Future of Wealth Management_Cisco_Fall 2015_LowRes

The Future of Wealth ManagementLearning to Drive the New CAR (Clients, Advisors, and Robots)Fall 2015

Cisco U.S. Enterprise Business Transformation [email protected]

The Future of Wealth Management 3

ContentsOverview of the Wealth Management Industry ............................................................... 4

Epic Battle for Wealth Clients Underway ........................................................................ 6

Wealth Clients’ Changing Expectations .......................................................................... 7

Enter the Robots ............................................................................................................ 8

Advisors Disrupted: the Connected Advisor Vision ...................................................... 11

Business Outcomes and the Role of the Board of Directors ........................................ 14

The 5 Pillars of Success ............................................................................................... 16

Wealth Transformational Readiness Assessment ......................................................... 17

Business Architecture Roadmap for Achieving Business Outcomes ............................ 18

Conclusion ................................................................................................................... 19

Game-changing technology is fueling disruption in the wealth management industry, changing the way clients view the world, value brands, and make buying decisions. New players in the market challenge business models that have existed for hundreds of years. We at Cisco are committed to helping our clients and partners grapple with these disruptions and develop winning strategies in the battle for industry leadership, by sharing the unique industry point-of-view we’ve developed through decades of experience in servicing the global financial services market from the inception of the Internet. Cisco is a leader in setting vision for, investing billions in, managing, and executing market transitions. We have done so by delivering repeatable business and technology architecture to achieve market scale. We have learned that the by-product of sound architecture is a seamless client experience. Yoshio Taniguchi, the famous Japanese architect who redesigned the Museum of Modern Art in New York, said “Architecture is basically a container of something. I hope they will enjoy not so much the teacup, but the tea.” (Time, November 22, 2004) We want to thank our valued clients and partners whom we are privileged to serve on a daily basis. As we combine our best thinking, together we can reimagine the financial services industry. We can only hope that the clients of our banking industry customers enjoy not so much the teacup, but the tea.

The Future of Wealth Management 5

In a meeting a few years ago where world champion racing driver Mario Andretti shared some wisdom about his career, he said that the key to his success was driving the car to its full potential in every competition. If it didn’t feel like the car was going out of control at any moment, he wasn’t driving it to his, or its, full potential. Joseph Pagano, Financial Services Practice Advisor, Cisco Business Transformation Group

At its foundation, the wealth industry is being disrupted along three main axes: Clients, Advisors, and Robots (CAR). So the theme of this point-of-view paper is around how to drive the new “CAR,” keeping in mind the wisdom of Mario Andretti.

• Clients: Wealth client expectations are changing. They’re questioning the fees they pay for financial advice. They expect to be presented with financial solutions based on their own life goals and events, and they’re less interested in being sold transactions or products. And they wonder why they don’t get the same customer experience from their financial advisor that they get from retail, entertainment, airline, and other industries that have developed successful mobile apps and digital services that people use in their daily lives. As Aité Group’s Ron Shevlin says, “The battle is not for the primary financial institution any longer, but for the primary financial app.”1 Imagine a world where a wealth software application brand has more value than a financial brand.

• Advisors: As client expectations are changing, wealth advisory firms are besieged by new regulatory requirements, by turnover due to an aging workforce where more than half of the 315,000 advisors in the United States will need to be replaced2 over the next 10 years, by defections to competitor firms or new firms,3 and by increasing expectations of advisor productivity set at the board level.4 Some clients and industry analysts question how well-equipped financial advisors are with modern tools and the skills to use them, and how effectively they share best practices and collaborate within their firms to leverage the expertise of their colleagues.

• Robots: Robo-advisors are becoming popular entry-level offerings in the wealth market. Enhanced by analytics capabilities, they represent a new wave of value along with low fee structures, low thresholds for minimum initial investment, and personalization to tailor investment offerings to a client’s life goals and risk tolerance. The investment advice business is no longer just about serving the mass affluent, high net worth, or ultra-high net worth segments. Anyone with discretionary income to invest now has access to the technology and algorithms used by the most prestigious institutions to invest capital.

