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Wealth Management for Community Banks: Balancing the Menu

By: Martin Skea

A tremendous opportunity exists for community banks that are thinking about developing a wealth management department. Community banks may be intimidated by the goliaths of wealth management — the global financial services institutions that for generations have dominated the playing field. But the fact of the matter is that these giants have created the opportunity for community banks to succeed and even flourish in wealth management.

From the outside, this does not seem to be the case. Fortifying their stronghold on the industry, global firms have been achieving best practices that financial services institutions at every level can learn from. They have been constantly developing new products and diversifying their services. They have also invested in and leveraged technology for business benefit.

While these wealth management divisions at mega-institutions have paved the way with best practices in diversification and technology, they have also, along the way, created a distinct opportunistic path for new players. It is mission-critical for wealth management divisions to attract and keep clients’ trust because, at the end of the day, wealth management trades on trust. In the past few years, wealth management at some of the large financial institutions has been plagued by scandal and inquisition. In depreciating their very value, they have left a space for new players to enter the market. And this is exactly where the opportunity has opened for community banks to engage and succeed in this market. Community banks are ideally poised to take advantage of these events. They are able to offer what is currently perceived to be missing in wealth management: trust and reliability. Community banks inherently have what the goliaths are currently battling to obtain: close, local relationships and accountability.

Larger organizations have an uphill battle when trying to prove their accessibility and proximity to wealth management clients. They are, after all, managing a lot of money for a lot of people around the world and it is difficult for operations of such scale to seem accessible when controversy strikes. Clients, for their part, are becoming increasingly conservative with their trust. The bottom line is that high-net-worth clients are seeking a one-on-one relationship with a trusted advisor who can help them grow or preserve their wealth in a tax- and cost-efficient manner. A wealth management scenario that is closer to home can help provide a certain comfort level.

On the technology side, during the down market of the past few years, large diversified financial services firms with wealth management businesses have taken the time to invest millions of dollars to maximize operational efficiency and support vital business initiatives. These technological investments have helped to streamline processing environments, integrate client views, expand product offerings and develop best practices. The important thing to note, however, is that these technology strategies and outcomes are not exclusively available to international institutions.

Regardless of size, location or focus, these three mantras are words to live by in financial services. First, as larger institutions know, it is always critical to rethink the business plan; creating new products and services to maintain and attract customers is part of their way of life. Second, as the industry goliaths recognize, it is no longer enough to trade on past accomplishments. Large institutions are constantly reinventing themselves to stay ahead of the competition and to stay on top of the all-important customer perception. Third, institutions need to develop a technology infrastructure to reflect the wealth management offering, while leaving room to grow to encompass new products, offerings and services.

Again, community banks have the advantage here: when developing a wealth management department from scratch, smaller institutions have an easier time developing an architecture that can encompass the entire enterprise. Mega institutions are challenged to develop a system that can straddle all their individual product silos.

High-net-worth clients require significant individual attention that in the past required knowledge workers to manually process work. They also demand constant innovation and genuine “out of the box” creativity. This may appear to be a significant barrier for community banks planning to launch a wealth management department. Many customer service functions are thought to be the sole responsibility of knowledge workers; the staff required to maintain this arm of the business can be cost-prohibitive.

This is no longer true. In fact, technological advances have made it easier and faster to provide truly excellent customer service, starting at the point of total customer visibility, or an aggregate customer view across individual silos. Premium customer service is the name of the game in wealth management. Community banks can provide excellent service with the aid of technologies that enable process automation and customer visibility. Depending on the community bank’s wealth management offering, these technologies will present a customer view across such areas as wealth planning, portfolio allocation, portfolio management and rebalancing, performance measuring and reporting, etc.

