Despite technological advances, wealth management is still fundamentally a client business and how a firm defines a client will have a significant impact both in terms of internal MI and for how results are reported externally.

A quick review of recent investor presentations shows that reporting client metrics has become the norm for the leading wealth management firms. Banding of clients by client size, by age or geography are often included in the AUM reporting overview. Firms with the data available are extending that further with client counts across business segments and by introducing client yield analysis.

The basic premise for all definitions is that a ‘client’ is an aggregation of a set number of client accounts. There may be other definitions available, but we will concentrate on this simple definition for this article. 

There are a number of ways aggregation can happen and firms may recognise one or many of these operating in their organisation:

1 – Report clients in alignment with the fee charging structure.

2 – Report in alignment with the structure of the suitability reviews.

3 – Aggregate all the way to the top relationship. i.e. what will leave if the principle relationship is lost.

4 – Align to the front office’s digital transformation, whereby the client is defined in the same way as the firm’s online portal.

5 – Establish a bespoke aggregation reflecting either how the Front Office manage their relationships or via a theoretical definition of ‘what is a client’.

Whichever option is taken, a reporting function should be reluctant to take ownership of the client hierarchy. To do so would mean taking on the responsibility of firstly defining and then maintaining the structures. In addition, there is little point working hard to report under one definition only for the front office to carry on managing the client relationships on a wholly different basis. Perhaps the exception to this is where the organisation has no current definition of client and the new hierarchy becomes the single organisation-wide view.

Our advice may at first seem counter-intuitive, but we actually recommend two versions of the hierarchy. Firstly, we recommend a client hierarchy that mirrors the fee charging structures. Only in that way can the organisation start to understand actual vs expected fees and begin to model strategic revisions of the pricing structures. Control across the organisation should naturally increase as yield patterns are established and anomalies identified.

However, it is unlikely that the front office will be managing each client by reference to the fee structures and it is for this reason that we recommend a second hierarchy. This could be any of the options shown above and should become the hierarchy under which results are routinely reported. The reporting function needs to understand their role here as a strategic business partner by selecting the structure that supports senior management and individual IM’s. Consistent application of the hierarchy is key to enable all data managers and all recipients to understand the results and the aggregation that has taken place.

Automation should mean that the same data set can instantly deliver client level results under either definition. At the same time, the reporting function should gain total confidence in the underlying data and the hierarchies introduced. Meetings can progress to strategic thinking on client metrics rather than a challenge and counter challenge to the numbers.

See original blog: https://www.linkedin.com/pulse/part-1-client-hierarchy-paul-brann/