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Long Bin Chen, 2005, “Animal-Dahmu,” carved phone books, 30.5” x 12”

The Transformation of Wealth Management ­– Part II Products And Services Relationship Management

To succeed, wealth management firms will have to transform their thinking and their businesses.

Transformation - Part II

By 2007 high-net-worth investors1 around the globe had accumulated

In Part I of this series, we described that role in detail. To recap briefly,

assets valued at approximately 50 trillion US dollars, yet only half

the trusted advisor and integrator finds and coordinates the best

of that wealth was managed by professionals. A recent VIP Forum

internal and external experts across a broad range of capabilities.

study may help to explain the discrepancy. According to that study,

Flexible teams of experts are supported with the best products and

eighty-four percent of wealthy participants stated that they are looking

services, along with fully integrated business processes and global

for comprehensive advice, referring to an advisory relationship

technology. Well-equipped and well-orchestrated, these teams know

that includes a range of expertise and services and is based on

the current and emerging needs of their clients and do everything

an understanding of a client’s entire situation. Participants who

possible to help them achieve their goals. The deep market knowledge;

reported a high degree of satisfaction with the advice they were

the comprehensive view of clients; the breadth of capabilities; the



receiving were very positive about their advisors, giving them higher

teamwork and collaboration; the powerful process and technology

overall satisfaction ratings, greater loyalty and more of their assets.

infrastructure; and the ability to synthesize the diverse components are

Unfortunately, satisfied clients were in the minority. In fact, they

critical differentiators.


were less satisfied with advice than with any other part of the wealth management offering.5

Most wealth management businesses aren’t set up to support that role today. A host of issues, from fragmented processes and organizational

Wealth managers have been trying to fulfill the market’s demand

silos to missing services and inadequate support systems, impede the

for advice by recruiting top talent and adding selected products,

delivery of comprehensive advice. To succeed, wealth management

services and technology components. While these are all important

firms will have to transform their thinking and their businesses. We’ve

this augmentation strategy is falling short of client expectations, as the

grouped the transformations into four logical categories:

VIP Forum study shows. The shortcomings, we believe, are largely the result of trying to shoehorn the new components into an old, product-development-and-delivery business model. The new value proposition—comprehensive advice about using one’s wealth to realize life goals—requires a business model that completely supports wealth managers’ new role of trusted advisor and integrator.


Defined for our purposes as having at least US$1 million in investable assets


Oliver Wyman (2007). The Future of Private Banking: A Wealth of Opportunity?, pp3-4.


VIP Forum (2007). From Advice to Advantage: Strategies for Integrating Advisory Expertise into the

Total Client Experience, pp3-7.


Ibid. pp5-6.


Ibid. p8.





Business infrastructure

Fragmented, country-specific business processes and technology

 Fully-integrated, complete business processes  Comprehensive global technology  Relationship (vs. account) orientation  High level of collaboration, communication and learning

Sourcing strategy

Familiar buy-build-partner options, where partnering usually takes the form of acquisition or outsourcing

Co-sourcing, which refers to highly collaborative, strategic, flexible partnerships designed to achieve sustainable growth by enabling critical capabilities

Client relationships and value to clients

Selling financial products built around current needs to as many clients as possible

Satisfying emerging, life-based needs of a well-defined market segment

Products and services

 Investment-only products  Menu of proprietary products or combination of proprietary and non-proprietary products

 Integrated financial and non-financial, life-oriented components

 A client goals-based approach to investing  Model portfolios based on deep knowledge of target market’s needs

 Using best proprietary and non-proprietary money managers

In Part I of this series, we described the transformations we

recommend in the areas of infrastructure and sourcing strategy.

 Transform from a sales-driven culture to a relationship-driven culture

In this paper, we address the necessary transformations of client relationships, as well as products and services.

 Transform client service from reactive to proactive

Transforming Client Relationships

 Transform idiosyncratic relationship management into scalable and sustainable relationship management

The comprehensive relationship wealthy clients describe as ideal requires a much deeper knowledge of those clients than has been the

Transform from a sales-driven culture to a

norm. Wealth managers must know how their clients feel about money;

relationship-driven culture.

what they worry about; how they think and make decisions; what they value; the family dynamics; their hopes and dreams; what they’re likely

