This article offers a roadmap towards building and delivering a successful WM proposition to clients, growing market share, and generating profitable growth on a sustained basis that is not dependent on the capricious nature of the financial markets. The roadmap is equally applicable to a start-up or an established business that needs to grow at a rapid pace.
Islamic WM (IWM) is a finer version of conventional WM, where the standards of offerings are overtly linked to certain ethical and moral principles embedded in the Shariah law. This resonates well with the affluent (investable wealth of US$100,000 to US1 million) and high net worth clients (investable wealth of over US$1 million) in these uncertain times.
Shariah law encompasses the principles of ethical banking that are especially in vogue today in the western world. It means offering financial services that are based on the moral principles of what is right for the client, the community and the environment.
It adds another critical requirement of an ordained level of fairness to all financial transactions. The litmus test of a true Islamic offering by any financial institution is that it must benefit the client.
Only then should it be viewed for profitability by the bank. The principles of mutual benefit and transparency are paramount. The famous principle adopted by Merrill Lynch in the 80’s of ‘client interest must come first’ rings true in IWM. Sadly, as we well know, Wall Street failed this test again in the sub-prime crisis of 2008-09, led by Goldman Sachs. It was doing God’s work, according to its CEO, when it was shorting securities that it was packaging and selling to its clients.
The market crises have moved from Black Swan – infrequent, extreme events that cannot be predicted – to White Swan – frequent events that have shaken western capitalist foundations, causing losses to clients’ portfolios designed for long-term wealth protection/growth to fund education and retirement plans.
The macro environment has negatively affected the trust clients have for their banks and relationship managers (RMs). Private investors have become cautious and are concerned about the adequacy and safety of their wealth, retirement pool and generational transfer of wealth.
The roadmap….
In the Middle East, most local and regional banks have demonstrated a renewed focus on building/growing their WM businesses and many are using external consultants to formulate the ‘what and how’ of WM.
Even the global institutions are focused on WM, as private wealth continues to grow and clients demand better service and solutions. Islamic WM is relatively new and the Islamic-focused banks are investing in WM as well. Here you will find a roadmap for building/growing a successful WM offering, with or without the help of consultants.
Clients are looking for trusted advice by trusted advisors. They have four distinct objectives in building and managing wealth: wealth creation, preservation, growth and transfer. A wealth manager’s job is primarily to balance these objectives, customized to each client’s profile.
To meet the above client needs, the unique client offering is built on five drivers of wealth management. These are Products, Research, Infrastructure, Sales, and Marketing (PRISM).
Product Platform
Client wealth is comprised of four distinct buckets:
1) Client assets: Sacred (deposits), safe (investments), and speculative (trading FX, equities etc).
2) Client liabilities: Short-term (cards) and long-term (car, home mortgage).
3) Client protection: Insurance, life, and health for family protection.
4) Client legal architecture: Trust, estate, and generational planning for tax efficiency and confidentiality.
Based on the above needs, best in class, rational architecture must be the guiding principle.
Investment products fall into three broad buckets:
Special focus should be on products that capture geographic, sector, and demographic mega trends like emerging markets/Asia, clean energy/commodities and women power/youth bulge. These have a high probability of success in the long term.
Create product solutions for various client buckets based on wealth segments, risk profiles, sophistication level and styles. Combine them with advice and guidance to make the process truly unique for each client.
Islamic investment product development is at a nascent stage. Malaysia and GCC countries are leading the product development across all asset classes, with some global asset managers increasingly focusing on this growth area as well.
Research Advice and Guidance
This is arguably the most nebulous yet the most important of the drivers. Clients value quality advice that is relevant to them.
Create and enhance the research advisory proposition. Monthly market reports on economies, equities, fixed income/Sukuk, commodities and currencies should be blended with the asset allocation recommendations for the five asset classes of risk.
These range from aggressive (return on principal) to conservative (return of principal), with the aggressive proportion going down in steps. Most clients tend to be in the balanced category, becoming less aggressive in volatile and difficult market conditions as well as with the passing of time.
The reports must be sent to the clients – and target prospects – with simple one page scripts that the RMs can use with the clients in their conversations. In addition, a more strategic quarterly or six-month view report is most helpful to convince the clients that their bank is truly focused on research to help them navigate the perennially changing world events.
Infrastructure
This drives effective client engagement as well as corporate governance. The client engagement requires O&T to build the tools of easy execution, a combined view of client positions and activities, and a consolidated statement for clients showing recommended and actual asset allocation. When the middle and back office professionals work as one with the front office, the client experience becomes superior.
Renewed emphasis on corporate governance necessitates that HR, finance, legal, compliance, and O&T departments become true partners to the business. A group representing all of the above ensures seamless execution of the initiatives.
