e-wealth management

e-Wealth Management

Wealth Management In the Internet Age

A white paper for business executives

e-wealth management 2

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Content

1 Introduction ............................................................................................................................5 1.1 Expected Internet usage..............................................................................................5

1.2 From e-information to e-advice ....................................................................................6 1.3 From e-banking to e-wealth management ...................................................................6

2 Fundamentals.........................................................................................................................8 2.1 Definition of terms.........................................................................................................8 2.2 Customers....................................................................................................................9 2.3 Providers .................................................................................................................... 11

3 Market models...................................................................................................................... 16 3.1 Traditional wealth management ................................................................................ 16 3.2 Intermediary model.................................................................................................... 17

3.3 Business-to-business (B2B) market ................................................................................ 18 3.4 Open Market (B2B/B2C)............................................................................................. 19

4 Services ................................................................................................................................ 21 4.1 Overview ................................................................................................................... 21 4.2 Financial information services ..................................................................................... 21 4.3 Financial Planning Services ......................................................................................... 21

4.4 Asset management services....................................................................................... 23 4.5 Custody services......................................................................................................... 24

5 Roles, responsibilities and processes ..................................................................................... 25 5.1 Roles & Responsibilities................................................................................................ 25 5.2 Processes ................................................................................................................... 26 5.3 Financial planning Process.......................................................................................... 27

5.4 Asset management Process ....................................................................................... 28 5.5 Custody Process......................................................................................................... 29

5.6 Tools........................................................................................................................... 29 5.7 Information flow ......................................................................................................... 30

6 Wealth management issues.................................................................................................. 32 6.1 Business model ........................................................................................................... 32 6.2 Differentiation............................................................................................................. 32 6.3 Segmentation ............................................................................................................ 32

6.4 Localization................................................................................................................ 33 6.5 Customer Focus ......................................................................................................... 33 6.6 Customer relationship management .......................................................................... 33


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6.7 Skills............................................................................................................................ 34 6.8 Security and Trust........................................................................................................ 34

7 e-wealth management solutions........................................................................................... 35 7.1 Introduction................................................................................................................ 35 7.2 e-services reference architecture............................................................................... 36 7.3 How to implement e-service markets on the web ....................................................... 38

7.4 HP e-services solution framework for financial services................................................. 39 7.5 HP nimius multi-channel platform for financial services................................................. 40

8 HP’s e-scoping services ........................................................................................................ 41 8.1 e-wealth management business scope...................................................................... 41 8.2 Scoping services......................................................................................................... 41 8.3 Briefing, training and seminars..................................................................................... 43


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List of Figures Figure 1-1 Expected Internet usage ...............................................................................................5 Figure 1-2 From e-information to e-advice......................................................................................6

Figure 1-3 Potential of e-services ....................................................................................................7 Figure 2-1Wealth Management Customer segments.....................................................................9 Figure 2-2 Universal bank business volumes .................................................................................. 10

Figure 2-3 Assets under management by CH-domestic banks(Source: SNB).................................. 12 Figure 2-4 Provider categories best placed to succeed in Europe ................................................ 12 Figure 2-5 Assets under management by large global universal banks (example)......................... 13

Figure 2-6 Provider categories best placed to succeed in the USA ............................................... 15 Figure 3-1 Traditional wealth management model....................................................................... 17 Figure 3-2 Intermediary model ..................................................................................................... 18

Figure 3-3 B2B Internet market model ........................................................................................... 19 Figure 3-4 Open market model .................................................................................................... 20 Figure 4-1 Wealth management Services..................................................................................... 21

Figure 4-2 Financial planning is life planning ................................................................................. 22 Figure 4-3 Investment strategy (asset allocation plan) .................................................................. 23 Figure 5-1 Custodian process....................................................................................................... 26

Figure 5-2 Financial planning process........................................................................................... 27 Figure 5-3 Asset management process ........................................................................................ 29 Figure 5-4 Process information flow .............................................................................................. 30

Figure 6-1 Service and channel segmentation............................................................................. 33 Figure 7-1 Decoupling of front and back office............................................................................ 36 Figure 7-2 HP e-services reference architecture............................................................................ 37

Figure 7-3 Virtual branch concept ............................................................................................... 37 Figure 7-4 HP web-services reference architecture....................................................................... 38

Figure 7-5 HP e-services solution framework.................................................................................. 39 Figure 7-6 HP Nimius core solution components............................................................................ 40 Figure 8-1 e-wealth management scope..................................................................................... 41

Figure 8-2 e-scoping services ....................................................................................................... 42


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1 Introduction

1.1 Expected Internet usage Until 1990 the Internet (the Net) was mainly used by the US. Government, scientists, students and a few IT companies. Professional usage of the Internet started in the early nineties. At that time, the Net was mainly used for information and directory purposes, to publish documents via Web, to send emails or to communicate in various topics related news forums. Only very few business pro-fessionals where able to use the Net in the office. Due to the lack of public Internet Service provid-ers (ISP’s), almost no users where able to connect to the Net from home. Figure 1-1 shows the ex-pected usage of the Internet.

At that time, some larger banks in Europe introduced Home-Banking via Videotex or Minitel (in France) and telephone banking.

Expected Internet usage

yesterday today tomorrow

information

transactions

advice

1996 2001 20061991

e- banking

e-commercee-advice

e-procurementexpo

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Figure 1-1 Expected Internet usage

In 1995, with Securities First Network Bank (SFNB), the first Internet bank <http://www.sfnb.com> enabled customers to do basic payment and funds transfer transactions over the Internet. In 1995 SFNB was a pure virtual bank with no other distribution channels. The solution was running on HP-UX servers and other HP infrastructure. Today SFNB belongs to RBC Centura, a company that provides banking, investment and insurance services across the Internet. This was actually the starting point of electronic transactions across the Internet (e-transactions).

In 1996, Zurich Cantonal Bank (ZKB), now the 3rd largest universal bank in Switzerland, started suc-cessfully with the first full JAVA-based Internet bank. HP built the e-banking part of the solution from scratch in six month on top of a VTX-based existing front -end system, without using any existing components. It only took another six month to directly integrate the e-banking solution with the mainframe and to implement the first e-brokerage solution for real-time trading with the Swiss stock exchange in Switzerland. This was the starting point of HP’s e-banking platform hp nimius.

Between 1996 and 2001, e-procurement and e-commerce solutions grew exponentially and al-most every medium-to-large size FSI company now has an e-banking and/or e-brokerage solution in place. After the burst of the new economy bubble in 2000, the year 2001 has becoming a bear year and the Internet/e-brokerage hype has gone.


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1.2 From e-information to e-advice Banks, asset management firms and other FSI companies are now looking to go beyond e-information and e-transactions by providing personalized advisory services (e-advice services) via e-channels (Web, UMTS, interactive TV or SMS for example) to attract the massively growing, tech-nology savvy and demanding base of mass affluent, affluent and HNWI customers.

Today, customers are able to do financial transactions such as e-payments and e-brokerage etc. via Internet. Tomorrow, they should be enabled to manage their financial assets and to do the RIGHT financial transactions based on truly personalized, accurate advice through e-channels.

What is e-advice? This term is used to express the provision of automated individual consult-ing/advisory service delivery via electronic channels.

1.3 From e-banking to e-wealth management During the next five years, besides e-information and e-transaction services, the number of e-advice services and the quality of these services will massively grow, as those customers start to realize the power and convenience of e-advice at affordable cost.

From e-information to e-advice

personal s ervices

e-services

60 % of all customers(average age: 30)



customized services individual s ervicess tandard services

„bigbusinesswill remain local!“

e- information

e-transactions

e-advice

e- CRM

s tandarde-banking

advancede-banking

mass customers / massaffluent customers

< 100k$

affluent customers /HNWI’s

100k$ - 5M$

VHNWI and UHNWI> 5M$

Figure 1-2 From e-information to e-advice

e-advice services will mainly be targeted to affluent customers and HNWI’s, as below 100k$ wealth management doesn’t really need a lot of advice (see Figure 1-2) and may be covered by auto-mated standard products and e-information services. In Europe, around 30% of the potential cus-tomers are either affluent or HNWI’s with an average age of 45. Most customers with more than 5 Million $ net to invest delegate wealth management to a private bank or to an independent asset management firm. They cannot be attracted with e-advice services, at least not with electronic financial advice.