A culture is a set of attitudes and behaviors that defines a group of

to encounter down the road; and more. To get clients to open up to

people. In a relationship-driven culture, the client’s needs consistently

that extent, wealth managers have to convince them through actions

take precedence, the underlying assumption being that the business

(not just words) that they care about them as individuals and have

will grow if the organization does what’s best for clients. Members

their best interests at heart. Transparency in all dealings is critical, as

of relationship-driven cultures develop a profound understanding of

are creativity, forward-thinking and the ability to apply diverse expertise

their clients, internalize their needs and anticipate their challenges

and insights to a host of situations. Furthermore, clients expect all of

and opportunities. These kinds of organizations also look for ways to

this to be done in a simple, straightforward way. This relationship can

operationalize close relationships—to put in place the right processes

only exist if the organization and every product, service, process and

and technology to efficiently support their commitment to all clients.

system is aligned to support it. For most wealth managers, that level of support will require some fundamental changes:


Wealth managers recognize the need to be relationship driven, but

sales-driven cultures still prevail in the industry, a holdover from the


Impose disciplined segmentation and resist the temptation to deviate from it. Firms that succumb to the temptation are

days when product sales were the key to growth. In a sales-driven

likely to find they have neither the right solutions nor the deep

culture, the sale itself takes precedence over other considerations,

understanding needed to develop strong relationships with the

such as whether the wealth manager can actually help a client

diverse array of clients they accumulate. Careful segmentation,

succeed and, by extension, whether the client has the potential to be

on the other hand, leads to efficient and accurate client

of long-term value to the wealth management firm. The sales staff is

acquisition, product development, service models, tools,

not the enemy; they are simply doing what the sales-driven culture

employee training and more.

demands and rewards. But even in small doses, these attitudes

There are a number of viable segmentation approaches to

and behaviors can undermine the development of close, supportive

the wealth market. While traditional segmentation methods

relationships that are the bedrock of an advice-based business. Here’s

emphasize demographic characteristics like age and income,

what can happen:

newer methods take a needs-based approach emphasizing behavioral traits, aspirations and interaction preferences,

S  hort-term thinking may prevail; meaning people are rewarded

among other factors.6 Cerulli, for example, uses an amalgam of

for closing deals regardless of the value considerations

economic, behavioral, demographic and psychographic factors,

mentioned earlier. The result is a fragmented client base with

resulting in seven segments: business owners, established

disparate needs that are difficult to satisfy.

retirees, real estate wealthy, spenders, up-and-coming professionals, inheritors and the suddenly affluent.7 The size of

P  rospects with complex needs may be bypassed in favor of a

the area market, the strengths and weaknesses of the wealth

higher volume of less complicated clients, resulting in missed

management firm and the competitive landscape are important

opportunities for long-term revenue.

factors as well.

W  hen the client base is fragmented and relationships are

shallow, organizations lack the focus and deep knowledge


to innovate.

Realign hiring and training practices and policies. To develop a workforce that excels in relationship building, hiring practices must emphasize not only professional and technical skills, but relational attributes like empathy, advocacy, discretion and

T  he temptation to over-sell is great and giving in to it can throw

deep listening, to name a few. Training programs must reinforce

an organization into turmoil. Relationship managers can’t

those attributes and build specific advisory skills. Over time

deliver against clients’ inflated expectations; product developers

these practices will increase the productivity and effectiveness

are pressured to satisfy ad-hoc promises; and convoluted

of all client-facing staff and promote a consistently positive

pricing models crop up to accommodate custom products or to

client experience across the organization.

placate disgruntled clients. Initiating culture change isn’t as simple as gathering employees


Realign recognition and compensation systems. Attempts to change attitudes and behaviors without changing the

and announcing that things will be different from now on. Cultures

recognition and compensation systems are doomed to fail. In a

change only when leaders and influencers consistently demonstrate

relationship-driven culture, recognition programs—both formal

and reward the desired behaviors. Following are some of the specific

and informal—promote client acquisition and relationship

changes required to establish a relationship-driven culture:

building behaviors that lead to long-term success for clients. But even the best recognition programs cannot drive behavioral


Capgemini & Merrill Lynch, World Wealth Report 2007, p. 26.


