global companies that have already adopted Agile on a broad scale have shared their experiences in case studies published by Scaled Agile, an Orbium partner and the provider of SAFe, a leading framework for companywide Agile programmes. These include Fannie Mae, Intel, Capital One, Standard Bank, AstraZeneca, Swisscom, Philips and the UK’s NHS. Cited benefits include $12 million savings and projects coming in 18 months ahead of schedule, a halving of time to market, the release cycle cut by two-thirds, faster delivery, happier teams and increased customer satisfaction.
Similar results could be achieved in Asia by financial services firms adopting Agile at scale. Orbium, with its best-of-breed partners Scaled Agile, the Business Agility Institute and the International Consortium for Agile (IC Agile), can help. By working with clients who want to implement Agile working at scale, we can provide the right training, coaching, leadership consulting and certification. We enable the digital delivery and transformation that allow our clients to thrive, rather than just play catch-up with Ant Financial and fintechs.
IT’S TIME TO BECOME AGILE!
Wealth Management Digest 2018 27
ABOUT ORBIUM
www.orbium.com
Berlin | Düsseldorf | Frankfurt | Geneva | Hong Kong | London | Luxembourg Manila | New York | Paris | Singapore | Sydney | Warsaw | Zürich © 2018 Orbium. All rights reserved. No part of this publication may be reproduced, amended, stored or transmitted without the permission of Orbium.