Guest post by Paulo Sironi, Practice Leader, Wealth Management solutions and Head of Managed Data Services, IBM Risk Analytics
One of the hot button topics coming out of recent G8 talks in the UK has been transparency, as world leaders seek to impose further transparency requirements on tax havens. However, it's not just the world of paradis fiscal that has had to raise the bar when it comes to transparency. Although for very different reasons, wealth managers around the world are also required to ensure that transparency is an integral part of the way they do business.
Increasing regulatory demands are only a part of the equation. Transparency has also been crucial in winning and retaining clients through the global financial crisis, particularly as greater transparency on fees and investment decisions is fast becoming a driver of the wealth management selection process, and as clients are becoming increasingly involved in their wealth management. This is a global phenomenon. For instance, 74% of the respondents in the recent report issued by the Qatar Financial Centre Authority and Campden Wealth said they wanted to have a bigger role in the decision-making process regarding their investments.
Forward-looking wealth managers have started to address these new conditions by gradually adjusting their businesses to become more client-centric. For instance, asset allocation is quickly shifting from pure product selection as a primary focus towards in portfolio construction processes and needs to be performed not in abstract terms but in the context of the individual client ambitions and constraints. While it's not a simple process, many practitioners view this shift as an opportunity to differentiate from the competition and attract prospects.
Bruno Lèbre, Head of Wealth Management Solutions at Société Générale Private Banking shared his perspective on this fundamental shift in wealth management in a recent interview with IBM Risk Analytics.
Placing clients' preferences first enables the wealth manager to customize portfolios to not only encapsulate frequent changes in financial markets over time but, crucially, meet changing individual requirements. Rather than an 'abstract mathematical exercise' that would rely purely on data, early adopters treat portfolio optimization as a journey where private investors, guided by their advisors, customize the 'investment journey' according to their preferences.
In practical terms, optimizing client portfolios means working with smart technology that provides the wealth manager and the client with capabilities for product selection, client profiling, and model portfolio creation as well investment suggestions for clients. From the client's perspective, this means having easy access to consumable data on their holdings irrespective of time or location, as well as a more personalized service.
It's no surprise, then, that Boston Consulting Group's thirteenth annual report on the global wealth management industry, Maintaining Momentum in a Complex World: Global Wealth 2013, indicated that data analytics is an invaluable tool to gain insight to understand and satisfy clients' changing needs.
If interested in learning more about how leading wealth management professionals are transforming their business with advanced optimization capabilities in order to compete more successfully, come along to the breakfast briefing I will be hosting in Zurich on 11 July, 2013. Alternatively, download our recent paper, Optimization as a Journey, which provides further insight on portfolio multi-period probability optimization in two steps.