Zafin Labs

Designing Services for the Future of Wealth Management

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Wealth management is a banking niche that has been under fire lately. We’ve gone from the Financial Crisis of 2008 to the European Crisis of 2011, both of which have been huge, transformative events that have wreaked havoc on the portfolios of many High Net Worth Individuals (HNWIs). But that’s not the only changes we’re seeing in this market – we’re also witnessing what is probably going to amount to the second largest transference of wealth between two generations in the history of the world (the largest occurred following the black plague in the 14^th century). This has a large impact not only on today’s HNWIs but also tomorrow’s – and these are the future HNWIs that wealth management will have to attract and retain.

Combine these global and demographic changes with the pace of technological change. Over the last decade we’ve witnessed the rise of mobile computing, true wireless connectivity, and perhaps most importantly, human interaction with computing forms and data itself. In 2010, Apple released the iPad, and much like the iPhone a few years before it, its introduction pretty much changed the ‘normal’ way we do things. While this affects more than just wealth management, it is worth considering the rise of the tablet in the context of the other events. What we’re seeing is a huge mass of underbanked individuals who interact with the world differently but who still require financial products and services to provide them with the requisite expertise they are lacking.

Let’s imagine this new HNWI. He is generally at a different stage in his life than the previous generation. He began his career later, he had kids later (if he has any), and his wealth management needs are often more developed by the time he seeks out solutions. He also has a job title that didn’t exist 10 years ago. It probably has the word ‘online’ or ‘digital’ in it somewhere. And because he grew up in the age of the internet, he will come armed with more knowledge about what solutions exist in wealth management, whether they are your solutions or your competitors, and he will know where he fits into that equation. He appreciates high-quality user experiences, simple presentations, and the feeling that he is a unique individual. Also, based on his profile, he quite likely owns and uses some sort of tablet on a daily basis.

When he comes in to discuss his needs, what does he expect? What happens if we sit him down with pen and paper and try to fit him into a standard wealth management bundle? What likely happens is that he feels that the relationship manager doesn’t understand him well and he probably takes his business elsewhere. He’s not interested in how he fits into previous categories – he wants his own category. And he wants transparency around pricing. And, if you really want to attract and retain this client, he needs to be shown where he stands in relation to the bank and its products, and if you want to be able to show him that in his own language, you’ll need the simple elegance of a tablet.

Let’s imagine how this scene might play out, armed with this foreknowledge. Let’s imagine that instead of taking this client into an office, where he is positioned in opposition to a wealth manager who is behind a desk and is the only person who can see the information on his screen, that instead they sit out in the open, in a lounge much like a coffee shop, and while they discuss his wealth management needs, our wealth manager is using a tablet to configure wealth management products in real time. As they discuss potential scenarios and bundles of products, the wealth manager is able to query the core system for a price based on the relationship value, and in real time he can share that information with his client in a very transparent and open manner. The client can also manipulate the screen and see how product changes might affect his pricing. He decides he likes one of the options listed before him and digitally signs the paperwork, which instantly begins the account origination work back at the core system.

If ever there was an aspect of banking that is screaming for technological adoption, it is wealth management. The perfect storm of challenges, as described from the outset, requires the right tools in order to sell these new HNWI successfully. miRevenue is one of the tools in that toolkit.

miRevenue’s built-in flexibility and scalability means an advisor can provide real-time information to his client at any time. The ability to price dynamically in real time means that transparency is a real option for wealth management and these new HNWIs. As we imagined in our scene, when you combine this power with the suitable elegance of a tablet you end up with a result that is a transformative user experience. It is experiences like these which will culminate in stronger loyalty in the future. The sense of being known by a product or company is a form of trust – ironically, one of the most commonly cited examples of attachment theory in product design is the tablet itself; using one for the first time is a completely intuitive experience. The individualization available through miRevenue today offers an analogous experience for wealth management and banking. 

Wealth Management - Individualizing Customer Relationships for the Long Term

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Call it Private Banking, Wealth Management, Banking for High Net Worth Individuals (HNWIs) – whatever the official label is, the products and services dedicated to this segment are usually customized solutions to meet the financial needs of each particular client. While one client needs tax advisement services, another requires physical asset management and estate planning – customized pricing is required for such bespoke product bundling. This high level of customization goes hand-in-hand with a high level of trust – after all, we’re talking about building a relationship that ideally spans decades. One way to build that trust is to introduce pricing transparency to the relationship.