Cerulli Associates, The Cerulli Report, Navigating the Emerging Affluent Marketplace, May, 2006.


change unless the pay structure tells the same story. While

While the logic of developing a relationship-driven culture is clear to

compensation may not be the primary performance motivator

many in the industry, sales cultures are tough to overcome. The key is

for all employees, it sends an exceptionally clear message about

to focus on specific policies and behaviors (like those we’ve outlined)

what the organization’s leaders consider important. Employees

to drive organizational change.

will struggle to believe that their leaders value comprehensive advisory relationships if the pay structure rewards sales to

Transform client service from reactive to proactive.

prospects that are a poor fit for the firm, or vice versa. It’s good to be able to deliver when a client calls with a request. It’s


Model the appropriate behavior. Employees watch their leaders

better to be able to anticipate a client’s needs and satisfy them before

closely to learn the behaviors and attitudes that are valued in the

she has to ask. But the real differentiator is to identify needs and

organization—those that will lead to success. And consciously or

opportunities clients haven’t even recognized yet and be ready with

unconsciously, they’re on the lookout for contradictions between

solutions. To be that proactive, wealth managers need ways to deepen

what a company says it values and how leaders behave. It’s

their knowledge of clients, both individually and as a market segment.

critical, therefore, that those with influence in the organization model the behaviors appropriate to a relationship-driven culture.

Adopt an iterative and interactive end-client process.

Even subtle actions and attitudes can have a tremendous impact. For example, employees listen when leaders tell their

We have identified five critical functions that define the client process,

“war stories” around the water cooler. In a relationship-driven

all of which are performed over and over again throughout the life of

organization, the stories celebrate the satisfaction of helping a

the relationship. They represent an ongoing conversation between

client through an especially difficult situation; the discipline of

the end-client and a wealth manager that is critical to building and

bypassing an inappropriate sale; and the creative breakthroughs

maintaining the deep knowledge that underlies a comprehensive relationship.

that lead to new capabilities and better advice.


 Discover: Help clients see beyond immediate financial

Give employees what they need to do a great job. Relationship

concerns and long-held assumptions to clearly define what

building is a difficult and demanding job that requires a

they value and how they want to live. Discovery is a specialized

sophisticated toolkit:

form of interaction through which wealth managers learn

• The infrastructure that we described in Part I of this series—

about clients and their lives in great detail.8 Because many

integrated business processes and global technology—to

people have neither the time nor the inclination to dig deeply

provide a complete picture of a client, relevant data and

into their values and needs, clients tend to learn as much

trends, planning and communication tools, and much more.

about themselves as the wealth managers do. This learning experience and the resulting priorities and decisions create the

• Training in everything from industry best practices to the

context for future discussions and decisions.

firm’s client processes, as well as relational and advisory skills to promote consistency and higher quality service across the board.

 Assess: Take stock of a client’s resources (including accounts managed by other firms and assets like art collections and real

• Life-oriented products and services, which we discuss later in this paper. Nurturing relationships alone won’t satisfy

estate) and spending behavior. There may be obstacles and

clients if they can’t get the products and services they need.

behavior patterns that could prevent clients from achieving their life goals. Or they may have more resources—and therefore

• Access to specialists within and outside the firm to turn

access to greater opportunities—than they realized.

relationship managers into coordinators of expert teams dedicated to helping clients reach their goals.



For more on the Discovery process, see our paper entitled, “Discovery: A Fresh Approach to Building

Relationships with Wealthy Boomers” by Al Chiaradonna,of SEI, ABA Trust and Investments,

September-October 2006.


D  evelop, discuss and select options: Define a variety of

and develop efficient solutions. For example, wealth managers may

scenarios for using a client’s resources to achieve her life goals,

recognize that many entrepreneurs preparing to sell a business find

both present and future. Through this process, clients learn

themselves plagued by questions when it comes time to sign the deal:

the pros and cons of each option and any trade-offs inherent in

Will they have enough money to maintain their lifestyle? What will they

competing goals that might require concessions or choices.

do next? Can they just walk away from something they’ve worked so hard to build? The issues—both practical and emotional—may not

 Execute: Efficiently and flawlessly implement options the client

occur to a client when first talking about selling. A wealth manager who

chooses, ensuring that all actions are aligned with the client’s

has been tracking this trend will address it in the planning process,

goals and preferences.

and in doing so, help clients keep their options open and prevent unnecessary surprises.

 Manage Change: Because circumstances change and priorities shift in ways that make the best plans obsolete, the processes

Transform idiosyncratic relationship management into

of discovery, assessment, options development and execution

scalable and sustainable relationship management.

must continue through the life of the relationship. The steps may not occur in the same order or be as intensive as in initial

There’s a war for talent raging in private banking9, which underscores

sessions, but a relationship manager must stay close to clients,

the primacy of relationship management in the struggle to capture the

watch for signs of change and make necessary adjustments.

wealth market. Many firms have pinned their hopes on highly skilled (and highly paid) individuals who are experienced in engaging clients

Communication throughout every step of this process is aimed at

on the deep, meaningful level we’ve been discussing. There’s no

synthesizing complex information to support clients’ decision-making;

question that talent is critical, but relying too heavily on “rainmakers”

showing them how they are progressing toward their life goals;

is dangerous:

and alerting them to upcoming challenges and opportunities. Over time, analysis of the knowledge gathered across the client base will

 It’s not scalable: Even the best rainmakers can only establish comprehensive relationships with a handful of top clients. As

contribute to the firm’s knowledge of the market segment.

the client load increases, even those become difficult to sustain. Develop a deep knowledge of target segments and use it to anticipate client needs.