So if you are in the wealth business and feel that the “CAR” is almost out of control, perhaps Mario would say you are on the right track—assuming that you’re at the wheel with the ability to react in real time while taking proactive measures to delight your clients, meet the changing demands of the regulators, and see around corners, all while disrupting the cost structure of the business.

The new vision for wealth management is for advisors to be present in the financial lives of their clients any time, any place, on any device, and across any channel. Achieving this vision will require learning how to drive the new CAR.

Overview of the Wealth Management Industry

1 Brett King, Breaking Banks: The Innovators, Rogues, and Strategists Rebooting Banking, Wiley, 2014.2 Aging Advisors Lack Succession Plans, Financial Advisor Magazine, May 2013. 3 Breakaway Advisors Look To LPL and Raymond James, Financial Advisor Magazine, October 2012.4 UBS’s U.S. Wealth Unit Shrinks Further, Wall Street Journal, July 27, 2015.

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Epic Battle for Wealth Clients Underway

An epic battle is forming to win and retain wealth clients. As reported by the Boston Consulting Group (BCG), global private wealth assets totaled U.S.$164 trillion and grew 12 percent in 2014.5 However, in the same report, BCG stated that only around 25 percent of that growth was from the creation of new wealth versus the appreciation of existing wealth due to rising market values.

BCG identified five categories of wealth advisory businesses in the United States going after wealth clients. These include retail banks, online brokerages, registered investment advisors (RIAs), full-service brokerages, and pure private banks. Retail banks are trying to convert transaction centers into advisor centers and stores. Online brokerages are taking advantage of the trust built from transactional engagements to extend to advisory services. RIAs have done well in expanding their business in recent years as trust broke down between some clients and their big-brand advisors, while full-service brokerages and pure private banks have been able to make investments in transformational initiatives and new technology platforms to expand their wealth footprints.

These advisory businesses are all going after multiple segments of wealth clients, who can be roughly divided into the emerging affluent and mass affluent, the affluent, the high net worth, and the ultra-high net worth. Given the low threshold for the minimum robo-advisor investment level, we might add yet another market segment called “discretionary investable income,” which can start as low as $5,000.

A wealth advisory business can grow by taking market share from competitors via acquisition or competitive hiring, improving returns on existing assets under management by using more intelligent portfolios, capturing new customers who are entering into the financial advice market segments via wealth transfer or simply by becoming new investors, innovating new fee-based and higher-margin products and services, or improving cross-selling to existing clients.

Keep in mind that research from Hearts & Wallet$ has shown that 55 percent of clients with $500K or more in investable assets worked with three or more firms in 2014, up from 49 percent in 2013.6 So as an advisory business, a large part of your market share battle is to become the primary provider of financial advice and ultimately reduce the number of firms the client buys financial advice products and services from.

Wealth Clients’ Changing Expectations

Technology is certainly playing a critical role in the wealth client experience. MyPrivateBanking Research reported that “more than 80 percent of the affluent/high-net-worth individuals worldwide use apps or mobile websites for financial matters.8” This contradicts conventional wisdom that presumes that Millennial clients are the heaviest users of digital channels.

The Boston Consulting Group Global Wealth 2014 report shows that there is as much as a 60 percent gap in the market between clients who demand video engagement with their wealth advisors and banks that provide video capabilities.9 The technology exists today to remediate such gaps and deliver superior client experiences to improve satisfaction and sales results.

Wealth clients have unprecedented access to financial information. Financial advice can come from social networks, news reporting, search content, family, friends, mobile apps, various publications, and websites. The Millennial generation has grown up surrounded by computers and immediate access to information. Some Millennials wonder why they would ever need a financial advisor. So “competing with free” needs to be part of the competition strategy for wealth management businesses who want to acquire new Millennial clients or want to get ahead of the wealth transfer curve and develop relationships with Millennial children of existing clients. The question that needs to be explored in today’s

market is, what does a “freemium” (free, premium) financial advice business model look like.

