All the factors are coming together to reunite formerly isolated wealth management channels, approaches and office functions. Is your operation embracing the future or hanging back in a world of silos?
Once upon a time, money managers relied on the multiplication of niche markets and products in order to achieve scale and eventually, they hoped, operational efficiencies.
It was a golden age, but a generation of innovation left the industry with endless choices creating redundant capacity and a maze of internal and external barriers: multiple accounts, seemingly incompatible delivery channels, endless vendors handling narrower slices of the operational cycle.
The trend spotters at Celent recently conducted a top-down look at the industry and concluded that over the last 18 months, the old “divide and conquer” operational models have fallen from favor.
You can download the report HERE if you want a better sense of the moves your competitors are exploring.
What strikes me about the findings is that as the pendulum swings back toward convergence, firms that are making an effort to streamline their solutions environment are finding that they can squeeze a new round of efficiencies out of their offices.
In effect, tearing down organizational walls that once structured productivity gains now liberates energy that feeds new growth and makes legacy business more profitable.
And in this cutthroat strategic environment, every bit of extra energy moving through the system – as opposed to perpetuating the system – gives producers more time to do what they do best and add tangible value to more demanding client relationships.
A convergent “golden age” ahead
Celent recognizes that the explosion of financial products on the advisory shelf created challenges as well as opportunities.
The products themselves may be terrific, but if each comes bundled with its own independent support silo, the complexity of managing all the systems independently rapidly becomes a job in itself.
Too many advisors were wasting time switching between systems as they pursued their daily business. Giving a particular client the right solution might demand multiple disclosures, separate onboarding processes and a whole new set of regulatory and billing exceptions.
And the more products enter the mix, the faster the exceptions multiply.
As it is, so much energy goes into maintaining all those systems that the essential promise of the products themselves remains largely unfulfilled.
Even today, relatively few advisors are actively managing client money across platforms for tax efficiency, for example. Instead, they’re just running report after report.
Advisors need the ability to focus across the entire client portfolio, whether the underlying assets are held in mutual funds, separate accounts, ETFs or individual securities. The IRS does not care which platform a particular position is on and neither do your clients.
Industry leaders developed the unified managed account (UMA) structure to resolve platform conflicts before they even get to the advisor, much less the clients or the regulators. Everyone sees the underlying assets on one screen and generally receives one report.
It’s a convergent, consistent, streamlined solution.
From the front office perspective, there’s no switching involved. Bringing on new clients only requires one set of paperwork and one signature across all products. Fees are rolled together and presented as one transparent, itemized transaction.
Even compliance processes are integrated, curbing what would otherwise be unsustainable inflation in costs there.
You see your client from all the angles so your team can identify opportunities to cross-sell services across the entire relationship. Your client instantly recognizes that you interact with him or her as an individual with personal goals and not simply an opaque list of scattered products.
The system does its own heavy lifting and carries its own freight. And producers are liberated to do what the system can’t: prospect new clients, capture greater share of assets from existing clients, flex to serve all-new client categories.
Time to embrace hybrid models
Celent thinks that maybe as much as $325 billion in AUM had already shifted to streamlined UMA environments by the end of 2013, so this is still the leading edge in terms of industry adoption.
But wealth management organizations that embrace a unified approach practically never go back unless they’re acquired and forced to convert to the buyer’s legacy platform.
The “stickiness” of this approach is rooted in its inherent flexibility. In the front office, there’s only one product: the client portfolio. On the back end, product architecture is truly open to infinite expansion now as well as whatever the industry develops in the future.
Whether an organization becomes a fee-only enterprise, explores commission-driven offerings or simply opens itself up to whatever compensation system works for the clients, the platform can keep up and evolve along with the business.
Hybrid brokerage/RIA approaches are built into the back office DNA, without bogging down client/advisor conversations with the operational details.
The front office remains as customizable as always, but reduced infrastructure requirements on the back allow for more streamlined environments throughout the work cycle – if, of course, reducing rote data entry and mental gymnastics are things producers want.
Down the road, as the industry shifts, a convoluted platform has difficulty shifting with it simply because the number of moving parts increases the odds that a sudden move will make one or more of them break.
Advisors told Celent that they’re not sure what the future will bring in terms of product design, management philosophy, regulatory environment, client mix.
Five years from now, they might be actively prospecting and serving the legendary “mass affluent” investor, running a high-end family office or plumbing sweet spots the industry hasn’t even recognized yet.
Either way, there’s a real longing for simplicity in this business that matches the competitive imperative to get nimble.
Aspects of the business that had been pushed apart for decades can finally come together again. I’ve talked mostly about product platforms because that’s only the first step in a larger convergence of once-isolated systems, channels, models.
Everything that rises will converge. But don’t take my word for it. The Celent report is HERE.
As Chairman and CEO of FolioDynamix, Joseph Mrak has led the company’s growth from its inception in 2007 to its current position as a fast-growing leader and innovator in the wealth management industry. With 20 years in the industry, Joe is an established thought leader and entrepreneur known for his vision and ability to evolve technology and investment products to meet the dynamic needs of leaders in the industry.