The relationship between banks and their star players is changing - with far-reaching implications for the business strategy, internal investment priorities and the way HNW & UHNW client relationships are nurtured and managed.
This year saw the collision of several industry trends which have been present in the wealth management sector for years but which reached a climax in 2015. These developments – detailed below – have changed the ways clients will be advised in the future as well as the operational investment wealth firms must make now to create a sustainable and profitable business.
The result of these trends has been a series of internal and external tensions which exert powerful forces inside every leading private bank. At the heart of these changes and profoundly affected by them, are the individuals who have, until now, played the central role in winning, maintaining and growing client relationships for wealth management firms: Relationship Managers and Client Advisors. In 2015, these individuals became the point of impact of these developments.
Over the last 24 months, in the course of the projects we regularly undertake with leading wealth firms, our teams have seen at first hand the essential, exclusive and at times almost ‘heroic’ expectations placed on RMs to deliver for a firm´s clients. It is a phenomenon that we began to call Hero RM Syndrome. This syndrome comprises a culture and mindset about the role of the RM, as well as the business processes built by, for and around the RM, from which many banks are now suffering.
Put simply, Hero RM syndrome is the over-reliance by wealth management firms and private banks, on an individual (or group of individuals) to manage the full spectrum of the client relationship in its current, modern context.
In case this is seen as a criticism of RMs, it most emphatically isn’t. Resolving this challenge will benefit RMs, on whom Hero RM syndrome has imposed an almost impossible burden, as much as it will management teams.
Understanding Hero RM syndrome, how it came about, the dilemmas it raises and its impact, lies at the heart of understanding the steps firms can now take to undo and resolve its potentially harmful on-going affects.
What are the roots of Hero RM syndrome?
There are multiple causes, among the most significant are the following:
- The RMs were the strategy For years, the long established wisdom was that hiring the right relationship manager or client advisor to manage the client relationship was the most important decision to make. Once the right RM individuals were in place, growth and most other client-related challenges including the quality of the client service delivered, would take care of themselves. RMs became the central plank of strategy.
- RMs perpetuated their central role RMs did much to create and perpetuate their heroic and indispensable presence. The relationships were seen to be with the RM rather than the bank or the firm. Management were often ‘in the dark’ over what was driving client needs and choices. The RMs exerted significant leverage over management and a pre-eminent influence on key aspects of firm-wide strategy.
- Underinvestment in systems empowered RMs further Poor or sporadic investment in a firm’s processes, technology and platforms suited the RM since it made both the business and clients yet more dependent on RMs both to compensate for operational inadequacies. Nowhere was this more true than in the area of client reporting which continues to be a process requiring significant RM teams’ time.
What’s changed to make Hero RM syndrome such a challenge?
Again, there are multiple factors which have changed the relative importance and role of the RM. Here’s a selection of some of the more significant developments that have led to the change.
- Client loyalty to individual RMs has weakened Various studies over the years show that only a minority of HNW clients would follow their RM to another similar bank if that RM moved. At the same time, institutional brands are gradually strengthening their appeal, even to a younger profile of HNW client. One of the counterintuitive outcomes of the 2008 banking crisis was that despite the damage to the reputation of several large bank brands, many HNWs still ‘play safe’ and go for the recognised and large names.
- The big hire doesn’t work anymore Partly as a result of weakening personal loyalty to the RM, hiring policies have changed – with headhunters and management being much more sceptical about the ability of an RM to bring a book of business with them and a shift in the relative importance of client-facing teams diminishing among other institutional factors that attract and keep clients with a firm.
- Compliance is complex and needs rigorous processes and consistent systems The need for banks and WM firms significantly to increase the compliance, oversight and discipline is paramount. The policing of these needs has become too important to leave to front line staff. Other colleagues, including compliance and support teams are interacting with clients which dilutes the responsibility for the relationship and requires a deeper appreciation of what clients expect or need.
- The RM role has become too big Being indispensable has become too much for the RM. Coverage ratios and the wide responsibilities added to the additional compliance measures, mean RMs are simply finding they are being asked to do too much. The responsibility of delivering world class client service is too great for the traditional approach to deliver as it made the RM accountable for all aspects of what has become a highly complex service.
