Stand-out solutions

For many years, personalised financial advice has been a privilege, almost exclusively provided to high net worth clients. The service offered to remaining clients traditionally focused on the ‘product’ and generally conditioned by campaigns running at the time. This type of sale has been mainly based on return expectations. However, issues such as the risk associated with financial investments and the possibility of combining products across a well diversified portfolio in order to manage this risk, were not being fully addressed.

In recent years, however, this scenario has changed radically. There are a number of reasons for this, including a more qualified and demanding clientele, with a higher financial knowledge (not only within the private banking segment); a strong level of competition among institutions; and the enormous possibilities offered by today’s technology in order to improve the efficiency of the different processes involved in the financial management and advice cycle.

Nowadays, we are completely immersed in a totally new era, in which ‘client oriented service’ is key to the financial advice business. The ability to offer personalised services, customised to the requirements of different client segments, is vital to compete effectively within this new ‘bull’ market.

Given this new scenario, many financial institutions are now reconsidering their advice and portfolio management (wealth management) services with the aim of modernising their approach. All of them face a complex process and their success will depend on various factors, briefly explained here.

Risk profiles, medium and long term financial planning, model portfolios, open architecture, commercial network requirements, personalised investment proposals, regular customer reporting, continuous portfolio monitoring, … Sufficient to overwhelm anyone… right?

And yet, this is a real and urgent need, a challenge that financial institutions have to face. On the other hand, it is also an opportunity they cannot and must not ignore.

The new business scenario is too complex; it includes too many specific factors - inherent to each financial institution - to enable an attempt at an ‘off-the-shelf’ standard software solution. Responding to this challenge depends mainly on finding the right combination of a correct definition and concept of ‘advice services’, a clear commercial vision and rational use of new technologies.

With this approach, the expected result is threefold: a more satisfied and loyal customer, a significant cost reduction – resulting from the industrialisation of multiple processes – and a substantial increase in the growth capacity of this business line.

So what are the specific issues to bear in mind when attempting to develop an advanced solution for wealth management:

Personalisation
It is becoming increasingly common to find a new client profile, with a higher level of expertise and growing demands on all the scopes of the advice service. Nowadays, the investor requires more extensive and clearer information about his/her investments.

Each client is unique, as is the situation at each moment of their life, and therefore, the motivations that lead to their decision to invest. Thus, in order to generate a consistent investment proposal, there are multiple factors that should be borne in mind. Among them are available liquidity, investment timeframe horizon, maximum permissible accumulated loss (an essential piece of information that is often ignored), expected return, applicable tax, etc.

It is important that solutions are developed that respond to this increasing demand for personalised wealth management while also incorporating the commercial priorities of each institution.

Objectivity
Financial institutions face one major difficulty when setting up their advice and asset management services and solutions. They must establish an objective procedure that allows them to generate individual investment proposals and to carry out the subsequent follow up and control.

According to its clients’ requirements, TechRules’ solutions achieve an objective valuation of the return/risk expectations of model portfolios. Furthermore, the solutions are even able to redesign these portfolios by means of quantitative mathematical simulation models. The company’s goal is to completely avoid subjectivity and to offer a personalised advice service for each portfolio, fully impartial and unbiased.

This objectivity does not exclude a high level of personalisation in the relationship between the client and the personal advisor. The investor’s risk tolerance is clearly established through the ‘client profile questionnaire’, which grants the advisor a thorough understanding of the client’s personal preferences, allowing them to perform changes, simulating the impact on the portfolio of excluding some products or substituting them by alternative ones. This is always within a clear ‘risk control framework’.

The combination of objectiveness and personal preference is possible today using advanced algorithms, which relate the model portfolio with products that ‘replicate’, either partially or totally, each of the representative benchmarks for different assets classes. At the same time, an innovative ‘investment alternatives system’ can provide valuable information on all the choices available at the market, within the correspondent category (asset class) and with risk level akin to that of the asset held in the current portfolio.

