For information on obtaining additional copies, reprinting or translating articles, and

all other correspondence, please e-mail: bcm@infosys.com. FINsights

Technology Insights for the Financial Services Industry

WEALTH
MANAGEMENT
 Preface

Hearty greetings from the Infosys Banking & Capital

Markets team. On behalf of Infosys, I am delighted
to present the first issue of our journal “FINsights”, a
compendium of articles, which bring you insights into the
technology powering the financial services business The
aim of the journal is to bring you the latest in technology,
applied to your business scenarios, which will enable you
to win in today’s flattening business world.

The first issue of FINsights focuses on the wealth

management industry; an industry which is grappling
with multiple challenges. An increasingly demanding
and informed customer base, a challenging compliance
environment and the jostling for a customer centric
“trust” based role amongst trust banks, brokerages,
insurance companies and family offices make for a very
challenging business environment. This journal has
a set of articles which look at these and other unique
characteristics of the wealth management industry and I
hope that they will not only make for enjoyable reading,
but also help you in addressing some of your vexing
business challenges.

I would like to thank all the contributors from Infosys

Banking & Capital Markets group and also Alois
Pirker from Aite group and Matthew Bienfang from
TowerGroup for their insightful articles. I hope you will
enjoy reading these articles as much as we have enjoyed
putting them together. Please do not hesitate to get in
touch with me in case you have any queries or comments.
I look forward to your feedback and suggestions in
making FINsights a relevant and topical journal.

Happy Reading!

AshokVemuri
SeniorVice President and Head - Banking & Capital Markets Group
Infosys Technologies Limited


Contents
Preface
From the Editors Desk

04 Business Challenges and Technology Priorities

for Wealth Management
Ashok Vemuri

10 Integrated Advisor Workstation – A Roadmap

Merlyn Mitra | Anand Bhushan

19 Case Study: NextGen Client Data Aggregation

and Reporting
Ashwin Roongta

23 The Role of Open Architecture

Emmanuel Chesnais

27 Managed Products -
A Strategic Transformation Framework
Mak Datar | Sanjay Taneja | Rajeev Nayar

34 Holistic Wealth Management

and the Unified Household
Alois Pirker

39 Achieving Client Centricity via

Customer Data Integration
Sai Kishan Alapati | Ashwin Roongta

45 Product Repository: The Foundation for

Successful Open Product Architecture
Sai Kishan Alapati | Anita Stephen

49 Removing Glitches in On-Boarding the Wealthy

Muthukumar Krishnan | Sujata Banerjee | Bharat Rao

55 KYC Compliance - A Strategic Approach

Rajesh Menon

59 Analyst Perspectives - Q&A with TowerGroup

Matthew Bienfang


FINsights Editorial Board From The Editors Desk

The wealth management industry is changing rapidly to

Balaji Yellavalli
meet the evolving needs of its participants. This is one
Associate Vice President
area where true financial services convergence seems to
Banking & Capital Markets Group
be happening as trust & private banks, brokerages and
retirement planning focused companies are all trying to
Bhuvaneswari Sundaram get a bigger slice of the action.
Associate Vice President
Opportunities in new geographies and asset classes are
Banking & Capital Markets Group
driving a lot of the change in the industry today. These
will lead to increased investments in the core processing
platforms, as well as the need to tie the various platforms
Jonathan Stauber together. The need to bring systems together is very
Vice President important to financial services firms from a financial
Banking & Capital Markets Group planning & advice, customer data, client service and a
Business Intelligence (BI) & reporting perspective. Open
architecture is another very important consideration
Lars Skari that is driving changes to the way the banks service
Practice Leader clients. Further, the need to offer clients a wide bouquet
Banking & Capital Markets of products is driving consolidation of information
Infosys Consulting across the different products and asset classes. Changes
in banker and advisor team structures as well as client
segmentation for servicing will lead to better cost
Manish Jha structures.
Engagement Manager
All of the above have technology implications for banks.
Banking & Capital Markets Group Technology will need to be aligned with business to
meet the needs of an agile organization that can respond
rapidly to changing business circumstances. Technology
Mohit Joshi itself is evolving rapidly and can sometimes drive changes
Chief Executive Officer in the organization through the ability to deliver more
Infosys Technologies S. De RL De CV than what was hitherto considered possible. Information
Technology (IT) organizations that are able to plan and
react early, and then execute well on these changes are
the ones that will succeed in meeting the needs of their
business.