 It’s dependent upon individuals: Engendering a client’s loyalty to an individual, as opposed to the firm and its brand, is risky.

Each client is unique, but a wealth management firm that has done

An RM may change firms, either taking clients with her or

its market research and analyzed client data and behavior will be

burdening another RM with rebuilding the relationships.

able to identify both current and emerging issues and opportunities, 9

See The War for Talent: An innovative approach to confronting the human resource challenge


Transformation Is Not A Project Transformation of the magnitude we’re suggesting is a long-term, iterative process—not a project—and organizations should enter into it with open eyes and a strong commitment.

It also helps to have a framework for approaching large-scale change systematically. One good model comes from John P. Kotter of The Harvard Business School. He cites eight distinct stages and related actions for any major change agenda:

1. Establish a sense of urgency

2. Form a powerful guiding coalition

3. Create a vision

4. Communicate the vision

5. Empower others to act on the vision

6. Plan for and create short-term wins

7. Consolidate improvements and produce more change

8. Institutionalize new approaches

His insights may help organizations anticipate and avoid the pitfalls that derail transformation efforts.

For more, see Leading Change: Why Transformation Efforts Fail, by John P. Kotter, Harvard Business School Press, 1996.

 It breeds inconsistency: Individual relationship managers, left to

the support a wealth management firm gives its client-facing staff is a

their own devices, will do what they think is best for their own

key factor in retention of relationship talent.14 But the benefits extend

loyal clients. Client relationships, therefore, may vary wildly from

beyond retention. By arming all RMs with the best infrastructure,

RM to RM—from the products they recommend to the way they

products and services, it’s possible to improve client experience

work with clients. Not only does inconsistency introduce risk

and promote clients’ loyalty to the firm rather than to

into the business, but should a client’s RM leave the firm, she’s

individual employees.15

likely to have a very different experience with the next RM. A consistent client experience is critical to a firm’s brand.

The 2008 World Wealth Report also recognizes that some firms are moving toward that integrated, team-based model we’ve described

Great relationship managers don’t emerge on the scene fully formed

where experts covering a broad range of capabilities are brought

and polished; they’re developed over time. Firms looking to shortcut

together to work on a client’s behalf.16 The team approach serves the

the process by bidding for the best RMs are likely to find themselves

firm well by expanding expertise and capability in a highly flexible

repeating the search process over and over. While expert hires may be

model. That approach should be especially popular with clients who

necessary at times, the more sustainable strategy is a strong program

have long complained about juggling a cadre of specialist advisors

to build relationship management skills and give RMs everything they

and trying to make sense of the disparate advice they give. With these

need to be outstanding.

two strategies—fully equipping RMs to deliver outstanding advice and coordinating teams of experts across an array of specialties—wealth

To be outstanding, an RM must be fully engaged. Employee

managers build comprehensive relationships that clients’ will struggle

engagement is a measure, developed by the Gallup Organization, of

to find elsewhere.

employees’ positive attitudes about their work.10 In their studies, Gallup found that organizations with engagement scores in the top half had

Transforming Products And Services

a 70 percent higher probability of business success (as measured by employee turnover, customer satisfaction, productivity and profit)

Implicit in wealthy clients’ demands for comprehensive, life-oriented

than those in the bottom half.11 Highly engaged employees know

advice is the expectation that wealth managers can back that advice

what’s expected of them; have all the materials and equipment they

up with appropriate products and services—the tools with which

need to do their jobs well; understand the company’s mission and

clients’ goals will be achieved. To realign the firm’s offerings to fully

their role in achieving it; are encouraged to learn; and feel respected

support an advice-based business, a wealth manager will:

and important.12 These conditions exist—or not—largely at the discretion of an organization’s leaders. Great leaders will make sure

 Transform solutions by changing the development focus from

their employees have what they need to succeed. The payoff is that when all of their needs are met, employees tend to look beyond self-

current needs to emerging needs.