Even non-Millennial clients are exposed to the same inputs, interrupts, and real-time access points that Millennial clients are exposed to. These inputs can either embolden the financial advisor relationship and value proposition, or create distance. Better-informed clients might ask better questions, leading to an opportunity for the advisor to provide a higher level of value. However, distance can widen if clients feel they’ve become “smarter” than advisors or advisors can’t provide timely service and timely answers to the questions that clients come up with on their own.

Wealth clients have been exposed to digital experiences in several other industries, and we believe this has raised the bar for expectations of customer service and digital experiences. Take Amazon Prime, where a client can use a single-click “buy now” button to have a product shipped (same-day in some markets), and where the customer service program generously and proactively compensates clients for major and minor inconveniences. For example, I recently purchased a streaming movie that didn’t play continuously due to buffering problems. Amazon noticed there was poor playback, automatically apologized, and refunded the full amount for the movie without any prompting.

Meeting Higher ExpectationsA wealth management business might give incentives and credits to clients based on their meeting level-of-interaction or trading thresholds, and perhaps for SLAs the firm failed to meet around reporting or disruption in website or mobile app availability. It is not so much the economic value that is important in digital customer service—it is the gesture that helps to create the brand. Service can be a core differentiator in crowded and mature markets, including wealth management.

Combine industry-leading service with simplicity, transparency, mobility, and lower costs to clients and we have the ingredients for market disruption. If traditional wealth management firms embrace the transformation that is occurring, they can create an onramp for higher value and higher-margin services, thus avoiding a “race to zero” relative to fee structures.

Epic Battle for Wealth Clients Underway

5 Global Wealth 2015: Winning the Growth Game, Boston Consulting Group, June 2015.

6 Portrait of U.S. Household Wealth, Hearts & Wallet$

7 Video Collaboration Increases Sales for U.K. Financial Firm8 Global Survey of Mobile Disruption in Wealth Management 2014,MyPrivateBanking Research, November 2014.9 Global Wealth 2014: Riding a Wave of Growth, Boston Consulting Group, June 2014.

Case Study: NationwideNationwide Building Society provides an example of the kind of business outcomes that are possible when Cisco video solutions are used to deepen the level of client engagement. In six pilot branch offices, Nationwide set up video conferencing with four mortgage advisors who were available as needed to consult with customers in real time. With its Remote Advisor program, Nationwide saw a two-thirds improvement in new mortgage business and a two-thirds reduction in cost of sale. Most importantly, customers reported double-digit improvement in net satisfaction; research confirmed that not having to wait is what made the difference.7

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We are seeing two groups of opinions forming in the market, those who don’t think robo-advisors will have an impact on their business and those who think robo-advisors are going to become a central part of the advisory services industry. The latter group believes that robo-advisors will change traditional advisory business models along the way, displace human advisors to a significant extent, and capture market share from traditional wealth management businesses.

PFM v. 2.0 and Global InclusionSo what is new about personal financial management (PFM) software? Is robo-advisor simply PFM version 2.0? PFM software made headlines over the past decade, for example when Intuit and Mint joined forces. Their value proposition centered around a simplified user interface for bank account aggregation, spend categorization, investment tracking, and integrated loan origination. PFM didn’t seem to threaten the wealth management business at the time, so what has changed?

For one, capital markets have rebounded when computing for the masses has never been more accessible; this is a result of global smartphone penetration and of consumer-grade applications entering the enterprise. According to the International Telecommunications Union (ITU), in 2015 “there are more than 7 billion mobile cellular subscriptions worldwide, up from less than 1 billion in 2000. Globally 3.2 billion people are using the Internet of which 2 billion are from developing countries.”10

The demand for financial inclusion has gone global, as we have seen in Kenya. It has been estimated that as much as 31 percent of Kenya’s GDP is spent using the M-Pesa payments app on mobile phones.11 In North America and in other capital markets–intensive economies, there is a push for equal access to markets and technology.

