The annual World Wealth Report, issued by Merrill Lynch and the Capgemini consulting group, found that wealth management firms are moving toward more dynamic, needs-based client service approaches by applying advanced segmentation and analysis to the traditional assets under management (AUM) model that was once embraced as industry standard.
   "Leading wealth management firms understand that to be successful, their service model must be tailored to the individual needs of the client," said Robert J. McCann, president of Merrill Lynch's Global Private Client Group. "A client-centric service model allows the advisor to provide a better wealth management experience, and strengthens the advisor/client relationship."
   The report found that the world's nearly 10 million high-net-worth individuals (HNWIs) have undergone significant changes in their sources of income, demographics, and spending goals.
   Historically, many firms placed HNWIs into one of three types of practice models: brokerage (offering product experts and financial advisors); investment management (relationship-based approach); or wealth planning (clients are assigned a personal CFO or financial planner).
   The report states that HNWIs require a different way of doing business. For starters, HNWIs are becoming more global in their investment approach, driven by expanded awareness of international developments, portfolio performance and risk mitigation. They are also increasing the amount of resources and time they apply to philanthropy, treating their charitable pursuits as investments with social returns. And they have increased demands for socially responsible investment screening, shareholder activism and community-focused investment.
   Financial services firms are taking four key steps to successfully implement a dynamic needs-based approach to client service, according to the report. First, they are going beyond AUM to segment clients according to their interests, frequency of firm interaction, communication preferences and financial behavioral attributes.
   Second, they are analyzing client needs to create tailored offerings. For gaps between client needs and product and service offerings, the firm must decide to build additional capabilities, partner with a third party, or decline certain business opportunities to ensure consistency with the firm's overall strategy.
   Third, they are determining a service approach to fit the needs of clients and deliver service through multiple channels and practice models. And fourth, firms should continuously monitor and update their clients' profiles and behavior patterns to address and anticipate their ever-changing client needs.
   In order to implement a more dynamic client-servicing model, financial service providers will have to significantly improve and update their information technology to arm themselves with data gathering and data analysis capabilities.
   Within the last few years, HNWIs have become increasingly sophisticated, globally aware, and proactive with their investments. Today, the majority of their assets come from business ownership and other proactive wealth generation activities. These individuals are as active in building their wealth as they are in investing it.
   The report concludes that the new generation of HNWIs will require wealth management services to be more dynamic, sophisticated, and diverse. Firms will need to have IT architectures, governance structures, and service models that break down the traditional boundaries between asset classes.