 Move beyond open-architecture solutions to guided, models-

interests and do what’s best for their company and its clients.13 For excellent relationship management to be scalable and sustainable, the

based portfolios.

 Transform investment-based financial solutions to goals-based

factors that lead to high levels of engagement must be built into the organization and its practices; not unique to individual employees.

financial solutions.

 Transform investment-only solutions to integrated financial and non-financial solutions.

The 2008 World Wealth Report published by Capgemini and Merrill Lynch is consistent with the Gallup findings. The report shows that

We’ll discuss each of these in turn.


Harter, James K., Schmidt, Frank L., and Keyes, Corey L. M. (2002). Well-Being in the Workplace


Capgemini & Merrill Lynch, World Wealth Report 2008, p.33, citing J.D. Power and Associates,

and its Relationship to Business Outcomes: A Review of the Gallup Studies. In C.L. Keys & J. Haidt

2007 Financial Advisor Satisfaction Study, May 2, 2007.

(Eds.), Flourishing: The Positive Person and the Good Life. (Washington D. C.: American



Psychological Association), pp. 205-206.




Ibid, p. 215.


Ibid, p. 208.


Ibid, p. 210.



Transform solutions by changing the development focus

by the Atkins Diet) emerged they were ready, introducing Michelob

from current needs to emerging needs.

Ultra in September of 2002 and quickly taking leadership of the light beer market. Coors, late to recognize the signals, tried to introduce its

Earlier we talked about transforming client relationships from reactive

own low-carb beer eighteen months later, but never caught up.20

to proactive—using client data and segmentation to anticipate and solve needs that are evident in the market, but that individual clients

The difficulty of identifying weak signals may help to explain why

might not recognize. Going a step beyond that, we believe wealth

the best relationship managers are in such high demand in private

managers need to learn how to identify and build upon needs and

banking. Wealthy clients’ growing desire for comprehensive advice

opportunities that aren’t even fully evident in the market yet.

has gradually elevated the importance of relationship management. But industry business models, still largely oriented around product

Weak signals are hazy signs that something is about to change,

development and delivery, aren’t geared toward the sustainable

perhaps socially or economically.17 Unfortunately, weak signals aren’t

grooming of relationship experts or the infrastructure, products and

particularly clear or decisive. They’re often missed in the storm of

services to support comprehensive advice. Many wealth managers are

information that swirls around us all the time, or because old mental

trying to bridge the gap by competing for existing experts, paying a

models are so firmly established that nothing novel or contradictory

premium if they manage to get them.

can penetrate. Sometimes business leaders recognize weak signals but fail to act for fear of committing company resources to something

There are no perfect formulas for identifying weak signals and judging

ill-defined and potentially risky. Sometimes they’re simply reluctant to

which ones will become viable trends, but futurists like Saul and

change a business that is doing well right now.

experts in fields like leadership, technology and decision strategy offer a number of useful guidelines. Beverly J. Davis, an associate professor


Whatever the reason, ignoring the signals is a mistake. Peter Saul, an

of organizational leadership and supervision at Purdue University,

Australian futurist, puts it simply: “By the time we see the shape of

advises business people to read extensively in their own industry and

the future writ large and undeniable we are likely to find that others

others to build a broad perspective. She encourages them to look for

are much better placed (either by good luck or good foresight) to

parallels in unlikely places; consider ideas that flaunt conventional

take advantage of it.”18 And, as Saul points out, by the time a lagging

wisdom; be aware of biases (personal, organizational and those held

organization mobilizes to do something about the trend, its competitors

by the industry as a whole); and rely on experience and intuition.21

will already be locking in the resources needed to execute their

George S. Day and Paul J.H.Schoemaker, authors of Scanning the

strategy.19 For example, Anheuser-Bush realized that diet and health

Periphery, have developed what they call a “strategic eye exam” to

trends could be important to their industry and began following them

help organizations identify weak signals through a rigorous questioning

as early as the 1960s. When the low-carbohydrate trend (epitomized

process that covers:22


Day, George S. and Schoemaker, Paul J.H. (November, 2005). Scanning the Periphery.


Harvard Business Review, p 1.


Medaris, Kim. “Expert: Effective managers tune into weak signals.” Purdue University News,


Saul, Peter. “Seeing the Future in Weak Signals.” Journal of Futures Studies, February 2006, 10(3), p95.

June 15, 2007 <>.




Day and Schoemaker, pp. 2-12.

Day and Shoemaker, pp. 3, 5.