In truth, enterprise- and process-based technologies can enable certain business processes to be conducted with a reduced level of human intervention. By automating processes and embracing a paperless work environment, staff can access electronic information immediately to quickly respond to customer inquiries without requiring time-intensive searching and re-filing. This not only saves staff search and retrieval time but can also reap hard cost benefits in terms of storage, copying, and delivery charges. Knowledge workers also benefit from being able to see a complete customer view, including customer information that may live in another, siloed department or even with a third party. As outsourcing has become more cost effective in financial services and especially for wealth management practices, this can be a key consideration in designing a technology strategy that will grow with organizations instead of hindering them.

Instant access can help inform community bank staff and give them the necessary information to create up- and cross-sell opportunities and generate maximum revenue from each customer. This piece of the puzzle is particularly relevant for financial institutions that offer a variety of products and services. Not surprisingly, big financial players have engaged this method for years as a means of optimizing profit from each transaction.

With electronic documents, clients can also benefit from being able to access key information on their accounts online 24 hours a day, seven days a week. There is a noteworthy trend toward meeting customers wherever they are. The mission for so many financial institutions is to facilitate the customer experience at every touch point. Large organizations invest in optimizing their customer communications and often extend their online presences to become a service to the customer as well as a practical means of helping to channel administrative items.

Customers perceive it to be a benefit to view statements, conduct research, and make account changes online. For financial institutions, however, encouraging online activity is an inexpensive way to demonstrate customer focus and, at the same time, process work automatically without requiring knowledge workers’ valuable time and attention. As evidence of this perceived value, one wealth management company recently introduced online access to account statements for tax purposes and received more than three times as much activity as initially expected. As a result of positive customer feedback, this organization is embarking on other online initiatives, including making historical statements available. Community banks that have carefully articulated their vision for a wealth management department and have designed their IT architecture around this vision will easily be able to offer such a facility to their high-net-worth clients.

Another area in which community banks can learn from their larger counterparts is in the area of automated workflow. Large financial institutions have leveraged business process management to automate processes, thereby reducing the cost per transaction while improving customer service and perception. Focusing on the processes that actually run the business provides a level of flexibility and efficiency that simply is not possible otherwise. With business process management, processes can be transformed to maximize automation capabilities and encourage straight-through processing wherever possible.

The goal in implementing automated operations is to utilize human intervention only when it is absolutely critical. Most of the business in this model, however, is conducted automatically, wherein a business rules engine is applied to help the system make the best, most intelligent choices and quickly process work. Analytics and simulation components are invaluable as they allow management to understand how shifts in volume, transaction type, and regulatory requirements can affect operations and impact scalability. Management can also gain information to understand where bottlenecks may be occurring in processing and for analyzing individual performance.

For community banks that may already be interfacing with their target high net worth customers, now is the time to strike. Offering customers diversified products and services will allow community banks to demonstrate innovation to their client base as well as enlist new recruits to their wealth management practice. This is a two-fold advantage as it will incorporate the current customer base as well as present additional offerings to take to market to introduce new prospects to the organization. While promoting these changes externally, it is advisable to analyze how the new wealth management offerings will impact current bank products and services. It is important to prepare those business units for change as well.

In executing a wealth management practice, community banks should therefore carefully outline their vision for the practice’s offerings, building into their plan areas of feasible expansion. To support this, they should adopt a technology that has broad applicability in order to accommodate the sequential rollout of expanded offerings. Community banks should include significant automation and integration in their technology strategy, as this will help create a flexible environment that can shift and adapt to change as business needs shift in old, new and future lines of business.

Finally, to be successful in these ventures, it is imperative for community banks to identify partners (technological and otherwise) that understand the community banking foundation but also have a bird’s eye view of the next steps and competition. Partners and advisors who are able to recognize the community bank’s parameters while being able to offer insight into larger and diversified financial institutions will poise community banks for intelligent, phased growth into the market. Making partner, infrastructure, and expansion plans that take into account future needs and scalability requirements will be a tremendous asset for community banks considering their next steps. 

Martin Skea is director, financial services marketing, FileNet Corp, Costa Mesa, Calif. (

© BankNews, September 2004