On the other hand, e-CRM services might be more attractive for them as the company may be able to contact them on special personal occasions. However, much more important on this level is the personal service and relationship with the customer and his assigned financial planner, asset manager or custodian - big business will remain in the personal relationship network.


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Potential of e-services

probability to reduce costwith e -services




probability toincrease business with e- services

e- information

e- transactions

e-advice

e-CRM

customized services individual s ervicess tandard services

mass customers / massaffluent customers

< 100k$

affluent customers /HNWI’s

100k$ - 5M$

VHNWI and UHNWI> 5M$

Figure 1-3 Potential of e-services

While e-information and e-transaction services for the mass and mass affluent market are mainly intended to reduce company cost ( see Figure 1-3), e-advice services do provide real added value to the customer and thus have the potential to increase business with both existing and new customers.


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2 Fundamentals

2.1 Definition of terms

Term Description

Active asset/portfolio Manage-ment

An asset manager acts as attorney in fact and is respon-sible for the ongoing (re-)allocation of customer assets in order to achieve a predefined net profitability

Asset (and liability) management Ongoing management of all financial, material and im-material assets and liabilities according to a defined in-vestment strategy.

Custody Operational accounting and controlling of all asset man-agement transactions

Discretionary Asset Management (managed customer portfolio/account) Active or passive asset management based on the customer’s investment strategy/risk profile which may be either return or growth oriented.

e-advice The provision of automated individual consulting/advisory service delivery via electronic channels.

e-information The provision of any kind of personalized or common in-formation delivery via electronic channels.

e-service An e-service is a service which may be distributed to con-sumers via an electronic channel (web, email, SMS or tele-phone) to an appropriate electronic device (PC, telephone, mobile phone, handheld computer etc.)

e-transaction Any kind of transaction between a customer/user and a business initiated via electronic channels.

e-wealth management services E-wealth management services are a set of e-services.

Financial planning Financial consulting and strategic investment planning for an individual private person (define the investment strategy)

Human capital Accumulated amount of income gathered by an indi-vidual during his life span

Passive asset/portfolio manage-ment

All asset reallocations must explicitly be ordered by the customer

Portfolio management Management of tradable financial instruments

Private banking unit of a universal bank

In Europe with a focus on securities business, investment consulting and portfolio management / asset manage-ment for HWNI’s and above

Private Bank Banking institution where the owner or partners are liable with their personal assets. In Switzerland and in many other European countries, the term private bank refers only to institutions with the legal form of an individual ownership, a partnership or a limited partnership firm. Most private banks have emerged in the past from trad-ing and shipping companies.


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Private wealth management

Planning, allocation, tracking, accounting and control-ling of all assets and liabilities of an individual private per-son

Retail banking unit of a universal bank

In Europe with a focus on standard banking services and interest related business for mass, mass affluent and af-fluent customers

2.2 Customers Figure 2-1 depicts the typical customer segmentation from the mass customer to the UHNWI. In the past, target customers for wealth management have been the HNWI’s and above. These cus-tomers segments have traditionally been the domain of the universal bank’s private banking units and the private banks, whereas the other customer segments have been managed by the univer-sal bank’s retail banking units and regional, local or cooperative retail banks.

As labor cost is high in Europe, only HNWI’s with net investments of more than e.g. two million USD or more may afford personal financial advice by a financial planner or a discretionary asset man-agement contract with a bank. Some affluent and HNWI customers maintain a relationship with a financial planner, a tax expert or a custodian to periodically get personal advice, to review their financial situation or to define their long-term investment strategy.

Mass Customer

Mass Affluent Customer

Affluent Customer

HNWI

VHNWI

Wealth management customersNet savings and deposits above 100k$

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Figure 2-1Wealth Management Customer segments

With e-services, FSI companies will soon be able to provide cost efficient personalized B2C self-service wealth management services to the lower customer segments. Private Banking companies and independent asset management will try to additionally attract affluent and maybe even mass affluent customers whereas retail banking companies will try to keep them by providing con-venient e-advice services via Internet and other electronic distribution channels.


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Wealth management customersAffluent and HNWI above 35 years

Universal bank business

65%50%25%More than55 years

30%30%60%Between 35and 55 years

5%20%15%Less than 35 years

Deposit volume

Savings volume

Credit volume

Customer age

Figure 2-2 Universal bank business volumes

As attractive e-services provide a mean to differentiate from competition, the upcoming provision of adequate e-advice services has already initiated a heavy fight for affluent customers between private and retail banks, insurance companies and independent asset management firms. Ac-cording to Figure 2-2, wealth management service provider focus on affluent customers who are typically older than 35 years and have an average age of around 45 years.

2.2.1 Mass customers Mass customers represent the lowest customer segment. They have between 0 to 50 k$ on their savings account. In general they do not have a deposit account. Mass customers are not a target segment for wealth management.

2.2.2 Mass affluent customers The mass affluent typically have between 50 and 100k$ net to invest. The mass affluent customer segment is not a target segment for wealth management. However, they represent the majority of the future e-advice prospects. They are very cost sensitive and tend quickly to change their finan-cial service providers. They also tend to consult independent financial advisors. The mass affluent are shifting their savings into equities and seek advice on how to invest but cannot afford personal advice. Their pension fund share is not yet high. To serve this customer segment, standardized and automated e-advice services are required.

Mass affluent customers are less likely to switch to a private bank or to another traditional wealth manager once they will become affluent customers or even HNWI’s. Banks are aware of the po-tential of this customer segment but struggle to come up with sustainable strategy and solutions.

2.2.3 Affluent customers The affluent customers represent the upper segment in the retail business and are the lowest tar-geted customer segment for traditional wealth management services. Affluent customers are able to invest betw een 100k$ and 500k$ net. They live in their own house, have settled their live and have got a mortgage credit. They are typically families with children between 10 and 20 years. Very often both parents have a job. Most of there financial assets are bound in pension funds.


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Affluent customers are technology savvy Internet users and more than 70% of them do have Inter-net access at home. They are interested in e-banking and e-brokerage services and together with the HNWI’s, affluent customers are now the main target group for e-advice services.

Many affluent customers are e-brokerage users and at the end of the new economy bubble, some of them had to write-off money because they had no personalized advice and just had to follow the trends published in the media (of course always too late). Not only because of this but in general, affluent customers start to recognize the value of adequate financial advisory services but are still cost sensitive and seek advice from independent financial consultants and tax experts. Typically, managed portfolio funds make a large portion of their financial portfolio.

2.2.4 High net-worth individuals (HNWI) High net-worth individuals are people, who are able to invest between 500k$ and 5M$ net. Almost all HNWI’s know the value of financial advice and most of them periodically engage a financial planner to review their asset allocation and to align their investment strategy. They are able to freely invest 25 to 30% of their financial assets in the money market, in managed funds, in bonds or in equities.

In European countries with well developed economies, social protection plans and pension funds, a large percentage of the retired people are actually HNWI’s. Many of them take their time and have patience to manage their own portfolio. Thus, they are heavily interested in good individual financial advice. Many people who will retire in the near future also know well on how to use the Internet and therefore would be very interested in e-advice. Besides the affluent customers, HNWI’s are the second target customer segment for e-advice services.

2.2.5 Very high net-worth individuals (VHNWI) Very high net -worth individuals (VHNWI’s) are people, who are able to invest between 5M$ and 50M$. They typically belong to a higher social class and very often are in top management ranks. They cannot afford to spent their time to manage their assets themselves and therefore ask their bank to manage their financial assets or they sign an asset management contract with an inde-pendent asset management firm to manage their assets either actively or passively.

As they are able and willing to pay for personal advice, they are not really interested in e-advice services. In most situations, their financial situation is too complex for e-advice services anyway. They are able to maybe freely allocate 80 to 90% of their assets. Maybe 20% in real estate prop-erty, 20% in holdings and licenses and 40% to 50% in tradable financial instruments. Their average portfolio of financial instruments is fully diversified and consists of maybe 30% bonds, 40% equities, 20% managed funds and 10% derivatives.

2.2.6 Ultra-high net-worth individuals (UHNWI) Ultra-high net-worth individuals are very rare people who are able to freely invest more than 50M$. Like the VHNWI’s, almost all the UHNWI’s let banks or independent asset management manage their assets. Normally they maintain close personal relationship with investment consultants, asset managers, custodians and tax experts. Very often they even hire them. Thus like VHNWI’s, UHNWI’s are not at all interested in e-advice services.