We are happy that this book addresses some of the

biggest business challenges and technology implications
addressing wealth management firms today. The debate
on some of these topics is very timely. We hope that the
journal will inform you and enable you to formulate a
response to the many challenges facing our industry. We
look forward to your feedback.

Happy Reading!

Balaji Yellavalli & Manish Jha

Editors


 Holistic Wealth Management
and the Unified Managed Household
Holistic wealth management and the unified managed household are two concepts that have been
heavily discussed in the wealth management industry in recent years. This article looks into the
feasibility of these concepts and what financial services firms can learn from them today.

Alois Pirker
Senior Analyst
Aite Group

34
Holistic advice is one of the key concepts in the wealth
management arena. The market trend away from
commission-based product sales to fee-based client
relationships puts an increased focus on holistic advice.
Analyzing the full and often complex financial situation
of wealthy clients as well as their financial, professional,
and personal goals and plans requires advisors that can
look beyond financial products and are willing to spend
the necessary time to get to know their clients. This
unique knowledge and deep client relationship enables
the advisor to provide financial advice, make product
recommendations that fit best a client’s circumstances,
and ultimately become the client’s most trusted advisor.
While the basic principals of holistic advice will be the
same across the wealth management industry, differences
will exist, depending on the client segment served by the
firm. In a fee-based relationship model, the amount of
investible assets a client brings to the firm determines the
revenues the relationship will generate. The following
chart illustrates the average client size by assets in each
of the wealth segments and the ratio between these
measures.
Fig 1: Comparing The Average Asset Size Across Wealth
Segments
Source: Aite Group Analysis, “Taking the Client’s
Perspective - Global Wealth 2006”, Boston Consulting
Group, September 2006.
35
The average amount of investible assets per client in the
lowest (mass-affluent) wealth segment is US$250,000.
A client in the next highest wealth band (the high-
net-worth segment) is eight times that size, at US$2
million. In this particular client segmentation example,
the ultra-high-net-worth client segment starts at US$5
million in investible assets and the average client in this
segment contributes US$30 million to an advisor’s book
of business, which is 15 times the amount of an average
high-net-worth client. In other words, to manage US$30
million in client assets, an ultra-high-net-worth advisor
would work, on average, with one client, a high-net-
worth advisor would work with 15 clients, and a mass-
affluent advisor would work with 120 clients.
Fig 2: Differentiating Wealth Segments by Advice
Approach
In order for a wealth management firm to succeed, it is
critical that they adjust the advice methods, products,
and technologies to the client segment(s) they are
serving. As illustrated in the following picture, the time
available per client differs greatly between the ultra-
high-net-worth segment and the mass-affluent segment.
While the ultra-high-net-worth space is characterized
by a high degree of product customization and a large
amount of time spent with each client to understand
their often complex needs and goals, firms active in the
mass-affluent space will typically minimize the level of
product customization and provide advisors with the
necessary technology support that facilitates an efficient
advice process. These firms might also decide to provide
a rich, web-based client portal, which allows clients to
perform certain tasks on a self-directed basis.
While the extreme ends of the wealth spectrum can be
characterized quite easily, defining the wealth segments
and assigning the appropriate advice model for each
segment in between is, unfortunately, no easy feat.
Wealth management firms aim to optimize the client
segmentation they use to the needs of their particular
client franchise as well as the available product and advisor
capabilities of the firm. An ill-chosen segmentation will
directly impact the firm’s bottom line.
Advisor productivity has become a key measure and
a top priority for wealth management firms that are
addressing the mass-affluent and high-net-worth
segments, in particular. These firms are also dealing with
pressure from clients to provide an ever-increasing level
of service. Balancing this additional workload without
jeopardizing service quality and remaining in a position
to grow their book of business will require many wealth
management firms to significantly upgrade their existing
technology infrastructure. In recent years, low levels of
advisor productivity have led to many acquisitions in the
wealth management industry. Those firms that have an
efficient business and technology model are buying and
integrating other players that have lagged behind in evolving
with the times and embracing new technologies.
UMHs focus on the totality of a client’s assets, which
in most cases go across multiple accounts, have multiple
registrations, and are managed through multiple financial
services firms. The scope of a UMH spans all taxable and
non-taxable investment accounts of a given household.
The UMH is often referred to as the highest form of
SMA integration.
The following figure shows a simple household structure
and a typical case for a UMH. While the client in
this example has only one financial advisor, he has
relationships with three different wealth management
and brokerage firms. Typically, this client would receive
a separate statement for each account. While the advisor
is responsible for two of the four accounts, he probably
influences investment decisions only for the brokerage
account, given that the assets in the SMA are managed
by external money managers and assuming no overlay
portfolio management is used.