 The past, including a firm’s blind spots and their

business may be more urgent than plans to increase support to

consequences, as well as stories of success and failure from

the family’s favorite charities. Some goals may be so important

other industries

that the client is unwilling to assume any risk, preferring to invest

 The present, including a firm’s biases and rationalizations, as well as what industry and outsider mavericks are saying

 The future, focusing on surprises that could hurt or help an

conservatively. Others, particularly those with a longer time horizon, may warrant a more aggressive strategy under the right circumstances. The point is that the goals vary and the ways in which clients make

organization and its clients, as well as emerging technologies

decisions differ from goal to goal. Even if a wealth manager knows

that might have a profound impact

the client’s goals and understands the differences between them, traditional investment practices still result in a single portfolio with

Saul, the futurist, also recommends guided discussions, adding that

a single investment strategy. This means the client will have to

they should engage a diverse group of interested parties and maintain

compromise, selecting a single strategy to support all of her disparate

a long-range outlook for scenario planning—10 to 20 years.

goals—be they aggressive or conservative with long or short


time horizons. Organizational silos can be serious obstacles to this kind of collaboration. As in the fable of the blind man and the elephant,

As we’ve said many times, clients in today’s wealth market aren’t

employees whose vision is limited by organizational boundaries

investing just to grow their wealth. They have specific things they want

and policies will interpret client behavior only in the context of their

to accomplish in their lives, and they want to put their wealth to work

individual areas of expertise. For example, product development

in the service of those goals. That’s the impetus behind goals-based

groups organized around particular types of products may not notice

investing24, an approach to portfolio construction and management

that market behavior is changing until the sales numbers indicate a

that uses the principles of behavioral finance to mirror the way

lack of interest in what’s being developed. When an organization is

individuals actually think about their money. Using this approach,

oriented around clients and prospects in the market segment(s) it

wealth managers:

serves, and individuals in all roles must have a clear line of sight to those clients, discussions around trends are more likely to bear fruit. It

also helps to partner with individuals and companies that are expert at


Help clients identify and prioritize their goals. We’ve found that even people with a high degree of self-awareness aren’t completely clear about what they value and what they want

this kind of intelligence gathering.

their lives to be about. Many haven’t discussed their hopes and

Transform investment-based financial solutions to

dreams with spouse, partner or family members. The process

goals-based financial solutions.

can be difficult, time consuming and often emotionally taxing, but avoiding the discovery process we discussed earlier is likely to lead to disappointment somewhere down the line.

According to behavioral finance theorists, people tend to think of their money not as an undifferentiated lump, but as distinct sums, each of which is earmarked to satisfy a particular goal. Unfortunately,

For example, a study of 300 former business owners found that

traditional investment practices aren’t well aligned with that way

75 percent of those who sold their business during the course

of thinking.

of a single year felt that the sale hadn’t fulfilled either their personal or financial goals.25 Presumably, these business owners

A single client is likely to have multiple goals that differ in terms

did the usual pre-sale planning with a cadre of advisors. The

of priority and urgency. The children’s education is likely to take

dissatisfaction, we believe, occurs because the real implications

precedence over a second home. Investments in a fledgling family

of the sale start to dawn on the owner only after the deal is


Saul pp. 99-100.


For a full explanation of goals-based investing, see “Goals-Based Investing: Integrating Traditional

and Behavioral Finance” by Dan Nevins of SEI, published in the Journal of Wealth Management,

Volume 6, Number 4, (Spring 2004).


Jackim, Richard E. and Christman, Peter G., The $10 Trillion Opportunity.


complete. Was he ready to sell? Did he know what he wanted

to do afterwards? Did he have any idea what it would take to


Redefine how risk and success are measured and communicated. Traditional risk measures commonly used to

fund the kind of life he wanted to live? Had he fully considered

describe potential portfolios (like standard deviation) aren’t

the impact on the employees? On his own family? The time to

particularly meaningful to the average person. Similarly, success

explore these issues is long before the papers are signed.

has traditionally been defined as a portfolio’s performance against an industry benchmark, like the S&P 500. Those

The typical investment profile questionnaire, still widely used in

measures don’t tell a client what she really wants to know.

wealth management, isn’t going to reveal the answers to these

Goals-based investing, on the other hand, measures and

questions. It asks generic questions about overall risk tolerance;

communicates risk and success in terms that are meaningful

expected retirement date and lifespan; and available resources

to a client, like will she have the funds to quit her job in five

with an eye toward identifying which of the firm’s existing

years and what are the chances of a significant financial loss

products a client might be expected to buy. By contrast, the

(significant being a personal assessment).