Sales and Distribution
The most important real estate in the world is the four feet of space between the client and the RM. It is the client experience of sales and service quality, primarily with the RM and with the bank staff, that determines who wins the hearts and wallets/purses of the target clients. The internal sales and service competency must be built to world class standards.
The key to consistently succeeding in sales and service is dependent on the following:
-
Recruit quality RMs/specialists and certify them in financial advisory skills within three months of joining.
-
Train the RMs on consultative sales & service skills (CSS). Focus is on the daily activity discipline, identifying key clients/prospects, developing programs to engage them on a disciplined and proactive basis, measuring results vs. plan, and instituting ongoing management coaching to enhance performance.
-
Code R-E-D (reassure, educate, deepen) – train RMs in difficult markets to proactively call clients for updates and advice. Nothing surprises the clients more than being called by their ‘financial doctor’ for a financial health update when the markets are down and volatile.
-
All aforementioned cutting edge training programs must be delivered and reinforced through TTT (train the trainers). This is the only sure way of embedding the consultative sales excellence within the bank’s DNA, thus enhancing client experience.
Marketing: Growing clients and brand
The external competency of client management is the art and science of acquiring, deepening and retaining (ADR) clients. This is the essence of growing business footprint, market share and profitability. Targeted micro-marketing programs decked against each objective alongside metrics to measure results are the key to success.
Acquisition is best done through a program of key client referrals and events like conferences and high-end client events.
Deepening is achieved by first servicing the clients well and then meeting their needs. This is the low hanging fruit as the clients are already in the bank. Proven techniques like ‘Fill in the Gap’ help identify the product and services used by the top 30 clients per RM and the gap in usage with the bank.
Once identified, these clients can be approached to re-evaluate their needs and offered recommendations to increase share of wallet. Numerous surveys over the years across the globe show the same results.
Clients say they don’t hear from their RMs frequently enough. So a systematic calling/meeting program, part of the sales management process, always delivers immediate results.
Retention programs revolve around getting every member of senior management to ‘adopt’ a branch/territory and call on key clients, especially in challenging market conditions.
Client Experience: All the above services are delivered through the 4-step financial planning process, embedded in the financial planning tool:
-
Needs analysis of objective and risk appetite, determined through a set of questions.
-
Recommended asset allocation and verification of the expected risk/return with the client.
-
Recommended product offering selected from a quality menu of rational architecture products, based on liquidity, yield/expected return, risk, and simplicity. This is delivered by offering quality advice and guidance, linking the macro environment opportunities with the client profile.
-
Quarterly review/rebalance of portfolio to incorporate any change in client situation and the markets.
The final step – Operationalize the program:
-
For a start-up WM business, it is critical to start in a systematic manner, using the PRISM approach.
-
For an established WM business, it is important to conduct diagnostics to determine level of effectiveness against global best practices. Virtually all banks have product, sales and marketing programs and initiatives. However the degree of effectiveness varies widely. Those that have formally adopted a disciplined and integrated process have demonstrated greater success than their peers who have opted for a piecemeal approach.
The diagnostics:
-
First, create simple metrics for evaluating the key drivers of PRISM, on a scale of 1 to 5. 1 stands for minimal and 5 stands for global best practice applicable to the market.
-
Second, poll key clients and prospects to comprehensively understand client needs.
-
Third, determine the target markets for maximum impact of the differentiated offering.
-
Finally, launch the pilot in a region or country, evaluate results, modify, and initiate the comprehensive launch.
The above methodology has been applied by various banks in emerging as well as developed markets and has invariably resulted in growth of AUMs, clients, and market share. Historically, best practices have originated in the Western markets, especially the US and UK.
Over the years, Asia has taken the best from the west and added a layer of Asian innovation and relationship handling resulting in emerging markets best practices. The Middle East has the unique opportunity to learn from both east and west and adapt it to the strong culture of trust and relationships.
The future belongs to those banks that adopt the PRISM process effectively, resulting in a superior client experience. When a client feels the “wow” factor with a bank, he/she makes it their primary bank and increases wallet share.
Remember, the luxury hotel chain Ritz Carlton has a client satisfaction rate of over 80%. Banks are typically in the 20-40% range. This program will allow them to move the needle in the right direction, both for their clients and for their own profitability.
Malik Sarwar is a recognized wealth management franchise builder, with extensive experience in starting and building WM businesses in Asia, US and the Middle East. He has worked in senior roles at Merrill Lynch, Citibank, Permal and ADIB. Malik is a frequent speaker at financial industry conferences. He can be reached at
[email protected]
.