The ability to sit with a potential client and walk them through the exact services delivered, customized precisely to their needs, and then perform on-demand, individual pricing, is something that the best relationship managers can do with aplomb. This is great from a customer relationship experience perspective, but not so great if you consider the build-up of non-standardized contracts and reliance on manual processes. What would be ideal is the personalized, almost concierge-like management of the relationship combined with a system that can organize, manage, and automate whatever possible, so as to avoid the manual efforts and inevitable hiccups that occur over time due to turnover, systems replacement and product innovations – all of which can lead to cost increases and fee and revenue leakage. 

We’ve built a system – miRevenue – that provides the right tools and functionality to help private banks systematize the customizations required in wealth management, allowing relationship managers to bundle the right products at the right prices transparently, enhancing the relationship without reliance on manual adjustment processes. miRevenue can identify customer needs, provide on demand pricing and quotes based on business value, and offer advanced analytics and reporting. This type of personalized consulting, supported by a rules-based system, is a feature that separates us from other pricing vendors. This pioneering aspect of our service delivery illustrates our domain knowledge of the challenges of wealth management, and demonstrates why we are the best implementation partner for financial institution pricing and billing solutions.

Contact us to learn more about our products and how we can deliver top line growth and bottom line savings to your bank.

Relationship-based Pricing for Wealth Management

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As we discussed last time, banks are increasingly being forced to manage margins more exactly as their more traditional value proposition is pushed to the side lines in the face of new entrants such as online-only banks. Price discrimination is inevitable in any business ecosystem where the ability to differentiate is reduced through increasingly available and inexpensive technology. One area where Zafin Labs is seeing that banks have the ability to create better pricing models and plans is in the area of wealth management.

As showcased in the case study by Dr. Robert Winter of St. Gallen University, while this is not an easy task to accomplish, solutions do exist which allow a bank to make on the spot pricing decisions and recommendations to relationship manager. The premise of these decisions relies on steering the type and magnitude of fees based on the individual customer value to the bank. The result, in the case of this deployment was immediate, with ZKB doubling its revenue for its launched product line within the first quarter, and realizing its return on investment within 12 months. Overall, the miRevenue deployment at ZKB resulted in faster revenue collections, product innovations, leakage tracking, customer individualizations and cost calculations. Clearly, there is a lot of value in this type of pricing and billing solution in the area of Custody Services.

In general, moving toward this customer centric approach to pricing means greater transparency and simplicity in terms of what is available: as a platonic ideal, the goal is one customer, one bundle, and this kind of one to one customization is really only possible through relationship pricing.

miRevenue can be used for pricing and billing in the following areas in the Wealth Management business:

·         Packaging and bundling of banking products as a value offering to wealth and private banking clients, including individualized customer pricing whereby discounts, penalties and bonuses are offered within well-defined price deviation limits, eliminating ad hoc treatment

·      Customized pricing plans for different services and products offered in a clear and transparent manner to enable customers to make a choice based on their assets and risk profile

·         Individualized pricing of investment portfolios managed for clients

·         Differential pricing for Custody Services based on portfolio, customer behavior, assets etc

·         Brokerage, Asset Management & Advisory Fees Calculations based on a variety of parameters

·         Commission calculations for Financial Intermediaries based on a variety of parameters

·         Unified customer billing and statements across their business relationship

 

Contact us to learn more about miRevenue and find out if our pricing and billing solutions are the right fit for your banking requirements.

 

Zürcher Kantonalbank implementation featured in German language textbook

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While we create pricing and billing solutions for banks of all sizes and in different contexts, one of our deployments featured miRevenue as a relationship pricing solution in a custodian context. This deployment, at Zürcher Kantonalbank (ZKB) in Switzerland (recently noted as one of the top-5 safest banks in the world), was featured in a case study. Dr. Robert Winter of The University of St. Gallen, who is one of the authors of the textbook, called the ZKB custody pricing project ‘one of the most complex pricing and billing integration projects' that he had ever encountered.

The case study appears in "Management von Integrationsprojekten: Konzeptionelle Grundlagen und Fallstudien aus fachlicher und IT-Sicht", available on amazon.com. The translated title is “Management of integration projects: Conceptual foundations and case studies from a technical and IT perspective.”

