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.