discovery process is a thorough, facilitated discussion through which all of the nebulous wishes and worries can be examined,

Move beyond open-architecture solutions to guided,

prioritized and translated into concrete goals. Products don’t

models-based portfolios.

enter into the process until much later. In a poll conducted in the third quarter of 200626, SEI asked private


Create goal-related asset pools with tailored investment

banking executives about their interest in and challenges with

strategies rather than a single portfolio built around a single

opening their investment product architecture. There was strong

investment strategy. With a goals-based investing approach,

agreement among respondents that open architecture decisions

pools of assets—each with a unique investment strategy—are

would become a top priority, chiefly to overcome the perceived lack of

tailored to an individual client’s goals (or groups of goals with

objectivity associated with proprietary products. More than half of the

very similar characteristics). Most clients will have a mix of goals

banks responding (primarily larger institutions) already offer a mix of

with different time horizons, carrying varying types and degrees

proprietary and non-proprietary investment products.

of risk and requiring different funding levels. Suppose a couple plans to stop working in five years so she can finish her PhD

Continuing to develop proprietary solutions while managing open-

and open a private counseling practice while he launches a

architecture offerings is a challenging proposition. Both functions

charitable foundation. What will it take financially to make each

are people- and technology-intensive, placing a real strain on an

goal happen? How long will it take the wife’s counseling practice

organization’s resources. Much of the burden falls on portfolio

to launch? Does the couple intend to use income from the

managers, who commonly exercise a great deal of discretion over

practice to help fund the foundation or cover living expenses?

investment decisions. As the variety and complexity of product

If so, what happens if it takes longer to become profitable

offerings grow, portfolio managers’ decisions affecting both asset

than the couple expects? Is it reasonable to assume that the

allocation modeling and manager selection may begin to vary

couple can accumulate enough wealth to fund these goals and

significantly from client to client. Not only is the approach inefficient,

leave their positions in five years, given their current situation

but it’s likely to result in variable outcomes for clients and additional

and investment criteria? The answers to these questions (and

risk. To resolve these issues, we offer the following recommendations:

many more) may suggest two or more pools of wealth with very different investment strategies.



SEI polls its private banking clients quarterly about an industry topic of particular interest and shares

the results with those clients as a way of generating industry discussion and solutions. There were 51

respondents to the poll on open architecture solutions.

Use asset allocation models based on the most common life goals,

Transform from investments-only solutions to financial

situations and needs—both current and emerging—of the

and non-financial solutions.

target segments. Few goals or challenges facing wealthy clients are strictly financial in This approach depends heavily on two strategies we outlined earlier:

nature. Take a client preparing an estate plan: one of the big issues is how much money to leave to children. Many clients’ default position

 Careful segmentation: Obviously, the models must be built

is to divide the inheritance equally. But there may be mitigating

around the most common, recognizable needs and goals of

circumstances that warrant a deeper look, like the children’s individual

the target market segment. There may be client situations

aspirations and skills or their responsibilities within the family. Once

that won’t fit perfectly into a model, but outliers can be

the decisions are made, clients may also struggle with how to explain

accommodated with a decision-making structure for exceptions.

them to the children and prepare them to deal with the wealth they will

In general, simplifying the offerings and orienting them around

inherit. The financial considerations make up only part

common life issues reduces the confusion clients often

of the challenges.

experience when faced with the extensive menu of available products (the frequent result of open architecture).

While a wealth manager may not be expert in all aspects of every life situation, she should be able to:

 The discovery process through which wealth managers gain a deep understanding of individual clients’ needs and goals:

Through this process, wealth managers will guide a client to the

 Anticipate life needs based on a deep understanding of the target market segment(s)

model or models that best fit her goals. This is what we mean by guided, models-based portfolios.

 Bring together all internal and external expertise and resources and synthesize them into a working, integrated team for the

Adopt a manager-of-managers approach.

clients. Simply referring clients to experts burdens them with the task of sifting through the information, weighing pros and

As the desire for comprehensive advice has risen, investment products

cons and figuring out how one piece of advice relates

have become increasingly commoditized. Continuing to assign

to another.


valuable resources to proprietary investment product development may not provide much of a return, and clients are still likely to perceive

 Use market knowledge and experience to develop options and

conflicts of interest as long as proprietary products are offered. With a

recommendations based on common situations; identify the

manager-of-managers approach, an outside expert takes responsibility

best combinations of expertise needed in those situations; and

for selecting independent specialist money managers, determining the

adapt these models to clients’ specific needs.

portion of the portfolio each will manage and monitoring each manager (making changes as necessary). This approach is designed to reduce

The comprehensive advice wealthy clients are demanding includes an

risk by using multiple managers; to increase objectivity by moving

understanding of their entire situation—aspirations and worries about

product development outside the wealth management firm; and to

family and work and wealth, and how all those things interrelate. It’s

improving quality by imposing a disciplined management and

not just about the numbers.

oversight process.