2.3 Providers The major providers for wealth management services for private individuals in Europe are universal banks, private banks and partnership private banks. Together they manage more than 80% of all private assets in Europe. In Switzerland for example, two thirds of all private assets are managed by Switzerland’s two largest universal banks UBS and CSG (see also Figure 2-5).


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Assets under management by domestic banks in Switzerland

93

611

1807

1205

3716

Total

4449other

369242Funds

956851Securities

686519Bonds

2056166116622054Total

ForeignDomesticInstitutionalPrivate & commercialAsset under Management

Year 2000: CH-figures in US- billion CHF (1 US-billion = 109)

Figure 2-3 Assets under management by CH-domestic banks(Source: SNB)

Figure 2-3 shows that in the year 2000, a total amount of 3716 Billion CHF (2323 Billion USD) of equi-ties (bonds, securities, funds and other) have been managed by domestic Swiss banks. Out of this, 2054 (US)-Billion CHF (1284 Billion USD) are assets owned by Private customers (988 Billion USD)and commercial customers, e.g. small enterprises (296 Billion USD). 1662 Billion CHF (1038 Billion USD) belong to institutional customers, around 55% of the total equities under management (EUM) be-long to foreign customers. End of the year 2000, The average equity portfolio managed by Swiss banks consisted of 33% bonds, 48% securities, 16% funds and 3% other equities, i.e. derivatives.

Providers best placed to succeedin Europe

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Affluent Customer

HNWI

Affluent Customer

HNWI


Affluent Customer

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Affluent Customer

HNWI

Figure 2-4 Provider categories best placed to succeed in Europe


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As shown in Figure 2-4, universal banks, private banks and partnership private banks as well as as-set management firms are in the best position to succeed in the future, however for different rea-sons:

2.3.1 Universal banks Larger universal banks do have a good position as they are able, to implement their own sophisti-cated proprietary wealth management infrastructure in place whereas other universal banks, pri-vate banks and partnership private banks are typically small to medium size companies only lim-ited infrastructure budgets. They normally prefer standardized solutions, infrastructure outsourcing. Sometimes they even outsource a large percentage of back office processes to partner compa-nies.

Figure 2-5 provides an idea of the overall amount of assets typically managed by large, global acting universal banks. In Switzerland for example, where private capital earnings are free of tax (as in some other European countries), more than 70% of all assets under management are private assets. This of course varies from country to country and heavily depends on the local tax laws.

Assets under management by large global universal banks (example)

969142827Investm. banking

1009487522Trust banking

488Private banking1912

3031121

Retail banking

389014172467Total

TotalCSGUBSAssets under Management

Year 2000: CH-figures in US- billion CHF (1 US-billion = 109)

Figure 2-5 Assets under management by large global universal banks (example)

Maybe 30% of all assets under managed are managed actively by the banks. Based on a discre-tionary asset management contract, the bank acts as attorney in fact or fiduciary and therefore has the right to sell and buy assets without prior consent. All other assets are passively managed meaning the customer must agree all transactions before execution.


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Table 2-1 below shows the volume of discretionary managed assets within Credit Suisse Group. All assets managed by CS Financial Services and CS Private Banking are private assets.

Assets under Management (Source: CSG annual report 2000)

AUM (MCHF)

% change to 1999

Credit Suisse Financial Services (Retail/affluent banking) 303.0 8.9 – of which net new assets 2) 3) 8.1 (27.0) – of which discretionary 153.6 12.3 Credit Suisse Private Banking 488.2 2.4 – of which net new assets 3) 21.0 81.0 – of which discretionary 101.1 6.2 Credit Suisse Asset Management (Institutional Trust Banking) 487.2 14.7 – of which net new assets 3) 4) 24.4 31.9 – of which discretionary 360.1 11.1 Credit Suisse First Boston (Investment Banking) 142.1 – – of which net new assets 3) 1.6 0 – of which discretionary 6.6 371.4 – of which Private Equity 31.5 452.6 Credit Suisse Group (consolidated) 1,417.0 19.3 – of which net new assets 3) 53.3 27.2 – of which discretionary 619.6 11.4

Table 2-1 discretionary assets

2.3.2 Private banks and partnership private banks Private banks are small to medium private or partnership companies owned by limited or fully li-able individuals. Today the concentrate on HNWI’s and above. E-service might enable them to even do some business in the affluent space. The main advantage of private banks and partner-ship private banks compared to universal banks are customer focus, customer relationship, flexibil-ity, trust and reputation.

2.3.3 Asset management firms Asset management firms are traditionally focused on private wealth management. They provide financial planning, asset management and custody services for affluent customers and HNWI’s out of one hand. A big advantage of Asset management firms is normally product and provider inde-pendence. However, many asset management firms either belong to a bank or do have close partnerships with banks. Some bigger asset management firms do have a broker bank license and/or additionally act as fund managers, which might lead them to focus on their own products.

2.3.4 Investment, merchant banks and commerce banks Traditionally, many VHNWI’s and UHNWI’s do have close relationships with or even are a major shareholder of an investment and/or commerce bank. For this reason, those banks also play a smaller role in private wealth management. However, it is not their core business.

2.3.5 Independent financial planners and asset managers An increasing number of HNWI prefer to contract independent financi al planners and asset man-agers. They do not believe that banks, insurance companies or large asset management firms always make their recommendations in the best interest of customers. Most times, smaller interme-diaries are not able to invest in large infrastructure projects. Currently, there are several financial planning, asset management and custodian tools available on the market, but there is no real standard and none of them allows straight -through processing with banks, insurance companies, real estate agents or stock brokers etc. They would like to have an open market for financial plan-ning and asset management services where they can select and use these services on tap.


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2.3.6 Insurance companies Although insurance companies, especially life insurance companies try to push into the private wealth management market (i.e. Zurich Financial Services), they have not been very successful yet. They are still not considered as wealth managers. It is very unlikely that the will be able to im-prove their market share.

2.3.7 Providers in the USA Compared to Europe, the financial system in the USA looks somewhat different. US-Banks are spe-cialized as either commercial banks, private banking/wealth management institutes, investment banks or brokerage banks. US-based universal banks are very rarely, focus on retail banking and act regional.

As US commercial banks focus on money management (payments, funds transfer etc.) and inter-est business, wealth management is the domain of US private banks and wealth management corporations. Most intermediaries focus on consumer loans for cars, housing, living etc. and are not considered as wealth managers. As in Europe, insurance companies do not play a major role in private wealth management. Figure 2-6 shows the US provider categories and their position in the market.

As the European market is more mature in terms of private wealth management and as US-banks want to bypass the US-Glass Stegal act, major US-based and other global acting banks (e.g. Merrill Lynch and HSBC) heavily invest in the private wealth management market in Europe.

Providers best placed to succeedin the USA

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HNWI


Affluent Customer

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Affluent Customer

HNWI

Affluent Customer

HNWI

Figure 2-6 Provider categories best placed to succeed in the USA


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3 Market models Besides the widely known traditional wealth management model and the intermediary model, this chapter describes a business-to-business market model and an open market model. The two last -mentioned models are visionary market models that would require highly standardized communi-cation between the various market participants. Providing standardization may be achieved, fully automated, cost efficient e-service markets may be implemented.

As with electronic stock markets, e-service markets allow market participants bid and ask for e-services. Service providers bid their services in the market by registering service profiles. On the other hand, customers and intermediaries ask the e-services market for specific services by registering ask profiles. According to a given ask profile, the e-services market provides a list of matching bid profiles. Once an e-service has been selected and provided, the e-service market automatically connects the two parties and finally debits the customer and credits the service provider. It thus automatically accounts, reports and even bills provided e-services.

With the rise of e-service markets, wealth management companies have to reconsider their role in the wealth management market. They have to decide whether they want to act as intermediar-ies, as service providers or even as e-service market owners.

3.1 Traditional wealth management In the mass-market, wealth management typically reduces to the management of current ac-counts, savings accounts, managed portfolio funds etc. held in a deposit account and pension funds. Most mass- and mass-affluent customers are employed. Typically they do have some treas-ury bonds, little amount of securities, no individual life insurance and just standard group live insur-ance plans. There is little or no need for tax expertise or legal advice.

3.1.1 Traditional wealth management advisory model With the growing amount and diversification of assets, wealth management becomes more and more complex and thus requires more sophisticated knowledge, information and advice. Affluent customers and HNWI’s recognize the value of adequate financial planning and custodian services and engage independent financial planners and custodians.

