wealth management is much more than portfolio management jhc wealth management seminar london – 14...

Wealth Management is much more than Wealth Management is much more than Portfolio Management Portfolio Management

JHC Wealth Management SeminarJHC Wealth Management Seminar London – 14London – 14thth October 2010 October 2010

Maslinski & Co LtdMaslinski & Co Ltd2

How did we get here?

• Pre 1970’s: private client stock-broking – covers only the share portfolio & stock selection primary activity– asset allocation a minor exercise mainly in domestic equities and bonds– transaction based charges and no measurable objective

• 1970’s and 80’s : investment management and asset management– responsibility for performance & fees based on portfolio value– much broader range of assets to choose from– asset allocation increasingly important– open architecture

• 1990’s: private banking– integrated banking and asset management (trusted advisor)

• 2000’s: Wealth management / family office– provide trusted advisor across all aspects of financial affairs

Maslinski & Co LtdMaslinski & Co Ltd

Two motivations for most banks

• Provide quality personal banking service for HNW customers

• Investment management revenues from steep rise in HNW population

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Client proposition was theoretically quite compelling

• One stop shop single relationship

Saves time and cost

Bridged gap between bank deposits and investment

Better decisions through holistic approach

BUT

• Had to overcome strong brand resistance

• Banks NOT seen as competent investment managers

• Need to develop expertise and culture on substantial scale

• Term ‘Private Banking’ not understood

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Three main successes

• Successfully sold new concept of private banking

• Recruited clients on considerable scale to build significant businesses

• Massive increase in availability, range and sophistication of investment products

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But early misjudgements undermined delivery

• Excessive emphasis on investment management, rather than banking

• Underestimated importance of sophisticated service

• Assumption that HNW’s a soft touch willing to pay for ‘bows and bells’ rather than substance

• Grossly insufficient thought given to use of technology enhance service contain costs focus additional costs on delivering added value

• High cost base and narrow focus, led to excessive revenue requirements, hence product sales culture

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Combination of developments led to standardisation

• Benchmarking led to index hugging

• Regulation to giving clients similar advice

• Diversification to increasing numbers of experts far away from the client

• Desire for scalable model diminishes individuality

• Standard portfolios with minor adaptations and personalised delivery

• Client relationship manager mouthpiece for organisation rather than advisor

• Perception of product sales


Failed to deliver consistent quality relationship management

• Severe shortage of suitably experienced R/Ms for trusted advisor role

• Excessive turnover of R/M undermines core of proposition

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Use of ‘wealth management’ to counter product sales image

• Designed to suggest trusted advisor relationship

• But no definition of new proposition

• New term a re-badging or genuine attempt at new service?

• Implies advice across full range of affairs

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Open architecture used to assert independence

BUT

• Asset allocation held out to account for 90% performance

• Outsourced element hence accounts for less than 10%

• Questions over diligence by in selecting managers

• Seeking to justify high fees on fees through overcomplicating the role


Crisis highlighted deficiencies in wealth management advice

• Many clients did not know whom to turn to for help with big decisions

• Clients going over heads of R/M seeking more experience and wisdom

• Investment manager driven more by fears of performance track record than by analysis of client circumstances

• Standardised measures of risk inadequate for circumstances

• Risk tolerances changing rapidly

• Advice led by corporate policy rather than understanding of client


More complex clients reappraising needs

• Need for far deeper strategic appraisal – more like management consultancy project than KYC exercise

• Better co-ordination between asset allocation and other aspects of their affairs – deep understanding of risks in their business essential

• Clearer, better defined decision making processes which ensure risks of all family members properly taken into account

• Need for better understanding of all the chain of advisors

• Need for one, overall trusted advisor – wealth manager


Need to define wealth management

• Wealth management must be embrace the whole spectrum of client affairs

• Confine use of term to those clients whose affairs fall within the competence of their relationship managers

• Remuneration model must reflect independent status

• Family office is wealth management for UHNW families and is defining the space

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Risk Management at the heart of it

• Better communication of roles and limitations of risk management tools

• Exploring and defining risk from client perspective (you are part of it!)

• Counterparty and complexity risk

• Impact of directly owned businesses and other assets on risk appraisal

• Family risk, decision making and governance

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Assess and cater for client desire for involvement

• Willingness to trust

• Need to understand - transparency / complexity

• Active interest / expertise

• Desire for involvement in key decisions

Pro’s & cons of client involvement :

Cost Accountability Commitment to strategy

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Key steps for re-building trust

• A clear proposition aimed at well defined client segments Genuinely meets needs of target clients Demonstrates innovative approach which addresses concerns Well researched and economically deliverable Easy to articulate and defines how it adds value

• Clear, truthful & coherent communications• No unrealistic claims• Communicate from client perspective in client language - no jargon • Clear, consistent messages through all channels from brochures to interviews• Train managers in communication and facilitation /advisory skills• Make sure actions consistent with words

• Relationship manager to match proposition• Training and experience• Incentive and management

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31 Morpeth MansionsLondon SW1P 1ET44 (0)20 7828 9468 [email protected]

MASLINSKI & CO LTD

wealth management is much more than portfolio management jhc wealth management seminar london – 14...

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