It should be noted that the case study was originally published in 2009 - since then, we have continued to work with ZKB in order to help build relationship based pricing across further lines of business. You can read more about out our work with ZKB and view their testimonial here.

We are including a brief, English language summary of the case study just below.

 

Case Study: Zürcher Kantonalbank Pricing and Billing Integration Project

The Zürcher Kantonalbank (ZKB) was founded in 1870 as a universal bank. As a bank of its Canton, ZKB balances its core objectives of market leadership in retail, investment and private banking with financial services and products for its member geography, and is well positioned in terms of its brand, reporting a high level of customer and employee satisfaction.

Initial Pricing Environment

Prior to the project, ZKB utilized a product centric pricing and billing environment. In this environment pricing is integrated with transactions and transaction types – this makes it difficult to provide a centralized view of a customer.

This initial pricing environment did not allow the decomposition of existing price rules to create new price models which might be targeted to consider a customer’s behavior. Moreover, product and service bundling based on segmentation was not possible, making new product innovation more costly. While it was possible to illustrate customer revenue from fees and to run simulations based on customer or group segmentation, these scenarios were resource intensive.

Pricing information was also only available within each application and not on any meta level. The existing systems only allowed changes in price models by new software releases because most price rules and especially billing to account receivables were “hard-coded”. Only relatively minor changes were possible without a new release.

The goal

ZKB wanted a solution that would allow product innovation and management on an incremental level to enable a more flexible and transparent pricing policy:

a)         Innovative price models: standardized products and services are bundled together and can be configured for specific customer needs

b)         Incentive service usage: Loyalty programs or individual pricing options allow to control customer behavior

c)         Faster response time: New products and pricings can be introduced quickly or ZKB can react faster on offerings from competitors.

These required features mainly targeted the process of product management. The solution would have to support the product or segment manager to combine and package products into bundles quickly and easily. Price modeling needed to be transparent and supportive of analytical tools that allowed reflection of the impact on the market for changes made.

ZKB preferred to integrate and operate existing solutions, rather than build their own pricing solution, and so after constructing a prototype together with a feasibility study and requirements, ZKB consulted with several vendors of pricing and billing solutions. Zafin Labs was the chosen vendor.

The integration project

In 2008, ZKB began the first phase of the strategic pricing and billing program. This phase established the infrastructure of the new pricing solution and allowed for the possibility of price modeling and billing for investment products, i.e. custody safekeeping fees.

Before the project, positions were handled in Avaloq and pricing was across different applications including Avaloq. With the pricing and billing Release 1, positions were still kept in Avaloq but the pricing and billing was handled by the new solution, which went live in May 2009. Multiple releases with pricing and billing of other products and fees in a wealth management context have been rolled out since May 2009.

From Regulation to Innovation: New Product Development in Banks

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One of the commonly mentioned obstacles to retail banking innovation is regulation – banks generally decry the amount of resources (time, attention, money, opportunity cost) they have to dedicate to navigating their legal environment, particularly if you consider banks that operate in multiple countries. Of course, while this is demonstrably true, and undoubtedly the opportunity cost of navigating the regulatory minefield is great, there are efficiencies to be gained in the form of system replacement and renovation that can help banks to rationalize their product catalogues and move forward with a streamlined product offering.

Rather than focus on the obstacle (regulation), banks should consider a strategy that accepts both the external limitations of the situation and their own internal limitations in the form of legacy systems, and instead focus on using an innovation layer to make the issue of constantly shifting regulation moot: the idea here is to move from coding new products to designing them.

How can this be done?

Well, for all the talk of aging systems replacement in banking, there is relatively little activity in the core banking domain; yes, many banks need or would like to perform a core banking transformation, but again, they face limited resources.

Instead, banks need a system that can transform a product-centric environment into a customer-centric one. The perfect solution would be an SOA that can operate as a product innovation layer, whereby data can move seamlessly from the current architecture through the redesigned products and be processed as output which can update GL accounts, offer bill presentment, conform to new and existing regulations, and generally perform any action required of a bank. In this way, a product manager can create new products without IT intervention. Thus we have innovation that works without altering core code. In this way, banks can innovate more easily, for less money, building products for today’s customers without worrying that future regulations will force them into costly code maintenance or reversions.

Banks need solutions that allow them to add value to their customer relationships – new product innovation through miRevenue is one of these innovative product development solutions. Because our solution is rules-based, it is simple to adapt quickly to changing regulation without the need for IT intervention.