So we are in a perfect storm of sorts, different from anything we have seen before in the degree the wealth management business model is being disrupted. We have game-changing technology available broadly from mobile phones and tablet devices, we have robo-advisor apps for tasks such as investment allocations and automated rebalancing, we have low cost of entry for computing devices and network fees, and new minimum investment levels required for money management, with fee structures that are a fraction of what traditional financial advisors charge at a time when the world is gravitating toward financial inclusion and ubiquitous access to financial information. A new financial advice market is forming and with it a new segment of wealth clients who can be described as almost anyone with discretionary, investable income.

At Cisco we believe that the robo-advisor development will ultimately affect all segments of the wealth management industry. Remember that the iPhone was launched on June 29, 2007. In just eight years multiple industries were completely disrupted and transformed including the music, retail, computers and software, mobile phone, telecommunications, banking, payments, watches and wearables, and healthcare industries. Even ultra-high net worth families will want some version of what we know as robo-advisors today.

Coexistence with Human AdvisorsWill software advisors replace all human advisors? Movie theaters didn’t go away, nor will financial advisors. However, the wealth management market will probably shift to self-service and assisted self-service channels and platforms for basic services, not dissimilar to what is occurring in retail banking. As mobile retail banking expands, digital self-service is taking over many of the tasks of the physical branch while humans handle more complex transactions. It is likely that a good share of the wealth market for human advisors will shift to robo-advisors or assisted robo-advisor business models. This presents an opportunity for established wealth firms who offer a fee scale spanning from “freemium” to full-service offerings. Established wealth firms will need to reimagine their differentiation and value-add, develop new products and services, and offer fee structures that meet the new price elasticity curves that result from increased competition and low-cost digital offerings.

The use of robots in healthcare gives us another way to think about robo-advisors versus human advisors: Robots guide and surgeons do surgery. Advisors must use trust, experience, judgment, communication, and collaboration to differentiate in the same way a surgeon’s value proposition takes hold in the marketplace. Do surgeons use robots? Yes they do, for tasks where automation helps reduce human error and deliver service more economically. The same model holds in financial services, where the teams of surgeons—or financial advisors—complement the entry of robots into the marketplace and continue to position and warrant higher margins on the highest-risk, most complex tasks that require human intervention, empathy, and judgment.

Enter the RobotsSo what is a robo-advisor? Robo-advisors are simply software applications that gather user input, profile financial needs, and then suggest investment asset allocations based on those needs. They have custom algorithms or business rules that respond to user input regarding tolerance for risk, life events, and financial goals, and rebalance investment allocations over time. They don’t help too much yet with financial planning, but that’s clearly the direction they’re going in.

10 The World in 2015, ICT Facts & Figures, May 2015.11 31% of Kenya’s GDP is spent through mobile phones, QZ.com, February 2013.8

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Enter the Robots

Getting Ahead of the Wealth Transfer CurveFailure to embrace the robo-advisor trend could put a significant portion of the $30 trillion in wealth expected to be transferred over the next 30 years at risk. According to InvestmentNews, 66 percent of children fire their parents’ financial advisor after they receive an inheritance.12 Failing to develop strong relationships with children of wealth clients may put assets under management at risk upon inheritance.

This can happen if the inheriting generation gets comfortable with a robo-advisor service and brand outside the firm that manages the family wealth today. If the inheritors like the robo-advisor brand and the directly competing wealth management services that the brand will provide in the future, they may stick with the firm that captured their initial interest in robo-advisors when they inherit family wealth. Wealth management firms that embrace self-service investment technologies and provide the digital experience and customer service expected by the market will be better positioned to capture these assets under management. These firms will need to become accustomed to lower fee structures for basic services and develop a robo-advisor brand as part of a spectrum of offerings.