In the traditional wealth management advisory model (depicted in Figure 3-1), the customer him-self manages his assets. Based on public information or personal advice from a financial consult-ant, he initiates and tracks all wealth management transactions. He must himself interact with banks, insurance companies, real estate brokers, stock brokers, money market traders, exchange traders, etc. to manage his assets.

3.1.2 Discretionary wealth management model HNWI’s often sign a discretionary wealth management contract with their bank. The bank then guarantees a certain return on invest on the customer’s financial portfolio. The bank manages the customer’s portfolio, initiates financial transactions without prior notice to the customer and informs the customer periodically. The bank deals with fund managers, stockbrokers, bond traders etc. on behalf of the customer.


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Traditional wealth management model

StockBroker

FundManager

BondTrader

Bank

Customer

InsuranceAgent

EstateBroker

Portfolio Management

Asset Management

Figure 3-1 Traditional wealth management model

Most banks provide portfolio management services around financial instruments such as cash, credit, bonds, stocks, funds, derivatives, metals, private equity holdings etc. only. They do not pro-vide a full wealth management service that includes operational management of life insurance assets, material assets (real estate, art) and immaterial assets (skills, licenses).

3.2 Intermediary model In the intermediary model (shown in Figure 3-2), customers engage 3rd party asset management firms and independent asset managers to manage all their assets. Banks, insurance companies, real estate brokers etc. become pure back office service providers and often loose the front con-tact to the customer. They concentrate on execution, administration, accounting and reporting of financial transactions.

All customer-facing front office activities are done by the intermediaries. The intermediary model requires a certain degree of standardization and service level agreements between intermediaries and service providers and works only if the back office process can be decoupled from the front office sales and advisory processes.

The advantage of the intermediary model are obvious: Intermediaries do not require own back office execution environment and may focus their financial planning, asset management and custodian processes on customer events whereas the service providers may now streamline their processes and make them more cost efficient.

The asset manager acts as a service aggregator, manages all asset classes and becomes the single point of contact for the customer in terms of asset management. Whereas financial plan-ning and custodian tasks may be given to the same person or company, the asset manager role and the custodian role should be clearly separated from each other for security reasons. The cus-todian should also control the activities of the asset manager on behalf of the customer. He is also responsible for i.e. the tax declaration and provides tax or legal advice accordingly. However, most asset management firms provide complete wealth management packages which encom-pass all three functions.


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Intermediary model

advice &plan

AssetManager

CustodianFinancial Planner

StockBroker

FundManager

InsuranceEstate

ManagerBank

Customer

allocate &track

account &report

Intermediaries

Service providers

Figure 3-2 Intermediary model

In comparison with the traditional, bank-centric wealth management model, many customers prefer the intermediary model, because they do not believe that banks, insurance companies or fund management companies really provide product independent advice.

For this reason, service providers are heavily interested to franchise intermediaries to exclusively promote their products and services. However, on long-term, financial planners, asset managers and custodians MUST remain independent to stay in business. They must be able to recommend competitive products and services from different providers. Otherwise customers do not accept them as independent wealth management advisors and they will soon loose their reputation. Thus franchising models that try to exclusively bind intermediaries to a service provider will not work.

3.3 Business-to-business (B2B) market „The vision: Internet market place where intermediaries and service providers may dynamically “trade” services between each other based on certain criteria such as customer, service, price, quality, time, asset class, transaction cost etc. on behalf of the customer.“

As already stated at the beginning of this chapter, market type business models, no matter whether they are face-to-face markets or electronic markets, may only become reality, if all mar-ket participants agree on a certain standardization of product and service descriptions (profiles). Wealth management services have to become „tradable instruments“.


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B2B market model

B2BMarket

StockBroker

FundManager

Insurance

EstateManager

Bank

AssetManager

Custodian

Financial Planner

Customer

Other Provider

Figure 3-3 B2B Internet market model

In this model, a 3rd party runs the market and provides the necessary registration, trading, ac-counting, reporting and billing functionality based on standardized service and price information. Ideally the Internet market is operated and maintained by a well known, neutral and trusted fi-nancial company, for example a clearing or settlement house.

3.4 Open Market (B2B/B2C) „The vision: Internet market place where affluent customers and HNWI‘s may find and compare appropriate wealth management services and establish relationships with wealth management service intermediaries and providers.”

Based on the open market model, all three business models described above may be imple-mented. The customer has the possibility to either directly look for service providers or find appro-priate intermediaries who deal with the service providers. The open market will provide a platform where even small Intermediaries and service providers will be able advertise themselves at low cost to a large customer base.


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Open market model

OpenMarket

StockBroker

FundManager

Insurance

EstateManager

Bank

Customer

AssetManager

Custodian

Financial Planner

Figure 3-4 Open market model

Both market models suit best for electronic markets and ASP (see paragraph Error! Reference source not found.) as a powerful but also expensive IT application and system infrastructure envi-ronment may be implemented and operated centrally which may be shared by many intermedi-aries and service providers. Market participants will not have to invest in own large wealth man-agement infrastructure projects and will get more functionality. They would also not have to bother on how to account, report and bill of e-services as the market will provide those services.

However, as stated before, the big challenge for a wealth management e-service market will be to convince the intermediaries and service providers and to define and agree on a standardized market model.


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4 Services

4.1 Overview This chapter describes the various wealth management services. The services are grouped into four different service groups: Financial Information, financial consulting, asset management (order execution )and custody (controlling) services. Figure 4-1 provides an overview.

Cash management

Credit management

Portfolio management

Real estate management

Wealth management Services

Wealth management

FinancialPlanning

Asset Management Custody

Financial Planning

Pension management

Insurance management

Holdings management

License management

Accounting

Reporting

Clearing

Financial Information

Market Information

Asset Information

Settlement

Safe-keeping

Controlling

Figure 4-1 Wealth management Services

4.2 Financial information services

4.2.1 Market information Timely and accurate information about a current or historical situation in the financial market such as real-time or delayed instrument quotes, history reference data, market and company analyst reports and forecasts as well as market context information such as news, company annual re-ports, virtual portfolios etc.

4.2.2 Asset information Current/historical Information about the real asset situation for a specific customer (customer view) or a logical group of customers (asset manager view). Asset information may be aggregated by customers, group of customers, account types, accounts, portfolio types, portfolios etc.

4.3 Financial Planning Services This section briefly describes the important financial consulting services needed for private wealth management.

4.3.1 Financial planning Financial planning is a service which periodically (re-)defines and reviews a customer’s individual long-term investment strategy. The financial planning is a strategic service that shows individual


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customers what percentage of their assets they should invest in what asset class in order to be prepared for expected life events, to ensure an appropriate life style after retirement and to mini-mize their social insurance and tax burden (see Figure 4-2).

Financial planningLife Planning

Retirement

insure

accumulate consume

Age

Assets

leave

life events

inherit

DoB Death

Figure 4-2 Financial planning is life planning

The four main financial planning services are:

1. Financial assessment – assess customer’s current social and financial situation

2. Life planning – line-up all foreseeable life events (marriage, house building, children, school, retirement, etc.)

3. Budget definition – list and calculate customer’s estimated short and medium-term earn-ings and expenditures

4. Investment strategy specification – produce product and provider independent long-term asset allocation plan

Average affluent customers and HNWI’s should invest around 60 to 75% of their assets in long-term (investment horizon more than 10 years), low risk and return oriented asset classes such as life insur-ance, treasury bonds, blue chips, high quality real estate property and precious metals in order to guarantee a certain lifestyle under foreseeable circumstances (see Figure 4-3). Between 25 to 30% of all assets may be invested medium-term (investment horizon 1 – 10 years) in medium risk and growth oriented funds, bonds and stocks and a maximum of 5 to 10% of all assets should be in-vested in short -term (investment horizon less than 1 year) high risk, highly speculative derivative products primarily to hedge own investments. Monetarial and material assets should be kept in balance in order to keep liquidity as well as to minimize inflation risks.


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material assets

medium to long term25 - 30%

short term0 - 10%

lifeInsur.

cash

bondsequities

realestate

preciousmetals

managedportfolio

cash

bondsequities

monetary assets

deriv.

