CRM Comes to Wall Street, Part 1

Arthur O'Connor

Updated · Oct 23, 2002

Wealth management is a trend sweeping the securities industry. Readers of this column would call it something else: CRM for investment firms.

That’s what wealth management strategies are. They enable financial planners and stock brokers to develop deeper and more valuable relationships with customers through a client-centric, consultative approach to managing their total financial position (not just their account holdings at a given firm).

Solutions typically include an application encompassing CRM, financial planning, portfolio management, order management, and trading. All functions are combined in a common desktop and platform to enable tightly integrated data and functionality to support faster, more accurate, and more sophisticated advisory workflows.

Everyone’s Doing It

From private client banks to discount brokerages, all types of securities firms are embracing wealth management strategies. High-end investment advisory firms invest in workstation solutions to help advisors become more productive and effective by embedding analytic tools and portfolio management tools using best-practice asset allocation models, financial planning, and client-service delivery methodologies.

At the lower end of the spectrum, retail brokerages undertake wealth management to achieve a more ambitious goal: changing client relationships from short-term, infrequent transactional encounters to longer-term, methodical, consultative relationships.

Both types of firm want ways to consolidate redundant processes onto common platforms and to automate and streamline workflows that cut across many different applications, such as new account opening, order entry, and trade management business processes.

In the first two installments of this six-part column, we’ll look at underlying forces driving the securities industry wealth management trend. In parts three and four, we’ll examine specific business challenges driving wealth management strategies in asset management and brokerage firms. Part five covers the key components of these wealth management solutions. Finally, in part six, we’ll see some challenges facing all types of securities firms that implement these solutions.

Shift in Investor Psychology

In an age of economic uncertainty, volatile markets, and shaken investor confidence, financial services firms unsurprisingly struggle with how to keep their best customers and identify the most promising prospects.

Foremost, especially in retail brokerage, securities firms must address a dramatic shift in investor psychology.

For over a decade, the average American investor was led to believe a lot, specifically:

  • Wall Street analyst recommendations are unbiased.
  • Corporate leaders tell the truth and are trustworthy.
  • Financial statements blessed by big, respected audit and accounting firms are accurate.
  • Investing in your employer’s stock via your 401(k) retirement plan is a sound, safe investment.
  • Annual double-digit returns from the stock market continue forever. Stocks are the only real means to long-term capital appreciation for retirement and savings plans. The best are aggressive growth plans and high-tech companies and sector funds.

We’re paying the price for buying into those fallacies.

With old assumptions shattered, nervous, frightened investors (many of whom saw retirement savings shrink to a fraction of what they were) are desperate for advice. They want to learn about different investment instruments and strategies: fixed income, convertible and preferred issues; guaranteed investment vehicles; and, at the higher end of the market, private equity and real estate products.

They’re also interested in portfolio diagnostics, tax optimization, and risk analytic tools. They want to learn about risk simulation, Monte Carlo simulations, and other computer-based statistical techniques to understand the relative up- and downsides in making investments in capital markets.

Sophisticated and/or affluent investors are also seeking guidance on asset allocation models helping improve the relative risk versus return of their current portfolios, use of options to capitalize on trading ranges, prudent use of leverage to boost returns, and hedging techniques to provide protection against broad market declines. Can the industry provide these?

We’ll look at structural changes driving wealth management strategies within the securities industry.

Agree? Don’t agree? Got an insight, opinion, or real-world example to share? What are your thoughts? Write to me. Stay turned for the next five parts.

Reprinted from ClickZ.

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