Robo-AnalyticsPerhaps the most important value for robo-advisor providers is the analytics that they will collect and the insights they will derive from the analytics. As in the case of payments, the information about a transaction has more market value than the transaction fee itself. Having an analytics capability will help a wealth firm understand what clients need now and over time, what content they seek, what questions they have, how frequently they have them, where there are frustrations, and what market acceptance looks like for new products and services—in near–real time. As the robo-advisor market grows, more data will be immediately available for firms to make same-day adjustments in service levels, in the design of user interfaces, and the design of products and services themselves. Collection and analysis of client data can provide an unprecedented intelligence feed in financial services, resulting in a treasure-trove of information used to differentiate in the market. Client analytics capabilities is an area that remains a challenge for wealth firms.

The challenge for traditional wealth firms is how to provide the agility and next-generation digital experiences of new market entrants while providing a family-office type of advisory service. So if you are in the human advisor side of the business, what can you do to further differentiate in the era of robo-advisors and new, fully digital market entrants? How will you need to “up your game” to compete with robots where business models overlap? Figure 1 shows the areas where humans can best differentiate themselves from robo-advisors.

12 The great wealth transfer is coming, putting advisers at risk, InvestmentNews, July 2015.

Figure 1. How Human Advisors Can Differentiate Themselves

AnalyticsRobos have the advantage with

embedded analytics and dynamic segmentation taking place by

design. Wealth firms must double down on analytics investments

and take advantage of understanding householdhierarch and life events.

SimplicityAdvisors need to

continue to be great simplifiers. Complex software frustrates.

EmpathySoftware knows

no empathy. Think of Spock on Star Trek.

Financial Planning and Solutioning

Robos generally lack financial planning and solutioning

capabilities. Advisor-Client collaboration platforms can better deliver financial solution advice.

Timely Mobile ExperiencesGetting an expert relationship manager or advisor on a video

and interactive screen call from a mobile device makes clients feel

more connected with their advisor.

Face Time and ServiceFace time can now be virtualized

by using video channels. Deployed properly, advisors will strengthen relationships based on trust, not just be

a Mayday tech support face in a window.

Advisors Disrupted: the Connected Advisor Vision

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The Future of Wealth Management 13 12

Ground Transport Automation

Financial advisors are being disrupted along a number of axes including regulation, pressure on performance, turnover due to advisor retirements, competitive hiring, being compared with robots, and needing to provide more differentiation in the market.

How can a wealth management firm address these issues head-on? What is the difference in the patterns of collaboration inside the firm and with clients for high-performing and low-performing advisors? How can success for clients in one segment of wealth be replicated in other segments? How can failures be avoided? How do the call-center interactions inform the quality of the products and services being offered, and are any new product opportunities being identified through these interactions? Answering these questions requires examination of the collaboration and communication capabilities and processes across the front, middle, and back offices for the purpose of improving business metrics such as net new assets per advisor, advisor retention and acquisition, cross-selling and collaboration revenue, and client satisfaction.

So, what capabilities do wealth firms need to capture such growth? Cisco’s Connected Advisor vision is one where advisors are connected to the people, process, data, and things that they need to serve clients in real time. The Connected Advisor can find other experts on-demand within the firm and quickly assemble the right team at the right time. The Connected Advisor can engage clients on any channel using video, audio, and document browsing for remote expert meetings. Calls coming into the call center can be routed in real time to the Connected Advisor and—in many cases—converted into sales opportunities.