VIP Forum 2007 Senior Executive Retreat, Separating from the Crowd: Differentiating through

Advice and Open Architecture, pp. 6, 27.




Are the firm’s products and services aligned with the business strategy of delivering comprehensive, life-oriented advice?

We acknowledge that the transformation we’re proposing will be difficult, but we believe it’s necessary to enable the foresight and agility

market or on emerging trends? Is there a process in place for

wealth managers need to provide the comprehensive advice clients

identifying weak signals?

want. As we did in Part I of this series, we advise you to spend some time assessing where your business stands today with respect to client

 Is development based on current, recognized needs in the

 Are the financial solutions goals-based? Do they enable clients to identify life goals and prioritize them by assessing risk,

relationships and products and services, the two areas we covered in

urgency and time horizons for each individual goal? Do they

this paper.

measure and communicate risk and success in terms that are meaningful to clients?

Is the business oriented around building comprehensive, advice-based client relationships?

 Does each client have a single portfolio with a single investment strategy, or can the firm develop pools of assets—each with its

own appropriate investment strategy—to accommodate

 Are sales, relationship management and product development

diverse goals?

all based on careful market segmentation?

 Do recognition and compensation systems support long-term

portfolios for clients, or does the firm use asset allocation

relationship building, or do they promote short-term, sales-at-

models based on careful analysis of market needs?

any-cost behavior?

 Are leaders committed to building a relationship-driven culture?

have a thorough training program that builds relational as well as technical skills?

 Does the client process establish a deep understanding of clients’ needs and wants and use clients’ resources to help them achieve specific life goals?

 Does the business employ a team approach, enabling RMs to call upon a variety of internal and external experts to analyze and satisfy clients’ needs?

 Is the client process iterative, engaging in discovery, assessment, scenario-building and execution regularly over the life of the relationship?


 Does the firm offer only investment solutions, or does it offer a broader mix of financial and non-financial services, enlisting outside partners and experts as necessary?

 Are employees fully engaged? Do they have everything they need to do an outstanding job?

managers approach?

 Are relational attributes like empathy, advocacy, discretion and listening skills emphasized in the hiring process? Does the firm

 Is proprietary product development still a part of the business strategy, or has the firm moved to a manager-of-

Do they model the desired behaviors?

 Do Portfolio Managers start from scratch when developing

We’ve covered a lot of ground, giving an overview of the transformations needed to satisfy the changing needs of the wealth market. We’ve offered some guidelines—our own and others’—to help you think about how to approach the challenges. Because we are still in the transformation process ourselves, we fully expect our thinking to evolve. We can all discover a great deal from innovators and early adopters, and we invite clients and others in the industry to share their experiences of initiating and sustaining transformation, as we will continue to share ours.

SEI’s Chairman and CEO, Al West, is the owner of the West Collection, one of the largest privately-owned modern art collections in the US. The foremost goal of the West Collection is to meet emerging artists who are creating challenging and inventive work and to present an experience of this new art to the public. The majority of the West Collection is on loan to SEI’s corporate headquarters and its offices worldwide. We believe that the pieces in this collection embody powerful concepts of innovation and leading-edge thinking – concepts that are transforming the world of art. At SEI, we strive to bring a similar culture and approach to working with our clients: New Ways. New Answers.®


Information provided by SEI Investments Company. SEI Private Banking Solutions is an internal unit of SEI Investments Company. This document is for informational purposes only. While considerable care has been taken to ensure the information contained within this document is accurate and up to date and no liability is accepted for any action taken on the basis of this information. No offer or solicitation to subscribe for or acquire any securities or sale of any securities is made hereby. This document and its contents are directed only at persons to whom the document can be lawfully communicated (â&#x20AC;&#x153;relevant personsâ&#x20AC;?).

SEIPB1 (11/08)

SEI Transformation of Wealth Management II brochure  

main brand collateral for SEI's Wealth Management group, creative direction by Jessica Koffman, design by Tim Solliday

SEI Transformation of Wealth Management II brochure  

main brand collateral for SEI's Wealth Management group, creative direction by Jessica Koffman, design by Tim Solliday