Financial planningInvestment strategy specification

high risk, speculative

low risk, safety oriented

medium risk, growth orientedlong term60 - 75%

Figure 4-3 Investment strategy (asset allocation plan)

During the financial planning process, many tax or legal related questions arise and advice is needed on how to (re-)arrange assets to minimize a customer’s fiscal load and to foresee and avoid legal issues for example in tax law, family law or law of succession. As laws vary from country to country, legal and tax consulting is a major issue as it may only be standardized and automated only to a certain extent.

4.3.2 Financial Controlling The financial planner (or an independent trustee) also checks whether the executed asset man-agement transactions have been legal and within the limits of the customer’s investment strategy and asset management contract.

4.4 Asset management services

4.4.1 Cash, savings and credit management Management of current accounts, savings accounts and credit/mortgage loan accounts in combination with check writing, debit card access, payment execution, funds transfer between accounts, standing orders, direct debiting, credit card debiting etc.

4.4.2 Portfolio Management Ongoing simulation, allocation and tracking of a customer’s portfolio of tradable financial instru-ments such as, money market, foreign exchange, bonds, stocks, managed funds, derivatives etc. according to the customer’s investment strategy and risk profile defined in the financial planning process. In some companies and publications, the term asset management is used as a synonym for portfolio management. However, we understand portfolio management as a subset of asset management that encompasses the management of financial instruments and does not include management of insurance policies and pensions, real estate, immaterial asset classes such as li-censes etc.


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4.4.3 Real estate management Buying, selling and administration of real estate property, allocation of income and earnings out of real estate property.

4.4.4 Insurance and Pension management Management of life and health insurance contracts. Management of income and earnings of public social security assets, company financed social security assets as well as tax privileged pri-vate social security assets.

4.4.5 Holdings and license management Management of income and earnings out of private holdings, mandates, licenses and intellectual property rights.

4.5 Custody services

4.5.1 Accounting & reporting All asset management transactions must be accounted and periodically or upon request be re-ported to the customer.

4.5.2 Clearing & Settlement All asset allocation transactions must be reconciled with counter-parties, funds must be cleared and contract documents (e.g. security certificates or real estate contracts must be settled be-tween two or more parties.

4.5.3 Safe-keeping Assets must be kept and maintained safely. This services include management of physical depos-its, contracts, security certificates etc. as well as corporate actions on deposit accounts, coupon management etc.


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5 Roles, responsibilities and processes

5.1 Roles & Responsibilities Table below defines objectives and responsibilities of the three most important wealth manage-ment functions roles financial planner, asset manager and custodian.

Role Objective Responsibilities

Financial Planner Advice, plan and control

Become a trusted advisor, which helps customers to plan and periodically re-view their life from a finan-cial point of view and to implement and maintain an appropriate investment strategy to efficiently man-age their assets.

• Assessment of the customers current fi-nancial and social life style and situation

• Development of a life plan that includes all foreseeable life events such as mar-riage, children, education, retirement etc.

• Definition of a budget that fits the cus-tomer‘s medium and long-term financial needs (income, tax, living cost, retire-ment cost etc.)

• Definition of an overall product inde-pendent investment strategy

• Controlling of all executed asset man-agement and custodian transactions as a trustee on behalf of the customer

Asset Manager Allocate and track

Management of all types of customer assets (cash, credit contracts, securities portfolio, holdings, real es-tate, art, licenses etc.

• Analysis of financial markets and instru-ments

• Asset allocation modeling

• Asset allocation

• Asset tracking

Custodian Account and report customer deposit account management.

• accounting, reporting, clearing and set-tlement of deposit account transactions

• safe-keeping of securities

• Coupon management

• Corporate actions etc.

Customer relation-ship manager

Maintain relationship

• Collect, analyze and consolidate infor-mation about individual customer

• Analyze customer behavior

• Estimate customer potential

• Define individual marketing campaign

Table 5-1 Wealth management roles & responsibilities

Although most banks are able to provide financial planning, asset management and custodian services out of one hand, the following tasks should be separated for security reasons.

- financial planning and asset management tasks to ensure product independence

- asset management and controlling tasks to ensure operational independence


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The following tasks should ideally be assigned to a single person or organization:

- Financial planning, controlling, consulting and customer relationship management

- Asset management, accounting, reporting, clearing, settlement and safe-keeping (de-posit management)

The following role/task combinations are recommended:

Financial planning

Asset management

Accounting & reporting

Clearing & settlement

Safe-keeping Controlling Legal and tax consulting

Financial Planner

Bank Financial Planner

Expert(s)

Financial Planner

IAM Custodian Bank(s) Independent

Trustee Expert(s)

IAM = Independent Asset Manager

5.2 Processes Figure 5-1 depicts the four major processes in wealth management. The different roles may be assigned to different people within an organization or even to different organizations. Therefore, for each role, an independent process must be implemented and the necessary information flow between the four processes must be established. The processes must be implemented to run in-dependent from each other and the information flow should ideally be standardized.

F inancialPlanning

assessment

investmentstrategy

requirementanalysis

3...5 year cycle

C R M

campaignmanagement behavior

modeling

segmentation& validation

periodical

AssetManagement

assetallocation

allocationmodeling

assettracking

ongoing

company‘sinvestment

policy

Wealth management processes

accounting& reporting

safe -keeping

clearing& settlement

ongoing

Custody

Figure 5-1 Custodian process

Although not a wealth management process, a well-defined and established customer relation-ship management process is essential for wealth management service providers and intermediar-ies. Especially financial planners must completely understand the situation and behaviour of their customers to be able to define appropriate financial budgets and investment strategies. There-fore, all three wealth management processes must be able to exchange information with the CRM process.


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5.3 Financial planning Process Typically, a financial planning cycle should take place at least every three to five years or when-ever an important life event happens, which severely impacts the customer’s financial situation. Depending on the complexity of a customer’s current asset structure, a financial planning cycle may take one to two person days for an average HNWI in a standard financial situation. For VHNWI’s in more complex financial situations, the process may take three to five or even more person days of effort per customer. This practically limits the number of customers, which may be effectively managed by a single financial planner to about 200.

Assuming an average cost for a single financial planner of about 200k$ per year, customers must be able and willing to spend at least 1000$ per year or up to 3000$ every three years for financial planning. They will only do so, if the financial planner is highly skilled, experienced and able to help them saving at least the same amount of money somewhere else.

For customers in standard financial situations, typically the first financial planning cycle provides the most value to customers as it normally helps customers to significantly reduce their current social and financial tax burden. However, real benefit out of subsequent financial planning processes is only given in situations where a customer’s financial situation changes substantially.

As already briefly explained in section 4.3.1, the financial planning process consists of four major tasks: Financial assessment, life planning, budget definition and investment strategy specification.

5.3.1 Assessment of the current financial situation Most important for the definition and implementation of a successful investment strategy is the accurate assessment of a customer’s current social and financial situation and behavior. In this task, the financial planner gathers information by asking the customer a set of social and financial questions out of a questionnaire. Based on the given answers, the financial planner fills-in known financial figures into a well prepared, standardized but highly customizable spreadsheet (current budget). This may take one or more subsequent sessions with the customer in a single financial planning cycle.

assessment ofcurrent situation

budgetdefinition

decision3...5 yearcycle

retirement

insure

accumulate consume

time (age)

assets

Investment strategyspecification

life events

Financial planning process

life plan

Figure 5-2 Financial planning process


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5.3.2 Life planning Together with the customer, the financial planner lists all expected life events, investigates the me-dium (three to ten years) and long-term (more than 10 years) financial needs and develops an appropriate life plan that shows what amount of assets should be available by when, how long and in what form. Important life events are for example: Marriage, divorce, children, school en-trance, retirement, death etc. All these live events may severely impact the customer’s financial situation and the financial impact should be foreseen and covered in advance.

5.3.3 Budget definition Besides the life plan which shows the customer’s medium and long-term financial needs, a budget should be defined for the time period between two financial planning cycles (one to three years) which lists in detail foreseeable income, expenditures, savings and inv estments. Based on the budget, the financial planner is able to determine what amount of money must remain in cash, what amount of assets may be invested medium -term in the money market or bond market and what amount of income must be insured.

5.3.4 Investment strategy specification Once all short -, medium- and long-term financial requirements are on the table and the cus-tomer’s risk profile is known, the financial planner is able to develop a customer specific investment strategy which specifies, what percentage of assets may be allocated in what asset classes and what performance should be achieved overall and by asset class. Typical asset classes are: cash, insurance assets, bonds equities, real estate assets, metals, holdings and licenses, art etc.