- Investing and investors became sophisticated As the profile of the wealth firm has shifted more towards attending to new wealthy rather than HNWs with inherited wealth, so the profile and skillset of today’s RMs have been under pressure to move beyond the traditional profile. Clients want to deal with an advisor or better still, a team that is able to discuss a wider set of investments. The challenge of advising clients professionally can no longer be left to the capabilities of a single or tight group of individuals who own and control the relationship.
- Technology has diminished some aspects of the role of RMs Recent technology and processes will continue to make, on balance, the need for in-person communication and interaction less frequent. Technology investments by firms are gradually driving improvements in information management, consistency and service quality. These are aspects which clients say are key factors in selection and loyalty to a firm
Together, these and other factors have placed a huge pressure on RMs. Most recognise that their role is changing and needs to change and that they can no longer sustain most of the responsibility for the quality of the service for HNW and UHNW clients. But what aspects of client service should they be responsible for?
Management teams want to find the right balance between technology and their staff. The grip that RMs still have on most aspects of the client service needs to be adjusted so that other elements and the banks operational platform can enhance the clients’ experience. Where should firms invest in technology in a way that complements the best aspects of the role of the RM which it would be sensible to preserve?
Every major firm has undergone major change in its delivery model, culture and offering over the last 24 months. That need for change looks set to accelerate rather than decrease in 2016. The question is how should firms win over the RMs to embrace, support and deliver that change?
Many firms have begun to experiment with different team and delivery models and are diluting or changing the role of the RM. What is the best model and how can that be aligned to client need?
And what are some of the elements that will resolve the challenge?
- Establish a clear Client Strategy Many wealth firms have not yet clarified key aspects of their Client Strategy in order to help them deliver the aims of their Business Strategy. The key to resolving ‘Hero RM syndrome’ lies in a review of several key elements of a firms´ Client Strategy including the Client Service Experience and the alignment of Compliance and Regulatory requirements to it rather than separate to the client service approach. In general, wealth firms have under-invested in understanding client need or have relied on off-the-shelf surveys which fail to get to the heart of the specific needs and growth opportunities in their specific client base.
- Reframe the RM role New advisory and coverage models and firms’ ability to develop a culture of teaming will be crucial. To loosen the RM’s well-intentioned grip on clients and bring in proper ‘teaming’, will require a series of other steps to win the agreement and support of those who currently supervise much of the firm’s client base. The wealth firms that are successfully having a debate internally about the ownership and responsibility of client relationships are not seeing this as a simplistic choice between ‘technology’ and the RM. An important feature of that debate should be the better alignment of what clients want and what its teams provide them. It´s about working with rather than imposing on the client-facing teams so that there is a genuinely good outcome for the RM, the client and the business.
- Map and understand the Client Service Experience Without being able to identify the moments when the personal touch is needed and when it isn’t, it will be difficult to know when to use RMs with clients and when an alternative channel would be acceptable or even preferable. When it comes to advisory services, people still buy people. The chemistry between a private client and their advisors will remain a vital element of how clients select and work with their advisors. But the basis on which clients select an advisor has changed substantially even in the last 12 months.
- Update your Talent needs As the profile of the client base of most wealth firms is shifting, there´s an opportunity to refocus the profile of the team looking after them and to take a fresh look at your firm´s hiring priorities.
If the issues in this article have interested you, and you would like to hear more or start a conversation with us about how your firm could tackle ‘Hero RM syndrome’, drop us a line at firstname.lastname@example.org
In Autumn 2015, we are running a series of events and interactive seminars on this subject which will cover how firms can resolve some of the issues arising from ‘Hero RM syndrome’. To receive details via email including the dates of the seminars, email email@example.com
About Gulland Padfield
Over the last 12 years, the partners and teams at Gulland Padfield have advised 11 of the Top 20 Private Banks on their business and client strategy. The firm has won awards for its pioneering approach and consultancy work in Client & Customer Engagement including at the 2015 AMCF global consulting awards where the firm won recognition for its advice on Client Strategy to a major US banking group and in 2014 at the UK Management Consultancy/ The Times newspaper Awards for Customer Engagement. The firm was also acknowledged for its pioneering work as a specialist consulting firm.
About James Edsberg
James Edsberg is a partner in Gulland Padfield’s Wealth Management team. He advises investment management business on business and client strategy. In 2015, the Wealth Briefing Awards recognised James for his ‘outstanding contribution to thought leadership for the European Wealth industry’.