As the financial crisis continues, wealth management firms face unprecedented challenges, but also opportunities. With asset flow at many firms down significantly and clients on edge, firms’ growth plans are in jeopardy.

As the financial crisis continues, wealth management firms face unprecedented challenges, but also opportunities. With asset flow at many firms down significantly and clients on edge, firms’ growth plans are in jeopardy. Regaining client trust and building assets are top priorities but with less cash flow, staff and resources, achieving these goals can be difficult.

Demands on wealth advisors and business operations have never been greater. Clients, rattled by poor portfolio performance and depressed asset values, are now expecting higher-touch service, including improved transparency and frequent, customised communication, to reassure them that their advisors are providing appropriate guidance and financial plans are on track. At the same time, regulatory scrutiny is increasing, forcing firms to see if their systems and processes comply with latest industry standards and best practices.

To achieve improved transparency for both investors and regulators, firms need to take a hard look at their client service models. In the current bear market, wealth managers that are producing straightforward monthly performance statements are now under-servicing clients. Sending out what is, essentially, negative performance information, with no explanation or context, makes clients more anxious and heightens fears about advice they get.  Instead, clients need reports that help them understand the present market situation and the long-term benefits of staying invested.

Yet for many wealth managers, altering a function as fundamental as client reporting and communication requires a big change in mindset. Those facing a crisis in confidence and asset outflows should consider how fragile the client relationship might be and how robust, in-depth client reporting can strengthen that relationship.

A Crisis in Confidence

Since the sub-prime mortgage crisis came to a head last autumn, asset managers have suffered significant outflows. Retaining clients in a difficult market is always going to be a challenge, but firms should take note that client relationships are about more than portfolio performance. A recent survey by consultant Russ Alan Prince, author of The Middle Class Millionaire, showed that two out of three wealthy investors, those with at least $500,000 to invest are so disappointed with their financial advisor that they are thinking about switching – not because of portfolio performance, but rather because of poor service in times of stress.

The heart of client service is in-depth reporting and communication, but asset management firms do not always have the operational capabilities to provide it. In our experience, providing managed reporting solutions for buy-side firms, we have found that without the appropriate data management, 30 per cent of client reports are late, 25 per cent are inaccurate, and 5 per cent are delivered to the wrong person, letting down investors who are hungry for information and reassurance about their investments.

Clients in long-term relationships with financial advisors want to be guided through difficult times with the confidence that their advisors have a sound financial strategy. To achieve this, advisors can provide clients with deeper, richer and more customised information – offering the client a sense that deciding his or her financial future is a collaborative effort guided by a true expert. That can mean offering insightful commentary, articles and research that support the advisor’s philosophy, reinforcing his five- or ten-year investment plan.

With investor discontent running broad and deep, wealth managers could struggle to attract clients over the long term, says
Robert Ellis of the research group
Celent Oliver Wyman. ”Fees on top of a market decline call into question the value proposition for advice to those who have less than $2 million in assets.  To maintain and keep these client relationships, firms need to understand that reporting is vitally important – I would even say it is the number one client service issue,” said Mr Ellis.

Regaining Trust with Client Communication

As many advisors will tell you, the trick to retaining clients is 50 per cent performance and 50 per cent customer service. While this may seem fundamental, the reality is that many advisors still do not have the systems, processes and time to offer clients the service they need, particularly in these times of turmoil. However, there are sound operational actions a wealth management firm can take to sustain a strong dialogue with clients.

Best practices in client reporting and communication starts with information management and data aggregation – pulling together the disparate pieces of data relevant to a client’s account. That can mean performance numbers, investment research, relevant articles, and advisor commentary.

There are six best practices for client reporting that wealth management firms can implement. From a technical standpoint, firms must first deal with the data issue. To manage data and content efficiently, which is critical for client communication and collaboration activities, the key is for firms to aggregate once, enrich once, store once and verify once. The goal is to do more with less – that means making the most of aggregation technologies to streamline work processes and maximise resources.

A second best practice is to focus on quality and control by automating exception processing, building in workflow, implementing quality checks and benchmarks. Communications and business activities will need to be "crisp" – there needs to be zero tolerance for errors, mistakes, missed communications, and externally overt bad practices in a time when investors are clamoring for a professional wealth management partner.

Third, firms need to build in publishing flexibility to empower customer service teams to customise the client experience. Processes need to be flexible to support the changing economic and client investing landscape. By the time we emerge from the current economic turmoil, we will have experienced significant changes in product, reporting, client services, investment practice and policy related to the wealth manager/investor relationship.

Fourth, know that clients need information in different forms. Enable information to be used in many ways by implementing data service architectures which can integrate web, paper, email or data feed delivery. The need for information will continue to increase. In addition, how this information is used will likely change; clients, interested parties, regulators, and other constituents will need information in a useful format that allows them to understand the situation and take action. 

Fifth, assure availability and security. Do not undersupply the need for robust infrastructure, adequate disaster recovery and disciplined security and entitlement functions. Consistency, availability and security go without saying – process breakdowns or security concerns will reflect more negatively than ever as investors seek a level of confidence and institutional strength from their advisory relationships, regardless of the firm’s practice size.

Lastly, provide operational transparency. Wealth managers should develop a culture and tools so that clients can measure the quality of the service they get and how it adheres to service level agreements. Investors will measure and value their advisory relationships in ways other than month-to-month performance. Clients will appreciate transparency more than ever before as their advisors refocus, rebuild and restore their confidence in the investment process.

Building Market Share in Troubled Times

As firms make their way through the second quarter with their eye toward retaining or rebuilding client assets, they must understand that when the crisis has passed, the demands of investors for better quality, more frequent information has increased to fever pitch. To gain new clients and market share, firms need to achieve a level of operational excellence that allows them to provide clients with the information, guidance and collaboration they need to feel confident in their advisory relationship.

Firms that successfully innovate and change the game on information delivery will not only improve client service, they will also realise significant cost savings, a redirection of customer service teams from low-value activities to higher impact client communication functions, increased satisfaction, reduced reputational and regulatory risk exposure and a more agile and competitive organisation.