Connected Advisors have access to the people they need to serve clients. The Connected Advisor uses business processes that were designed based on the workflow of the business, not limitations in technology. The Connected Advisor has access to data across the organization with context, including client transaction data (data at rest) that has been correlated with client interaction data (data in motion) from activity across channels including branch, help desk, and mobile. The Connected Advisor is able to visualize client, market, and historical data in the form of actionable insights, and compare business analytics with other advisors across the firm. The Connected Advisor has access to applications powered by software services and analytics that help predict what a customer needs based on life events, financial goals, client activity feeds, and an expanding understanding of the financial household. The Connected Advisor is accessible anywhere by colleagues and clients through mobile device, network access, and software capabilities. The Connected Advisor does not sell products or transactions. The Connected Advisor positions financial solutions around a client’s life events with a deep understanding of the needs, goals, aspirations, and potential of the individual, family, or franchise.

The concept of the Internet of Everything, or IoE, is about the networked connection of people, process, data, and things. As the world moves towards 50 billion Internet-connected objects and devices in coming years, wealth clients will have access to even more financial information than they do today. According to Cisco research, mobile data traffic will grow at a CAGR of 57 percent from 2014 through 2019. Only those firms that can deliver the secure and optimized infrastructure, data architecture, and applications that financial advisors need to serve the wealth client of the future will be market leaders as IoE takes hold across industries. In other words, enabling the Connected Advisor by using IoE capabilities will create competitive advantage in the market.

Beyond concept and thought leadership, the successful wealth management firm of the future must have a holistic business architecture design whose implementation must take into account people, process, policy, and governance models. Doing so will allow the deployment of technology at scale, which can create a force multiplier in the marketplace. Technology can disrupt the cost structure of the firm, materially reduce risk, improve security and compliance, free up capital, and—by fueling a culture of innovation—delivering

next-generation experiences for both financial advisors and wealth clients.

The technology exists today to create a single view of a client with real-time inputs that enable wealth management firms to predict and anticipate client needs. However, many firms in the current market have high ratios of clients to advisors and often can only react to client problems, questions, issues, and opportunities.

The Connected Advisor is powered by an IoE analytics–software-driven approach to better serving wealth clients. Such a holistic approach can have a material impact on a firm’s ability to anticipate client needs, orient solutions around financial goals and client life events, and establish an omni-channel engagement capability. Doing so will create competitive advantage in the wealth industry over the next three years, at a time when the battle over winning new and existing wealth clients has never been more fierce.

Figure 2 shows the importance of providing the Connected Advisor with contextual insights, with client intelligence embedded at the foundation of the technology architecture.

Cisco has developed a vision to help address gaps and opportunities in the wealth management industry. The continued importance of the financial advisor role and the opportunity for market expansion is underscored by the Boston Consulting Group report stating that in 2014, global private wealth grew 12 percent to $161 trillion and is projected to grow to $221 trillion by 2019.13 The ultra-high net worth segment is projected to grow the fastest—19 percent growth in the number of households and 12 percent growth in total wealth through 2019. 13 Global Wealth 2015, Boston Consulting Group.

Figure 2. The Connected Advisor

Lake BlueC100, M75, Y0, K6

River BlueC98, M24, Y1, K3

Behaviors, context, location, preferences, relationships

Mobile

Web

Branch

Call Center

Voice

Video

Email

Text

ExpertsAdvisors, PMs,

Product Specialists

AnalyticsClient and Market

Data in Motionwith Analytics Driven Insights

Call CentersConnectedCall Centers

Context Data Single View ofCustomer Data

SoftwareModule Wealth

and RiskApplications

EventsPersonalized

Predictive ActionsAround Market

Events

Preferred ChannelAdvisor

Wealth Client Channel Smart Advisory Platform

Embedded intelligence enables the financial institution to learn and anticipate client behaviors, needs and preferences.

