SKY-ROCKETING BUSINESS PERFORMANCE

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Elon Musk is in the news again. The multibillionaire inventor, and perhaps the world’s only true Rocket Man, announced a new compensation plan that ties his remuneration as CEO of Tesla Inc. to the company meeting specific financial performance benchmarks in the future, such as increasing the firm’s market capitalisation from $100 billion to $650 billion.

And while some deem this latest announcement to be a mere publicity stunt aimed at masking over Tesla’s production struggles – others hail the decision as another example of his revolutionary thinking when it comes to making hardnosed business decisions.

At its core however, the plan merely ties the compensation of an executive to the financial performance of a firm – a premise used by countless organisations worldwide. A more innovative idea would be to drill deeper into what drives those targets and include broader performance metrics, such as those related to achieving client outcomes.

“Trying to create a company is like baking a cake – you have to have all the ingredients in the right proportion,” says Musk. In other words, specifying ambitious revenue, market capitalisation or sales targets without a deeper understanding of customer satisfaction, employee motivations and operational productivity (as well as how these relate to one another) – is largely meaningless.

Business executives are all too aware of this and yet, truly high performing teams tend to be the exception rather than the rule for many organisations, including wealth managers.

Perhaps unsurprisingly, business challenges for many wealth firms typically stem from lack of cohesion – fragmented operations, decentralised pockets of data and an inconsistent feedback loop. Notably, enduring information silos hinder the sharing of data and other communications, which in turn plague the firm’s ability to deliver a seamless omni-channel service to its clients, and the status quo governing the way business operates remains.

The focus for most firms should therefore be aligning end-to-end business models with client needs. This notion is supported by our research, which shows that satisfied clients are more likely to place a greater share of their wallet with their primary wealth manager than those who are less satisfied, boosting AUM and ultimately those all-important financial performance targets (see Figure 1).

Figure 1: Client Engagement scores vs average net new assets per relationship manager

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Source: Scorpio Partnership – Fictional data based on client case study

Prioritising customer satisfaction by identifying areas of improvement across the entire client journey can better ready businesses to monetise their high approval score and increase the lifetime of a customer. Similarly, communicating customer preferences (and any other relevant information) across the wider team can help firms gain a differentiated capability relative to competitors who all too often rely primarily on the strong relationship between a client and their RM.

Identifying key attributes of what drives improved business performance is therefore the critical path for private banks and wealth managers. This includes recognising which human capital skills are needed, at what point in the client journey, and how these align.

To help achieve this client focused outcome, we at Scorpio, together with our sister company McLagan, advocate the importance of this joint approach i.e. tying client-centric measures with wider productivity and pay metrics in order to drive stronger business performance.

For instance, if specific pay incentives were structured around a client’s satisfaction with their RM’s actions or behaviours, such as receiving recommendations and access to the right products at the right time, then employee behaviour would adapt to clients’ needs more readily, potentially aiding the breakdown of internal barriers within the business. In turn, this would further instill trust and confidence between the client and the wealth management firm, leading to increased referrals, a greater share of wallet and net new money through the door.

Therefore to overcome information silos and the dispersed distribution of client data among different entities within a business, firms need to start planning how they can better centralise such information, thereby promoting an ethos that aligns all the constituent business functions together to meet the needs and outcomes clients desire.

 

News from the world of wealth:

UBS to merge its US and global wealth divisions – Financial Times

Switzerland and Hong Kong sign MoU wealth management agreement – International Adviser

Julius Baer to acquire Brazilian wealth manager – Private Banker International

DBS to expand its Asia private baking headcount by 20% – International Adviser

Nordea’s Luxembourg-based private bank acquired by UBS – Reuters

 

Thought of the week:

“A person who never made a mistake never tried anything new.” – Albert Einstein

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