5.4 Asset management Process The term asset management is not clearly defined across the FSI industry and very often the term is used as a synonym for portfolio management. In our understanding, asset management includes the management of all possible asset types, including i.e. insurance, real estate, licenses, holdings and art assets while portfolio management as a subset of asset management encompasses the management of tradable financial assets (FX/MM, bonds, stocks, shares of managed funds, op-tions, futures and warrants, precious metals etc.).

Once the investment strategy has been defined by the financial planner and decided by the customer, customer assets must be (re-)allocated and managed accordingly. Asset management is an ongoing task which may be done either by the customer itself or by an assigned asset man-ager. Figure 5-3 briefly shows how the financial planning process and the asset management process relate together.

5.4.1 Asset allocation modeling (portfolio analysis) Based on the customer’s current financial situation and the decided investment strategy, the asset manager checks for available research reports, analyzes markets and companies, selects appro-priate products, simulates overall performance and asset allocation risk and finally checks, whether the simulation results are within the objectives and figures stated in the customer’s invest-ment strategy.

5.4.2 Asset allocation (order management) If both simulated portfolio performance and asset allocation risk are within the limits specified in the investment strategy, the asset manager then (re-)allocates asset positions by placing buying or selling orders to the respective markets.


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F inancial P lanning Asset Managementgeneric allocation every 3 - 5 years

assetallocation

allocationmodeling

assettrackingassessment

investmentplan

requirementanalysis

ongoing asset allocation / tracking

decision

retirement

insure

accumulate consume

materialassets

monetaryassets

age

assets

time

value

company‘sinvestment

policylife events

market events

Asset management process

Figure 5-3 Asset management process

5.4.3 Asset tracking (position keeping) Once all open asset positions have been filled, performance and associated risks of all asset posi-tions must continuously be monitored and reported to the customer or a trustee.

5.5 Custody Process

5.5.1 Accounting & reporting Executed asset management orders must be accounted and orders as well as the status of cur-rent asset positions must periodically be reported to the customer.

5.5.2 Clearing and settlement Financial transactions must be cleared and security positions, credit contracts or real estate con-tracts must be settled and reconciled with the respective buying or selling counter-party.

5.5.3 Safe-keeping Contracts, holding documents, security positions etc. must be kept at a safe place, security cou-pons must be managed art Financial assets Once an asset position has been settled in the cus-tomers portfolio,

5.6 Tools

5.6.1 Financial planning tools A financial planner basically needs standard office automation tools, a spreadsheet program as well as, life plan templates, budget templates, investment strategy templates. Further he needs access to customer information, account information, financial and political newspapers, market research reports, market information, tax information and legal information.


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Sophisticated spreadsheet solutions allow doing the financial assessment, the budget definition and the investment strategy specification all in one single spreadsheet. Spreadsheets may also be filled-in directly by the customer via Internet for example.

As financial planning is a strategic process, real time information is not required. Financial planners must be able to store and maintain long-term history data about customers, companies and mar-kets and must be able to continuously track each individual customer’s financial situation. He must be able to store and maintain both structured information (filled-in in the spreadsheets) as well as unstructured information gathered during a financial planning cycle in a customer database for subsequent financial planning cycles.

5.6.2 Asset management tools Asset managers require access to sophisticated portfolio analysis tools, (real time) market inform a-tion and analysis systems, order management systems and portfolio management systems. As asset allocation and tracking are operational tasks, access to near real-time market information and real-time instrument quotes is recommended.

5.6.3 Custodian tools The custodian requires a sophisticated deposit management and reporting system and interfaces to clearing and settlement systems and organizations.

5.7 Information flow For the sake of speed, customer friendliness and flexibility and as they may be driven by different organizations, the four processes should be as independent (loosely coupled) as possible from each other. This may be achieved by implementing an asynchronous information flow based on an asynchronous messaging system (store and forward when available) or based on a central operational data store (store and retrieve when possible).

Information flow

FPTools

AMTools

Cust.Tools

CRMTools

FPTools

AMTools

Cust.Tools

CRMTools

Data

Standardized Messaging System Common Datastore

Data

Data

Data

Data

Message System

Figure 5-4 Process information flow

Advantages and disadvantages of the two information flow architectures are obvious. Common message exchange systems, e.g. email systems are typically used in very large organizations or between different organizations as it becomes almost impossible to agree on a common data structure. They only need to agree on a set of standardized messages and to implement an inter-


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face between all their involved systems to the messaging system. On the other side, common data stores are typically preferred in smaller organization units and family offices as they do not want to maintain four different databases


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6 Wealth management issues

6.1 Business model During the last decade, there has been a continuous shift from traditional wealth management model to the intermediary model, where independent financial planners and asset managers try to aggregate wealth management services across banks, insurance companies, estate manag-ers, fund managers, stock brokers etc. As in this model, the intermediaries provide a single address for wealth management services, customers do no longer need to contact banks or insurance companies directly. Banks and insurance companies are becoming product and transaction ser-vice providers and start to loose customer relationship on the strategic decision level.

As intermediaries work with multiple banks and insurance companies they are able to combine (in theory) the most competitive products from different service providers in a portfolio which is valu-able for customers and forces the product providers to lower their margins and to reduce their infrastructure cost to provide more competitive products. Thus large banks and insurance compa-nies started to found or buy “independent” asset management firms and financi al planners. How-ever, as other markets, the wealth management market heavily trends towards the intermediary and finally to the open market model. The wealth management market will become more trans-parent for customers in the future.

The shift away from the traditional market model to the intermediary, B2B market and finally the B2C market model will force the industry to …

n agree on cross-industry communication and distribution standards n agree on cross-industry product and service standards n decouple front and back office organizations, processes and systems n integrate or replace hundreds of proprietary back office transaction systems n implement cross-industry product knowledge organizations, processes and systems

6.2 Differentiation Along with the standardization and market transparence, it will become much harder for FSI com-panies to differentiate just on price and imaginary benefit. Only companies with a very strong brand and a good reputation for high quality services will stand a chance in this market. To be able to differentiate from competition, especially large FSI companies should …

n Improve trust in their brand (in reality, large banks are continuously loosing trust) n Increase their service efficiency and service quality n Improve staff skills and customer friendliness in the call center and in the branches

6.3 Segmentation Different products, service levels and distribution channels must be provided for mass affluent, af-fluent and HNWI customers. For mass affluent customers, standardized and modular wealth man-agement products and services are needed. Ideally, the majority of them should be served almost exclusive via e-channels. For affluent customers and HNWI’s, a set of customizable products is re-quired. They periodically demand for personal consulting services. On top of that, VHNWI’s and above need individual products and ongoing personal office services (see Figure 6-1).

Of course, the reality looks somewhat different today. Mass customers are still the majority of the branch users as they do not yet have Internet connections, are not able to use it or do not want to communicate via e-channels. On the other hand, branch staff does not have the necessary skills to handle affluent customers.

To solve these issues, FSI companies should …

n Provide kiosk banking services in branches, post offices and drugstores for mass and mass affluent customers


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n develop branches to “private banks” for affluent customers and HNWI’s by improving privacy, comfort and convenience

n establish a network of “independent” financial consultants for HNWI’s n assign full service family office teams for VHNWI and UHNWI

UHNWI

VHNWI

HNWI

Affluent Customer


Mass Customer

Ideal service / channel segmentation

< 50K$ < 500k$ < 5M$

InternetBranchNetwork

PersonalConsultant

PersonalOffice

CallCenter

stan

dar

dcu

sto

miz

able

indi

vidu

al

< 50M$ > 50M$

Pro

du

cts

and

Ser

vice

s

Distribution Channels

Figure 6-1 Service and channel segmentation

6.4 Localization Different banking, wea lth management, tax, social security laws in different states and countries make it sometimes very difficult to provide standardized products and services across multiple states or countries. In Europe some larger banks tried to provide onshore or offshore personal fi-nancial services via Internet across Europe. They failed due to the following reasons:

n Complex to integrate different infrastructure of custodian banks in different countries n Legal issues of onshore/offshore services n Lack of standardization n Different cultures

6.5 Customer Focus Especially large retail banks and insurance companies still process transactions and don’t care their customers. This is the main reason why affluent and HNWI customers tend to ask smaller and more exclusive, independent financial service companies to plan and manage their personal assets.

