Drawing the Line Between CRM and Wealth Management

Amidst the plethora of definitions for "CRM" and "wealth management" there are many overlapping concepts and technical capabilities. Moving forward, a clear distinction needs to be made because wealth management is forever changing the way financial services are delivered and maintained, extending rudimentary CRM capabilities.

A shortcoming of CRM is that it could be considered a "mile-wide and an inch deep." It does a wonderful job gathering interactions for contact management or sales force automation for many industries. In the financial services, however, the real gold is in the transactional history, and that is presented by an effective wealth management solution.

As James Scurlock, senior manager for Cap Gemini Ernst & Young's Financial Services sector, put it, "CRM gathers existing data that you have immediate access to within the institution, and you may, or may not, be able to do a good analysis on it depending on whether you have the right tools on top of the database. Scurlock adds, "but unless I can hold this information against some measurement, I don't know whether I'm getting the right data or whether it's giving me a positive return. CRM is really part of Wealth Management."

Wealth management is about the gathering of all assets, liabilities and products that the client has (which may not be with your institution), and applying this information to the customers' lifestyle and events to create positive, and profitable experiences.

The list of market drivers fueling the heightened demand for wealth management services is long. It includes deregulation, convergence, globalization, increased competition, mergers and acquisitions, and customer acquisition and retention. But the biggest driver is nothing more than pure demographics: our aging population is getting richer. And the most dramatic area of growth is in the mass affluent.

According to TowerGroup, 57% of the U.S. population is now in peak earning years (ages 35-53) and there are more people earning higher incomes. TowerGroup estimates the $100,000+ household segment is forecast to grow by 45% by 2005. This represents 17.4 million households.

Consistently, Celent Communications estimates that the US mass-affluent market currently has $15 trillion in assets and is expected to reach 25 trillion in accumulated assets by 2005.

What Mass Affluent Customers Want
Regardless of whose numbers you use, wealth management is an impressive market, and it represents a huge opportunity for both larger and mid-tier institutions--as long as it's delivered through a cost effective solution.

What the new mass affluent customers want is a consolidated view of all assets and liabilities, provided by an institution that knows them, gives them consistent recognition and makes them feel, "special". These technical savvy individuals demand personalized products and services, relationship pricing that recognizes their value as a customer, and sound advice from trusted advisors-the institution and expert network.

Traditional solutions fail to address these needs because they are product or silo specific and are not customer-centric. They do not allow the value of a particular product or service in the context of their entire net worth. That is because most technologies (CRM or otherwise) are unable to coordinate offering across the converged product lines and lines of business (silos). They are unable to identify customers in terms of their value to the institution, more specifically their profitability, share of wallet and/or total net worth.

As we all know, revenue sources have changed since consolidation. Same-day processing is diminishing 'float' revenue, competition has driven down transaction fees and product pricing, and the last remaining bastion are assets under management. The institution can garner the highest profitability by managing the customer's total net worth. To achieve this, they must become the trusted advisor that presents the complete picture, and offers the strategy for moving forward. There is no room for shortsightedness here. Those that present the consolidated picture-win. And that means even offering competing products if that is in the best interest of the customer.

This concept of 'open finance' has been embraced by the likes of American Express Financial Advisors who offer a wide selection of propriety and non-propriety product for an annual fee. The UK's Bradford & Bingley, current slogan is, "What's best for you, not for us" - a notion that would have been considered suicide not too long ago. In this new world of open finance, collaboration is another key element. The home institution must accommodate collaboration between themselves and the client, and the client must also have the ability to collaborate with other third parties such as their lawyer, financial planner and accountant. Those relationships will always exist whether you're involved or not.

A wealth management system facilitates the management of a customer's portfolio within the framework of his/her lifestyle and long-term goals. It consolidates data between banking, brokerage insurance, trust and other sources, through the creation of an enterprise customer information file (eCIF). Unlike CRM, wealth management is based on transactional history via the eCIF and not customer interaction history. Wealth management must also provide consistent customer experiences across all delivery channels including Internet & wireless financial portals. Data aggregation, both internal and external is the catalyst for effective wealth management practices.

Through wealth management, the financial institution can analyze current profitability, potential profitability, share of wallet, and the value of the customer's relationship network. The institution can then deliver specialized, competitive products and services based on a thorough knowledge of the customer, resulting in higher customer retention and increased profitability.

The inability to gather everything the institution knows about the customer in a single, immediately accessible view is the principal shortcoming of CRM in the financial services industry. Wealth management solves that problem-by measuring customer value, or the profitability an institution generates from each customer, and enabling the institution to deliver relationship-based products and services. - MC

Mike Cardiff is President and CEO of Fincentric Corporation, a leadingglobal provider of enterprise wealth management and core banking software.