James Edsberg of Gulland Padfield, the award-winning strategy consultants to the Wealth Management and Private Banking sector, answers questions on some of the challenges that Private Banks and Wealth Firms face as they navigate choices and investment in new technology to enhance the Client Service Experience for their UHNW and HNW clients.
1. We are seeing private banks and wealth managers increasingly signing deals with tech providers for new web interfaces for relationship managers - are they going about this in the right way?
James Edsberg: There’s a tussle that’s been quietly intensifying over the last 3 years between banks’ management teams and the Front Office and RMs who deal with clients day-to-day. The debate is between the ownership of and responsibility for the client relationship between the RM versus the bank’s operational platform. That balance is shifting without a shadow of a doubt towards the institutions. The degree to which technology genuinely enhances or replaces the human interaction is just the latest phase in that long-running debate.
2. Are PBs and WM firms doing this the right way?
James Edsberg: The ones that are doing this successfully are not seeing it as an over-simplistic choice between ‘technology’ versus ‘RM’. In our consulting work on client strategy with leading wealth firms, we’re seeing some firms working in a genuine collaboration with front office teams to select the right technology to support and to help RMs respond to increasingly complex and real-time client needs. It’s a snappy phrase, but the days of the so-called ‘Roboadvisor’ are still way off. A firm that provides investment algorithms and simple on-line transactions is one thing. But automated client service for HNWs, is quite another level of service for most banks to deliver.
That said, the things at the top of clients’ demands, namely better and more timely performance information, transparency on fees across all aspects of their relationship and greater consistency in the client experience, are not things that RMs on their own can now provide. Technology has a major role - an essential role - in how these aspects of the client service should be delivered.
And if the needs of clients are not enough of a motivation to make improvements here, the leading regulators on both sides of the Atlantic have also been pushing the theme that technology is the way they expect many of the regulatory risks to be managed by banks.
Those getting it right have taken the time to engage patiently with RMs to help them do what they do best which is to win and build client relationships. Too much front office time is spent firefighting and patching things together ‘behind the scenes’ for clients putting huge pressure on RMs to be the calm face-off to clients – technology will help both sides.
3. Which banks do you feel are making the fastest progress in digital innovation for private banking and what sort of effect is this having on their brand strength?
James Edsberg: Like an iceberg, there’s a lot going on under the surface in the industry but so far, only a small proportion of that has been formally launched and is visible. There are already winners and losers in terms of who has spent what, where and who has squandered. The better distinction to make is between which banks are aiming to be successful ‘first movers’ and which are preparing to be ‘fast followers’. The former requires managed innovation; not an easy thing to achieve inside the larger institutions. The latter means less likelihood of misspending investment up-front but requires agility and organisational flex to catch up with the first movers fast before HNW clients switch over. From our recent review of digital developments among the Private banks, we’re still seeing the industry firmly in the ‘pilot’ phase of the innovation cycle – with many banks selecting a key segment or region in which to experiment digitally in a low risk way, learning the lessons before rolling out something more ambitious. So far with the big players, it’s baby steps – and that’s not necessarily a bad strategy.
4. How important is it to take inspiration for tech developments from non-financial players in Silicon Valley and elsewhere?
James Edsberg: I think this is critical. Like many industries, financial services can’t help looking almost exclusively inwards at what close competitors are doing first before it looks outwards. Interestingly, we’re seeing at least one of the historically conservative US banks thinking big and bold and bringing in unconventional influencers and 3rd parties to help them reach out beyond financial services for ideas. And among the UK-headquartered banking groups, Barclays is funding an incubator-style project which provides offices and other support to foster learning and co-operation with fintech companies.
5. Which should be key objective for private banks when working on innovative technology projects? Acquiring clients, retaining clients or increasing wallet share?
James Edsberg: Done in the right way, it achieves all three. But only if you follow one simple, guiding principle. To build whatever you are going to build with the client in mind. It’s a blindingly obvious statement to make but it doesn’t happen enough. Tech projects have a unique ability to hold management enthralled – the current digital flurry has made that hold stronger. Add to that, the business is often impatient for roll-out and a client base, parts of which are getting vocal. It combines to give tech initiatives a phenomenal momentum which once started, is almost impossible to adjust.
The solution? If institutions devoted just 1% of their technology spend and 2% of the opportunity cost incurred in deploying internal resource to analyse and consider what clients would like, the ROI would be better and achieved faster. We see highly talented in-house technology teams asking for and being starved of the strategic direction and client insight that would make their work easier.
Building things without the parallel investment in understanding the client experience is still the Achilles’ heel of many firms. And I don’t mean some sort of quick client survey but a deeper study of the motivations and unmet needs of the clients around which the bank is building its hopes for growth.
6. Do you feel mid-sized firms are best place to innovate in technology/digital private banking because they do not have the legacy systems of many mergers that some of the larger US firms are burdened with?
James Edsberg: In general terms, yes. But the largest firms are putting up a great fight by pursuing tactics which play to their strengths. Piloting new developments and deep pockets can count for a lot. Added to that, clients - even the new wealth creators - are still more conservative that many think. They attraction of a large, safe brand is still a powerful card which the largest institutions have up their sleeve.
7. Given that leaders typically mirror their clients and that many leaders in wealth management firms are in their 50s, are you confident that a new generation of leaders will come through, with an innovative mindset, to match the aspirations and technological needs of a new generation of entrepreneurial clients?
James Edsberg: Yes, I’m optimistic. We’ve done some analysis on the preferences that clients have in their advisors and the implications for client acquisition strategies for firms. The key to this lies in the combination of two things: deep client focus (i.e. understanding which client segments want what in terms of relationship management) and the ability of a firm to deploy not just a single ‘super-advisor’ able to talk to all elements but the right expert brought in at the right time.
Not just at the UHNW segment but below that too, clients want clearer explanations of the products and that’s something which is age-agnostic. Cool investment judgment and long-in-the-tooth experience still has an important part to play but clients are an awful lot more practical, savvier and products have become simpler.
James Edsberg is a Consultant at strategy consultancy, Gulland Padfield and the author of the Client Centric Index www.clientcentricindex.com and its associated programmes. The index is the world’s first on-line diagnostic which enables wealth management firms to assess and benchmark the client focus of their organisation.
James was also interviewed on these subjects by Professional Wealth Management on this subject. For the full article on Professional Wealth Management website, click here: http://www.pwmnet.com/Comment/Editor-s-Analysis/Banks-must-embrace-both-man-and-machine