6.6 Customer relationship management Larger FSI organizations with many customers and centralized organization forms are not able to really manage the relationship with each individual customer. Since many years they try to imple-ment data warehouses and customer relationship management systems which allow to store and maintain individual customer profiles.

n Delegate responsibility for customers from the back office to the front office n Divide large organizations into many fully responsible local “private banks”


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n implement virtual branch concept where customers can contact their local branch from anywhere at any time through any channel.

n maintain or improve local presence and personal contacts (big business remains local) n Measure staff on profit per customer and customer confidence n Limit the number of customers per relationship manager

6.7 Skills The integral management of securities, estate and immaterial asset classes is a very complex task and requires highly skilled, experienced financial planners and asset managers with a broad knowledge in banking, insurance, social security and real estate management.

6.8 Security and Trust When it comes to wealth management, customers are very trust sensitive. This is especially a prob-lem for e-services provided via Internet or wireless mobile channels. As long as customers do not accept these channels as secure communication channels, they do not want to provide or re-ceive sensitive information about their personal financial situation via these channels.

If a company wants to provide for example financial planning e-services via Internet, they must be able to prove end-to-end security. They must also buildup trust in a way that they do not give away sensitive information to 3rd parties.

From an infrastructure point -of-view, as e-banking and e-brokerage services, private wealth man-agement services via Internet require strong authentication, encryption and a secure system and database environment. This will be the major issue when it comes to the implementation of elec-tronic B2B-market or even open market models where customers and companies must exchange sensitive information via virtual private networks or the Internet.


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7 e-wealth management solutions

7.1 Introduction Most large FSI organizations, especially large banks and insurance companies are still vertically oriented, meaning they manage different communication and distribution channels in different organization units. A central branch channel manager is responsible for the branch network, a central call center manager is responsible for the call center, a central e-business manager is re-sponsible for the Internet channel, etc.

Each channel organization is supported by different IT systems maintaining customer information in different databases. Large data warehouse projects have been initiated during the last decade to collect operational customer information from the various channel silo databases. Many data warehouse and MIS projects failed and therefore, many FSI companies still do not have a consis-tent view on their customers across multiple channels. To allow direct customer interaction, sepa-rate telephone banking and Internet banking front -end systems have been implemented.

In many large banks and insurance companies, customer requests (orders) must still be entered directly into the central back office processing system, typically a mainframe system. Therefore, customer requests may only be entered if the back office system is available and each customer request immediately hits the central back office system and affects its performance.

Furthermore, due to the vertical implementation of channel oriented organizations and IT systems, it is difficult to separate front and back office organizations and processes from each other. New market models, were intermediaries run the front office processes and service providers run the back office (see section 3.2 ff), may not be implemented using the existing vertically integrated IT infrastructure.

New IT platforms are required, which allow to quickly implement flexible and customer oriented front office processes and IT infrastructure which may operate decoupled from the back office environment. This may be achieved by implementing a store-and-forward principle in the front office which allows to …

n separate front and back office processes and systems n quickly implement new front office processes and systems without changing back office

processes and systems n keep the front office processes and systems available for customers around the clock

and 365 days a year n free the back office processes and systems from user interaction and channel man-

agement n streamline the back office processes and make them more cost efficient n outsource either front office or back office processes and systems to intermediaries or

service providers Figure 7-1 illustrates the decoupling of front office and back office processes and systems.

A separate application server and an operational data store (ODS) is required in the front office to run front office business applications and handle front office business data independently from the back office systems. These front office business applications must be able to accept and validate user requests through any channel, store them in the operational data store and fo rward them to the respective back office systems when available for processing, accounting and reporting. The back office systems process the forwarded requests and send reply messages to the front office system. The reply messages are again stored in the database and forwarded to the requesting users when online. The users may be tellers in a branch, relationship managers, independent asset managers, other front office staff or customers.


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Decoupling of front and back office

front office

operationaldata

Life Insurancesystem

Bank Real Estatesystem … Insu-

ranceStockBroker

FundManager

Estatemanager

ATM / KioskBranch Internet Call Center Mobile

front officeprocesses

back officeprocesses

customerinteraction

channelindependent,automated, outsourcable

multi - channel applications and flexible decision engines

processdecoupling,7x24 availability

Figure 7-1 Decoupling of front and back office

E-wealth management services are a set of e-services. An e-service is a service which may be distributed to consumers via an electronic channel (web, email, SMS or telephone) to an appro-priate electronic device (PC, telephone, mobile phone, handheld computer etc.) This chapter describes HP’s e-services reference architecture and e-services solution suite to implement state-of-the-art multi-channel e-services solutions.

7.2 e-services reference architecture Figure 7-4 depicts HP’s e-services reference architecture. It defines four logical layers:

Layer Description Functions

Client Client devices such as workstations, PC’s, notebooks and kiosk systems with web browser (thin client) or company specific client applications (fat clients), ATMs, telephone handsets and mobile appliances such as mobile phones, pagers, handheld com-puters and more to access e-services.

Presentation, forms, style sheets, graphical repre-sentation of data etc.

Channel A channel server is required per channel with chan-nel specific functionality and technology to estab-lish and maintain (secure) communication and be-tween the client device and the front office appli-cation server and to authenticate user.

User identification, user authentication, link encryption, protocol conversion

Front office The front office layer comprises the necessary busi-ness processes and IT Infrastructure to advertise, sell and deliver e-services to customers anytime, through any channel.

Authorization and access control, session manage-ment, contact logging, order entry, order tracking

Back office The back office layer comprises all company inter-nal and external back office processing systems and databases required to provide e-services.

order processing, ac-counting, reporting, clear-ing, settlement etc.


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e-services reference architecture

ClientLayer

ChannelLayer

Front OfficeLayer

Back OfficeLayer

ATMTelephone SMS clientBranch Web client

Branch Channel

ATM Channel

Web Channel

Telephone channel

SMSChannel

ProcessingSystem

Processing System

Processing System

ProcessingSystem

Processing System

ODSFront office

Figure 7-2 HP e-services reference architecture

In a customer-centric multi-channel IT architecture, all channels are integrated in the front office and the front office becomes the “single point of customer contact”. To become independent from the back office, the front office must be able to authorize its users and to maintain a com-mon contact history per user, across all channels. It must also be able to run independent front office applications and to maintain important customer information in it’s own operational data store. Customer order entries may then be validated against the customer information available in the ODS and the validated orders may be stored in the ODS and subsequently be fo rwarded to the appropriate back office processing system when available. Therefore, the architecture must allow integrating all back office processing systems in the front office.

e-services vision: virtual branch

CRM Banking

Asset ManagementFinancial Planning

„I contact my local branch at anytime and

from anywhere!“

Real Estate Mgmt. ...

ATMTelephone SMS clientBranch Web client

Figure 7-3 Virtual branch concept


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A front office is a logical entity. A bank for example may consider a branch as an independent front office, able to be online for it’s customers at any time, from anywhere and through any channel. In the area of wealth management, a front office may also be an independent financial planner, an asset manager, an insurance agent or a franchiser.

From a technical point-of-view, a complete front office IT infrastructure may encompass numerous authorization, contact management, application, database servers and disk subsystems required for thousands of users and centrally installed and maintained in a large data center. Alternatively, it may run just on a single notebook to serve an independent financial planner or asset manager.

Once front and back office business processes and IT infrastructure may be decoupled from each other, the front office business processes and IT infrastructure may be given to intermediaries such as independent financial planners or asset managers. As the own front office staff, these interme-diaries are then able to directly interact with the company’s back office business processes and IT infrastructure. This will allow to implement the intermediary market model described in section 3.2.

7.3 How to implement e-service markets on the web To implement B2B or open market models described in section 3.3 and 3.4, a central e-services market operator is required which provides the necessary infrastructure to run an automated e-service market. From an IT infrastructure point -of-view, special functionality (web-services) and a standardized market language are required to register, publish, mediate, deliver, account, report and bill e-services over the Internet. E-service markets may be established in a closed intranet envi-ronment as well as in the public Internet.

HP first defined the first e-services market model in 1998 by introducing a common language for e-services markets called “e-speak”. Meanwhile, the e-service market model has been standardized for the public web by the World Wide Web consortium (W3C). E-services delivered via web have been named by the W3C as web-services. Figure 7-4 shows the principal reference architecture for an e-service market on the web. Although e-service markets may be implemented in any pub-lic or private network environment, they will mainly be implemented on the public web, due to the web’s worldwide standardization and acceptance.