Advisors Disrupted: the Connected Advisor Vision

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Ground Transport Automation

The financial industry is undergoing historic and disruptive change from increased regulation in the post-2008 crisis environment, changing client expectations and demographics, new market entrants, and game-changing technology that is fueling challenges to traditional business models. Digital payments are transforming the way consumers and businesses transact; P2P loan providers are changing the face of the lending business; telematics is changing risk models, reducing bad driving behaviors and therefore reducing premiums in the auto insurance industry; neo-banks are challenging the assumption that buildings are required to run a bank; and robo-advisors are challenging the value proposition of traditional financial advisors in the wealth management business. Clients and advisors are getting digital and mobile experiences in other industries and wondering why they can’t have, or deliver, the same kind of experiences in the financial industry.

At the same time, the wealth management industry faces real economic pressures. To reach expected financial targets such as return on equity (ROE) and improve operational efficiency, boards of directors have faced challenging decisions about whether to close buildings, sell real estate, or reduce headcount. This pressure combined with the burdens imposed by regulatory compliance are taking valuable time, focus, and capital away from innovation at a time the industry needs it the most.

At the board level, budgets are being categorized in the areas of “run the firm” and “change the firm”. The conundrum is that as much as 80 percent of the focus and funding is on “run the firm.”

The good news is that boards are increasingly looking at the wealth management and private banking businesses as franchises in which to carry the future of profitability of the firm. We are seeing investment banking functions being trimmed while wealth management businesses are being expanded.

At Cisco we believe that the investments that wealth management firms need to make in business and technology architecture for meeting increasing client, advisor, risk, security, and compliance demands will yield material benefits both to the business lines in the firm and to the clients being served. Therefore, we see an opportunity where digital disruption of the “run the firm” budget allocations can result in “change the firm” business outcomes as measured in ROE, profitability, client acquisition, and lifetime client value, among other board-level metrics.

Business Outcomes and the Role of the Board of Directors

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The 5 Pillars of Success

Wealth Transformational Readiness AssessmentWe’ve developed a high-level readiness assessment to help you think through your ability to react to changes in the industry and challenges to your business. On a scale of 1 to 5, 5 being the best, rate the ability of your wealth management business to deliver the required business outcomes in its board-level strategic plan. Total each score and divide by 10. A score below 4 suggests that your firm might reassess its capabilities and formulate a plan of remediation.

PeopleTo what degree does your wealth management business have the necessary skills and partners to meet its strategic objectives for the next three years?

To what degree does your firm have the right culture and organization structure?

ProcessHow well do client-facing business processes align with the IT processes that support the business lines?

Has a failure in process created a material impact in the wealth business within the past three years? (1 means high impact of failure, 5 means low impact)

PolicyHow well-known and adhered-to are sales policies for marketing, client interaction, information systems access, risk, security, and compliance at your firm?

Has a failure in policy or security created a material impact in the wealth business area in the past three years? (1 means high impact, 5 means low impact)

GovernanceHow well-documented, adopted, and enforced is the governance program at your firm relative to client engagement across all touchpoints?

To what degree do business governance rules and methods align with IT governance capabilities?

TechnologyTo what degree is the current IT capability able to meet the client experience, engagement, and information security needs of the firm for the next three years?

To what degree is there a digital and mobile-first approach to strengthening client relationships while equipping financial advisors with innovative, productivity-enhancing capabilities?

The 5 Pillars of Success

14 AIPMM September 2013 Slideshare15 Implement Video Banking to Drive Digital Sales, Forrester, August 2015, and

Albert Mehrabian, Nonverbal Communication, Aldine Transaction, 2007.

McKinsey once estimated that 70 percent of transformation programs fail.14 In our experience there are five pillars that can determine whether a transformational investment will succeed. You may be surprised that we see technology as just one of the core pillars, of equal importance to the others. As wealth management firms embark on transformational programs, it is imperative they take a holistic approach and establish clear business outcomes, milestones, and success criteria.

