Achieving Scale without the Growth Pains – Wealth Dynamix APAC Head Explains How

At the recent Hubbis Digital Wealth Forum, Darell Miller shared his views on how private banks and other wealth firms can drive towards scale without suffering the growth pains so often associated with the rapid expansion of coverage. He explained why breaking the chain between revenue and costs is crucial for any wealth industry competitor wanting to achieve both scale and profitability. He outlined how to break free of the chains that so often prevent relationship managers (RMs) from serving their clients productively, with personalisation and profitably.

After briefly introducing Wealth Dynamix, Darell pointed to a slide that harks back to Jane Austen pronouncing: “It is a truth universally acknowledged that wealth managers, who want to be in possession of a great fortune, cannot grow their revenues and costs at the same time; the profitability ratio needs to scale and the link between growing revenue and costs has to be broken.”

He cited research from various leading sources such as EY, Deloitte and Capgemini that support Wealth Dynamix’s own findings that the main challenges clients and prospects talk about are threefold – profitability at scale, cost transformation, and client centricity.

The wealth business model

Darell explained that in a manufacturing business model as manufacturing increases, costs tend to rise in ‘lock step’ with revenues. But he observed that the data business model (such as that championed by Bloomberg, Refinitiv and others) has high fixed costs to produce data and provide services to begin with, but once profitable usually become profit-generating machines. “They can have dramatic profit increases because they can sell the same piece of data infinite times over with only a small increase in costs and commissions.”

However, he also reported that, unfortunately, most wealth firms have the worst of both worlds. They have high fixed costs in the form of RMs, compliance, IT and systems, advisors, and other expensive talent. The challenge for wealth managers and private banks is how to transform their business model into more of data business, to ‘break the chain’ between rising revenues and costs so that they can have their cake and eat it too.

The big brands are coming to eat your cake

He referred to a recent Economist article arguing that wealth management is the place to be in financial services in the coming days. “But the bad news is the global giants are gunning for you, wanting to dominate this business and investing massively in technology to do exactly that,” he said. “So, to fight back and win, you need to scale without pain.”

He said the growth potential is most certainly there in Asia, with a doubling of AUM levels targeted between 2012 and 2026. But he also noted that according to Accenture, 80% of RMs and advisors in Asia believe a one-stop solution platform would allow them to be more efficient and provide clients with a better service.

Seeing the connections, building for the future

Additionally, he reported that a surprising large percentage of affluent Asian clients are expected to switch RM, while according to Standard Chartered, more than 60% of investors in the 18 to 35 year-old bracket are more likely to use a RM compared to the previous generations.