Service Provider

ChannelIntegration

Service Provider

Customer

Market Operator

provide e-service

request

e-service

Intermediary

e-service reference architecturefor e-service markets on the web

Front OfficeODS

BackOffice

Internet Server

EAI

ChannelIntegration

HTML or mobileClient

UDDIRepository

application Server

virtual vault

nimius

web services

process managerFront Office ODS

Internet Server

bid-

list

hp e-servicessolution suite

BackOffice

ServiceAccounting

& Billing

report

Internet Server

report

publish bid-profile publish bid-profile

provide e-service

request e-service

ask-

prof

ile

JAVA Client

use

HTML or mobile Client

use

syndication server

desktop framework

Internet server

mobile framework

Figure 7-4 HP web-services reference architecture

How does an e-service market work? As in all electronic markets, service providers advertise their e-services by publishing e-service bid-profiles to the market. A central market operator registers all


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bid-profiles in an e-service repository (UDDI repository, UDDI = Universal Description, Discovery, and Integration). Potential customers ask for e-service bids by sending defined ask-profiles to the mar-ket operator. The market operator checks the registry for matching bid-profiles and assembles a list of matching e-service bids for the customer. The customer then selects an e-service from the bid-list and requests the e-service from the service provider. The market operator finally charges an e-service mediation fee to the service provider.

7.4 HP e-services solution framework for financial services The HP e-services solution framework for the financial services industry is depicted in Figure 7-5. The solution framework combines the HP nimius multi-channel integration platform for financial services with proven HP netaction solution components and HP praesidium security middleware to quickly and deploy successful multi-channel front office solutions for the financial services industry.

hp e-services solution framework

HP e-services solution framework

hp applicationServer

hp virtual vault

hp web services

hp process manager

hp syndication server

hp internet server

JAVA client

enterprise application integration (EAI)

Mobile Phone

content

hp nimius multi-channel front office platformfor financial services

hp netaction product

DWH

PhoneHTML client

clients

channels

front office

back office

market feed

ODS

hp praesidium product

SMS

hp open callvoice media server

Figure 7-5 HP e-services solution framework

The core components of the framework are:

n Hp nimius multi -channel front office platform – Enterprise e-services engine (E3) as con-trol layer on top of the HP application server to integrate multiple different channels and back office systems, off-the-shelf customizable e-banking, e-brokerage and asset man-agement business applications, operational data store for the front office of financial service companies.

n HP application server – scalable, and resilient J2EE compliant JAVA application server with load balancing capability.

n HP virtual vault – B1-level certified transaction gateway to filter transaction data on the application level to guarantee highest possible multi-channel security.

n HP internet server – secure web server to establish secure communication via web with HTML clients, JAVA clients and mobile appliances via intranet or Internet, may run on top of the virtual vault transaction gateway.

n HP web services – a framework to implement business functionality as standardized web services which may be published to the public or to partners to establish B2C and B2B solutions as well as private or open market solutions.

n HP open call – a complete voice channel development and runtime environment that allows to provide e-services via any voice media channel. With HP open call, SS7 or IP


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based call center, SMS and IVR solutions may easily be implemented without the need to buy expensive PABX systems (.

n HP process manager – allows to graphically define, automatically execute, track and audit business processes and to allocate resources to tasks. A task may be “execute payment order” and the responsible resource in the front office may be a front office payment application module which has to perform a transaction to a corresponding back office system.

n HP syndication server - delivers time-sensitive and constantly changing content in real-time to customers, suppliers and distribution networks. HP syndication server provides an automated and efficient system for managing content selection and delivery. This in-cludes managing of content offerings, subscribers and subscriptions, building content delivery payloads, executing deliveries based on pre-arranged rules and providing nu-merous management functions such as audit trails and usage logs for billing purposes.

7.5 HP nimius multi-channel platform for financial services The HP nimius multi-channel front office platform provides a stable and secure development and runtime environment including an operational data store (ODS) designed for the financial service industry. Figure 7-6 provides an overview on the HP nimius solution components.

ATM / KioskCall Center

back office systemsback office

systems

HP NimiusFront Office Integration platform

Oracle

HP J2EE application server

HP Nimius solution components

back office systems

enterprise e- services engine (E3)

channels

operational datastore

front officeapplication modules

Figure 7-6 HP Nimius core solution components

HP nimius comes with a complete development environment and a stable runtime environment. The development environment includes:

n Java development framework to develop client and front office application modules, n channel integration framework to connect all channels to the E3 and last but not least n back office integration framework to implement the necessary technology adapters to

communicate with the required back office systems The runtime environment consists of the following core components:

n hp nimius enterprise e-services engine (E3), n hp nimius client application and front office business modules and an n operational data store (ODS) for financial services.

The reminder of this section briefly describes the solution components of Nimius.

For more information please consult the white-paper addendum on Nimius.


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8 HP’s e-scoping services

8.1 e-wealth management business scope HP may provide a full range of consulting services combined with a set of established methodolo-gies to help financial service companies define the e-wealth management business scope, form u-late their e-wealth management vision and strategy and develop a business plan for e-wealth management services. Figure 8-1 briefly shows the various aspects that have to be considered during the scooping phase. During the various scooping meetings and interviews with customers, HP business consultants try to find answers on all the aspects.

e-wealth management business scope

Financial Planning

Tax & Legal Advisory

Asset Management

Accounting& Reporting

Controlling

Rela

tions

hip

Man

agem

ent

Offe

ring

Com

mun

icat

ion

Del

iver

y &

Sup

port

Roles

& Resp

.

Proces

ses

Peop

le

Techn

ology

Finan

cing

“Segmen-tation”

“Skills”

“Customer Focus”

“Differen-tiation”

“CRM”

Strategy

Organization

Services

Figure 8-1 e-wealth management scope

Example scoping questions may be: What financial planning services may I offer as e-services to what customers (segmentation)? How do I communicate my offering to customers? Through which channels do I want to deliver my financial planning e-services to what customer segment and how do I manage the relationship with my customers through e-channels? How do I (re)organize my company for e-services? What roles and responsibilities are required? How will my front office processes change to support the new e-services? Do I need more people? How can technology help to provide financial planning e-services and finally, what does this all cost for me and what will be in for me?

8.2 Scoping services This section briefly describes HP’s scoping cycle “explore and innovate”. Exploration and discovery workshops may also be held in an HP invent center. These centers provide all the necessary facili-ties and tools for rapid concept prototyping and business modeling.


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e-scoping services

invent center services

engagement services

explore & innovate

exploratoryworkshop

discoveryengagement

scenarioanalysis

rapid conceptprototyping

roadmapdefinition

planscope

e-servicesplanning

discoverexplore

- Workshops- Briefings- Trainings- Seminars- Facilities rental

Figure 8-2 e-scoping services

8.2.1 exploratory workshop the exploratory workshop is a half-day session where hp works with customers to discover the po-tential for their strategic e-services vision. It is a journey we take our clients through the use of work-shop and scenario-based planning activities.

Result: e-services vision

8.2.2 Scenario analysis This service is a workshop lasting one to two days. During this session, an hp consultant helps the customers to understand their e-business environment to write several e-service scenarios for the future to build a business case for each individual scenario.

Result: business scenarios for e-services

8.2.3 Joint discovery engagement The joint discovery engagement is an engagement with a whole consultant team over a three weeks period. This process culminates in a two to three days joint workshop including a rapid con-cept realization. It requires customer executive sponsorship and participation of key decision mak-ers.

Result: e-services strategy

8.2.4 Rapid concept prototyping -> business model This service consists of a powerful pilot application that mocks up a real e-services solution for a customer. This real prototype has a profound effect on audience and dispels the common view that "this technology is great, but will not work in my environment". This service needs to be inte-grated into a larger setting to ensure a good understanding and appreciation of the business op-portunities this "mega-demo" illustrates.

Result: e-service business model


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8.2.5 Roadmap definition This service hooks onto a previous business analysis with a customer (in particular the joint discovery engagement) and develops, based on this knowledge a refined roadmap witch realizes the new business opportunities.

Result: e-services implementation roadmap

8.2.6 e-services planning Based on the e-services implementation roadmap, resources and cost to implement the planned e-services will be estimated and an e-services project master plan will be developed.

Result: e-services project master plan

8.3 Briefing, training and seminars Lectures using various forms will be delivered at scheduled dates. They will be designed for cus-tomers or for internal collaborators and will last from a couple of hours to two days.

Result: e-scoping result presentations

e-wealth management

Documents