The success pillars and some of the key questions within each pillar include:

• People: This is the most important pillar of success. Does the organization have the right people in the right jobs? What are the people gaps and how must they be filled? Is the right organization structure in place? Are cultural changes required? Do career development and training programs need to be adapted to implement a client-facing digital strategy? Forrester underscored the importance of training agents to communicate effectively via video, referencing research that showed 55 percent of human communication is seeing another person, 38 percent is tone of voice, and 7 percent is spoken word.15

• Process: What processes are in place today for all things client-facing, including risk, compliance, and security? What processes need to be removed, added, or changed? Does the organization model fit the process model? Are business and technology processes documented and well-understood? How does the IT architecture support the necessary business processes? Do business processes and IT processes align?

• Policy: What policies are in place today regarding risk, compliance, and security? Who has access to what and when? How are policies audited? Are there policies that need to be removed, added, or changed? Are policies well-understood and documented? Do internal policies align with external policies and the upcoming regulatory roadmap? Do HR policies align with the risk, compliance, and security policies both across the business and across IT?

• Governance: A firm can receive high marks in the first three pillars of people, process, and policy, but the firm risks system-wide failure if it doesn’t have a proper governance framework in place. Is the current governance model sufficient to manage future risks? What needs to be removed, added, or changed within the governance model? Is the governance model well-understood and documented across the firm? Do the business governance and IT governance models align?

• Technology: Does the firm have the latest in technology capabilities to meet its client experience, risk, and compliance objectives? Are there technology obstacles that remain unresolved due to past mergers and acquisitions events? Have opportunities and liabilities been quantified in comparison to the investments required to modernize IT in a modular fashion to meet the goals set by the board? Has the infrastructure been designed for application-centricity, to scale to the future IoE, security, compliance, and data growth forecasted in coming years?

18 The Future of Wealth Management 19

Internet of Everything

What should wealth firms be doing now and over the next three years to achieve client-centric goals while managing risk and compliance requirements? How can investments in wealth management platforms and solutions help in delivering a next-generation client experience in the era of digital and mobile-first?

A once-in-a-generation opportunity exists for wealth management firms to re-architect business models, processes, client experiences, and to modularize technology infrastructure in a way that will satisfy regulatory demands while taking advantage of game-changing digital technologies.

Cisco believes that the wealth management industry should embrace disruption and take a business outcomes approach to landing board level imperatives while innovating across both the “run the firm” and “change the firm” operating models. This requires the construction of what we call a business architecture roadmap.

We at Cisco recommend the following steps to build a business architecture roadmap and plan of execution that will yield measurable business outcomes from wealth management solution investments.

1. Document the state of business and technology architecture as-is, relative to client-facing business imperatives

2. Identify business objectives and board-level performance metrics that are affected by the wealth management business

3. Develop a Value-at-Stake business return on investment model to include hard and soft returns expected by the business

4. Document the capabilities required and map those to the business imperatives and metrics

5. Develop a technology architecture and vision

6. Perform a gap analysis that identifies and prioritizes deltas between the state of the technology architecture as-is and the vision you developed

7. Develop a business architecture and vision including the desired next-generation client experience and the advisor experience

8. Develop a plan of execution, with business outcome success criteria defined for each milestone

9. Validate the plan and roadmap across executive leadership stakeholders, lines of business, IT, and external clients

10. Assign resources to, budget, staff, execute, and then measure the plan

Business Architecture Roadmap for Achieving Business Outcomes

Business Architecture Roadmap for Achieving Business Outcomes

ConclusionWealth management firms face unprecedented challenges to margins, profitability, and ROE given changing client demographics and expectations, increasing regulation, new security threats, game-changing technology, and new digitally savvy players entering the market.

At the very foundation of change within the wealth management industry, the most important considerations are how clients, advisors, and robots—along with software-driven self-service models—are shaping the future of the industry. Which are the disruptors? Which are being disrupted? Are you driving the new CAR to its, and your, full potential? If so, you will be an industry leader three to five years from now.

For more information on how Cisco and our partners can help transform your business and help you drive the new CAR, please contact us at [email protected].

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Conclusion

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