Tag Archives: Boston Consulting Group

Beyond Benchmarking Part 2

In Part 1 we took a look at five mission critical activities that top performing firms are utilizing. Now we’ll take a deeper dive into those mission critical activities.

Some advisors think there are too many benchmarking surveys with too little actionable intelligence. The Boston Consulting Group’s Global Wealth 2015 report takes benchmarking to the next level. Last week we looked at five mission critical activities that high-performing firms are utilizing to stay ahead of the competition. BCG’s report found that the top firms all share these characteristics. This week we’ll take a closer look at these activities and how the top firms are employing them.

  • Segment-Specific Value Propositions and Coverage Models.  A one-size-fits-all, cookie-cutter approach is no longer viable in today’s wealth management industry. This applies not only to operations and costs, but to clients as well. BCG concludes that customers will not continue to pay too much for services they don’t need or understand, or for insufficient guidance and advice.

Most firms are already doing this to some extent. BCG’s research found that out of all survey participants, only 5% said they do not segment clients at all in their service models. Generally, firms segment clients into affluent, high-net-worth (HNW) and ultra-high-net worth (UHNW) categories. Some top performers have taken this to the next level by tailoring their segmented offerings. This has much less to do with the number of products or services being offered; rather, it’s about customizing the offering to the target segment’s specific needs. Top firms are also using a dedicated coverage model for each segment to clearly define who interacts with a specific client when and for what needs.

  • Rigorous Price Realization in Target Client Segments. The most successful managers clearly define which client segments they are targeting. To successfully enforce price realization, top firms clearly define their target client segments and effectively convey their value proposition to each client segment. This can lead to increased revenue; for example, clients will be less inclined to request a discount when the value a firm brings to the table is evident.
  • A Differentiated Advisory Offering. Clients want to see differentiation and clear value-add. They demand a clear value proposition in our age of the “robo-advisor” and low-cost online brokerage services.   And it’s not just about differentiating the advisory process- it also applies to the client experience.

Many of the high-performing firms are investing in building a client experience that incorporates relationship building and customized features. It’s all about the experience. The BCG report states: “A well-structured advisory offering will increase and systematize the frequency of interactions with the client, generating an experience of proactive and timely service.” This kind of client-centric approach ultimately leads to client portfolios with asset allocations aligned to specific investment objectives and risk appetites.

  • A Focus on Front-Office Excellence. Top performers have found that optimizing the front-office is a key priority. These high performing firms can achieve more than double the revenues of average performers. Likewise for the acquisition of new assets. However, though the benefits are clear, many managers still struggle to optimize their front-office. BCG’s research reveals 4 steps that top wealth-management firms have used to significantly improve their front-office performance:
  1. Making leaders accountable for team (not just individual) performance
  2. Fostering cross-functional approaches to clients across retail, corporate and private-banking divisions
  3. Developing a client-centric (as opposed to product-centric) sales culture
  4. Complementing the sales-management system with activity-based measures

However, as BCG points out, front-office excellence is less about processes and much more about changing how the front-office functions day-to-day.

  • The Ability to Measure and Manage Profitability. BCG found that for their 2015 benchmarking participants, few steered their businesses based on profitability. Rather, revenue-based measures were the approach favored by the top performers. “Top performers aim for full transparency on cost to serve, enabling them to clearly prioritize activities and investments on the basis of profitability.”

Top firms are also very much aware that accurately gauging the financial health of their business, profitability must be measured across multiple dimensions (i.e. market, client, product, etc). These more comprehensive approaches to measuring profitability allow top performing firms to achieve lower costs relative to assets and liabilities.

Adhesion complements and augments top firms because we’re a “personalized UMA” — we represent a next generation investment advice platform that powers segmentation through personalization and moves resources and executive mental shelf space from the back office to the front office.

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Beyond Benchmarking – Part 1

Our industry is full of benchmarking surveys. The problem is, many of them do little more than report stats and give no real insight into the factors that cause some firms to outperform the others. The Boston Consulting Group’s Global Wealth 2015 report is different in that it gives us a look at what the keys to success actually are by focusing on what the wealth management industry’s most successful players are doing right. Using the data from benchmarking studies conducted over the past 3 years, BCG identified those whose performance has consistently outperformed their peers.

To identify consistently top firms, BCG’s research took into account growth, financial performance, operating models, sales excellence, employee efficiency, client segments, products, and trends along a number of dimensions, including locations, markets, client domiciles, and different peer groups. Taking into account the overall strong asset performance over the past 3 years, the top performers were those firms who clearly stood out in terms of generating high revenues per relationship manager, acquiring new assets, achieving best-in-class revenue and cost margins, and doing all of this with a lean organization.

Top performers are consistently superior in multiple categories. This included gains of net new assets of 16.1% of the previous year’s AUM; 6% over average performers in revenue margin; -36% over average performers in cost margin; and -2% over average performers in total FTEs.

In seeking to determine why these top firms were consistently out-performing their peers, BCG found that they all conducted the following five mission critical activities:

  • Segment-specific Value Propositions and Coverage Models. A one-size-fits-all, cookie-cutter approach is no longer viable in today’s wealth management industry. This applies not only to operations and costs, but to clients as well. BCG concludes that customers will not continue to pay too much for services they don’t need or understand, or for insufficient guidance and advice.
  • Rigorous Price Realization in Target Client Segments. The most successful managers clearly define which client segments they are targeting. This leads to more effective price realization, and ultimately can result in significant revenue increase.
  • A Differentiated Advisory Offering. Clients demand a clear value proposition in our age of the “robo-advisor” and low-cost online brokerage services.  And it’s not just about differentiating the advisory process – it also applies to the client experience.
  • A Focus on Front-Office Excellence. The high performing firm can achieve more than double the revenues of average performers. Likewise for the acquisition of new assets. However, though the benefits are clear, many managers still struggle to optimize their front-office.
  • The Ability to Measure and Manage Profitability. BCG found that for their 2015 benchmarking participants, few steered their businesses based on profitability. Rather, revenue-based measures were the approach favored by the top performers.

Creating the executive “mental shelf space” and resources to attack these mission critical activities means clearing away other non-critical activities. Top advisors rely on the Adhesion investment platform to handle back office functions while delivering a superior, personalized client experience.

Next week we’ll take a deeper dive into the mission critical activities themselves.

Check out this short video to learn more about what we can do for you.

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