The majority of firms entering the wealth management market are merely window dressing basic financial products instead of taking into accou...

The majority of firms entering the wealth management market are merely window dressing basic financial products instead of taking into account the specific needs of affluent customers, according to a new report by IBM. The Bridging the Wealth Management Gap report found that many organisations are using the tendency of private clients to hold several products as an opportunity for indiscriminate cross selling. Rohitha Perera, head of IBM global services wealth management and co-author of the report, said many new entrants to the market were taking advantage of the fact that around 40 per cent of private clients hold more than four products, compared to only six per cent of retail clients. "A number of organisations see wealth management as just an opportunity to push more one size fits all products to wealthy individuals rather than offering them a more tailored portfolio that truly reflects their life aspirations and individual attitude to risk and return," Perera told Private Client Management. "Throwing more products at clients misses the point that as people become wealthier, the complexity of their lives increases and they need more help in managing them." Every day in 2001 there are 1,265 new high net-worth individuals created every hour and 3,340 new mass affluent individuals will be created in ten European countries, according to the report. Globally, an estimated 7.2m people hold more than $1m in financial assets, totalling around $27trn under management. This is expected to grow to $40trn by 2005. The compound annual growth rate for the whole market is pegged at ten per cent worldwide an even faster 12 per cent for the onshore European market. One market player, Close Wealth Management, was singled out for praise. The report said the niche player offered highly efficient discretionary services and provided comprehensive advice and education upfront. Industry events such as the shutting down of Lazard's wealth management unit a week ago, suggest that not everybody is getting it right. Perera and co-author Merlin Stone, a professor at the Bristol Business School, uncovered only one business concept they said recognised the full range of wealth management needs of customers – the family office. Generally only serving families with in excess of $25m, family offices are common in the US and a relatively new concept in Europe. The report said the strength of the family office lay in the range of services it could provide from an aggregation capability and third party sourcing to an advisory role. "That's primarily because it is the customer who is in charge there because at that level of wealth you can afford to employ your own advisers. That puts you in a much different position. Also, the adviser is independent of products. They don't earn their salary based on the amount on products they sell to you, it is based purely on the advice that they give you," Perera said. He added that there was no reason why, through the use of technology, the concept of the family office could not be applied to the lower end of the market. Perera said many institutions were missing the basics. "It's peculiar because they spend an awful lot of money on brand building but actually they don't really understand some of the fundamentals around the brand and value proposition. There's no simplistic answer except that they are not really very customer centric at the end of the day," he said. The checklist for a good wealth management was: Convenience, including face-to-face access when required The complete delegation of assets and liabilities Product aggregation Attention to customers needs Perera said the rewards of getting it right would be great. The major return on investment would be gaining the loyalty of a wealthy customer. "What you really need to do is have deep penetration of that relationship, or the wallet, as opposed to acquiring new customers. It's very expensive to acquire new customers. It is much cheaper to extend the relationship of existing relationships," he said.