As an operational starting point for its solutions, TechRules classifies the products that the client currently holds or would like to acquire. This asset allocation results in ‘product portfolios’, which relate to the institution’s own ‘model portfolios’, made up of market indexes that will serve as a reference throughout the whole advisory service – from design of a proposal to the subsequent follow up of the client’s portfolio. The quantity and profile of model portfolios will be dependent on the financial entity’s philosophy and range of offered products.
The investment proposal must be founded on quantitative grounds -developed through objective market information – and never on personal ‘intuition’.

Utmost industrialisation – process automation
From client profiling or financial planning to the ongoing follow up of portfolios and client reporting, it is critical to automate the processes involved in this kind of service to the greatest extent. This is an imperative issue that financial institutions must consider today in order to contemplate a sustained growth of their businesses. Modern technology makes it possible.

Modularity
Each financial institution has its own current needs and priorities, which are not necessarily similar from one entity to another. Furthermore, these needs may evolve differently depending on each entity’s strategy and on its clients’ requests. For this reason, the market is demanding a solution that is utterly modular and scalable at any time of the project, from the development stage to the post-implementation. This allows entities to design and develop a solution that may progress depending on their business preferences and priorities.

Solutions developed by TechRules are structured in different modules, the merger of them being what completes the ‘financial advice cycle’.

The main modules are:
Investor’s profiling
Financial planning
Investment proposal
Implementation
Portfolio monitoring
Client reporting

The operative of each module is connected with that of the rest. At the same time, each module maintains its autonomy, in such a way that the exclusion of one does not affect the final performance and functioning of the others.

Commercial flexibility
A competent and efficient solution must be flexible enough to meet the specific needs of each department. It must take into consideration the multiple ‘habits’ and requirements of current users, and simultaneously be aware of the issues that may be raised by future users within the same organisation. The topics and concerns may vary amongst entities and from one department to another within the same enterprise.

High quality data supply
The lack of first-class information is one of the reasons for failure of this type of solutions. Both in-house and external data, on portfolios and products, that ‘feed’ the solution, must be of the highest quality.

‘Multi-channel’ solution
A worthy wealth management solution must be suitable for use by either private banking, personal banking, branches or even the agents’ (IFA’s) network as a support tool. The solution will experience the appropriate adjustments, essentially on topics related to products, model portfolios or reporting level of sophistication.

Each entity is unique and so is its approach when it comes to the client relationship. A valuable solution must primarily aim to satisfy all the specific needs and requirements of each financial institution. Bearing this in mind, it is important to avoid a software package development, stiff, closed and complex to handle. Solutions must be ‘tailormade’ and prone to be exploited across different distribution channels within the same institution, including international subsidiaries.

Automated portfolio monitoring
It is still common to find advisory services that break off after the acceptance (or rejection) of the investment proposal. This kind of approach overlooks one of the highest value added stages of the advising service, both for the investor and for the financial entity: the follow up and rebalance (if necessary) of the portfolio.

Just as important as a professional advise on the most convenient portfolio at each moment, is the subsequent follow-up and adjustment of this investment. This follow-up can and must be automated through quantitative parameters: return, risk, composition and correlation with model portfolios. The result is a top-of-the-range monitoring that allows the financial advisor an on-time identification of needed adjustments in the portfolio composition. The objective is to adapt this composition in order to meet the performance of the model portfolio, assigned to each client as per the ‘commitment’ in the investment proposal.

Portfolio follow up through an advanced monitoring and alert system will also achieve a regular communication with the client and a stronger loyalty, since it allows the financial institution to provide real time information about the status of the assets under management.

Finally, and considering the above issues, we can conclude that it is possible to stand out within this highly competitive financial advice and management business. In order to gain this differentiation, each entity has to come up with its particular strategy, based on its own style and objectives, its current situation, future expectations and clients’ characteristics. On this basis, it is feasible to build up highly proficient and personalised wealth management solutions. These will be developed gradually, taking into consideration, one-by-one, all the business priorities and without overlooking future possibilities.