GUEST COMMENT: HNW Investor Returns At A High, Yet Confidence In Service Providers Is Low

Bob Leaper

2 January 2014

Bob Leaper of DST Global Solutions looks at why - even though high net worth investor returns are at a high - confidence in financial services providers is at a low.

Despite the solid year in performance that the US stock market saw throughout the course of 2013 and the resulting increase in wealth that many high net worth and ultra high net worth individuals have accumulated, sentiment toward financial service providers actually declined from Q1 – Q3 2013.

In a survey of more than 700 HNW individuals, CEB TowerGroup research uncovered that HNW and UHNW clients remain uneasy about the safety of their investments and complexity of fee structures. In fact, 35 per cent have little or no confidence that their financial provider ensures the reliability and consistency of their transactions; 33 per cent do not feel confident that their financial provider can keep their money safe; and 45 per cent lack confidence that their financial provider offers clear and simple policies and fees.

This should be a wakeup call to private banks, wealth managers and their advisory arms, whose business models are dependent upon maintaining and growing client relationships.

One of the main takeaways from the survey is that service providers need to restore clients’ confidence in how they are protecting and growing investors' wealth. Not only do firms need to ensure they are doing this, but in a market ripe with competition, they also must prove they are the best provider out there.

Restoring trust and building confidence in their service comes down to being more transparent about investment returns and customizing client reporting options based on the needs of each individual client.

What is the deal?

The reason why many private banks have not solved this transparency challenge is because coming up with the "macro view" and articulating it to clients monthly is a big research and production challenge rooted in operational infrastructure.

In a recent survey that DST Global Solutions and Aite Group produced, 29 per cent of asset and wealth managers handle key client investment data in systems that are more than 10 years old. When new technology is introduced, it is often a quick fix to a present problem and may not be operable with other systems. While the immediate problem may be solved, greater problems arise as critical client data becomes trapped in disparate systems scattered across the enterprise.

To piece the data together into a meaningful presentation for clients, many wealth management firms and private banks string a myriad of manual processes and workarounds together. Such workarounds are inevitably slow, fraught with risk and operational overhead and miss key components of data, making the end goal of achieving transparency a great challenge.

Private banks looking to reinvigorate the trust and confidence of HNW and UHNW individuals need to consider which tools can help them achieve greater transparency.

Technology today can help ensure investment decisions are backed up by data and integrate information into existing web and mobile properties in alignment with the firm's IT strategy, ensuring critical investment information is easily digestible.

By uniting and aggregating client holding data in one central location, firms can take a more holistic view of the most up-to-date information when pulling insights for investment decisions and client reporting.

Once this data is centralized, firms can run performance and attribution analytics and easily slice and dice the information, presenting it to clients in the format they desire. Of course this is only one step to overcoming investors' post-financial crisis confidence levels. Positive trends in the market and strong financial returns are also key.