Meanwhile, in the Separately Managed

Account Industry…
In the late 1980s, the separately managed account (SMA)
industry was created with the goal to industrialize the
portfolio management process and with this, make
professional portfolio management available to the high-
net-worth-client segments. In recent years, the SMA
industry has moved beyond investment management and
has embraced the idea of holistic wealth management.
The ultimate goal is to create products that support
wealth management advisors in the high-net-worth
and mass-affluent spaces by providing holistic wealth
management advice.

The concepts of multi-style portfolios (MSPs), unified

managed accounts (UMAs), and unified managed
households (UMHs) have all been innovations that
emerged during the last couple of years. With every new Fig 3: A Typical Household of a High-Net-Worth Client
concept, the SMA industry has, step-by-step, moved
The UMH concept, as defined by the Money
further away from selling SMAs as a product and has
Management Institute (which is the SMA industry
increasingly emphasized the advice or consulting aspect
body), focuses on three central, value-added services
involved. While the MSP and UMA concepts define
provided on a household level:
the way client assets are managed within one account,

36
• Single household proposal system. While financial
planning has traditionally been performed on the
household level and takes retirement, education,
and any other life goals a client might have into
account, the tools and processes used for generating
investment proposals are typically specific to each
product. For setting up a diversified client portfolio
using traditional SMAs, a separate account opening
procedure per participating money manager and
investment style has to be performed. A unified
managed household environment should allow for
advice processes such as asset allocation, tax planning,
or income/liability planning to be performed on a
household level.
• Consolidated performance reporting. For clients to be
able to track their progress in achieving the financial
goals that were set during the financial planning
step, holistic household-level reporting is required.
While the performance of each participating money
manager or instrument is important for ongoing
investment management decisions, the client’s
foremost interest lies in knowing that the chosen
overall investment strategy will be able to produce
the results necessary to achieve the set goals. Beyond
consolidating a client’s assets that are held at their
own firm, advisors that are able to provide the full
financial picture of their client’s assets, including
accounts managed elsewhere, will be able to provide
holistic advice and will ultimately become the client’s
trusted advisor.
• Coordinated investment management. Similar Fig 4: A Unified Managed Household
to proposal generation, investment management
has traditionally been product-specific with little The UMH concept attempts to provide the processes
coordination across a client’s accounts. In the past, and tools necessary to offer this kind of service to a
wealth management firms, such as family offices, much broader audience, namely the high-net-worth-
have offered household-level investment management client segment. In particular, clients with US$2 million
coordination only to ultra-high-net-worth clients. The to US$5 million in investible assets are confronted
recent development of unified managed accounts and with complex financial situations and, typically, several
the introduction of overlay portfolio management have financial advisors. However, the fees generated by those
produced a new investment management paradigm clients do not allow wealth managers to perform the
that allows for consistent management of taxes and largely manual processes required for holistic investment
risk across multiple products within one account. The management in a profitable manner.
unified managed household concept assumes a very
While UMA offerings have recently started to emerge
similar investment management approach. However, it
and gain traction, their scope for tax and risk management
tries to expand the scope to include all of the accounts a
is limited to the positions within one account (i.e., the
household might have (across registration and firms).
unified managed account), which leaves a significant
Applying these value-added services to the previous example
blind spot for any other assets the client might hold in
would result in the following figure:
any other accounts at the same firm or for those that
In the past, due to the large manual effort involved, are held away. This might result in an increased risk of
investment management across multiple accounts, concentrated positions in the same security across several
registration, and firms had been reserved for the ultra- accounts or in inefficient tax management.
high-net-worth clients only.

37
The Benefits of UMH Include:
• Family office style investment management. As
discussed above, the UMH concept is designed
to provide consolidated services to the high-net-
worth-client segment. Traditionally, these services
have been provided by firms such as family offices to
ultra-high-net-worth clients only.
• Holistic tax management. Holistic investment
management is particularly important for the
implementation of effective tax management. Taxes
are a client-level matter that can only be managed
and optimized to a limited degree when considering
positions within a single account only. The wash
sale avoidance is a typical tax scenario that requires
coordinated investment management across a client’s
many accounts. The wash sale rule is triggered when
a security is re-purchased within thirty days of a sale
of the same security if the sale was generating the
tax benefit of a realized loss. The wash sale rule is
also triggered if the security is re-purchased by the
same client for a different account or if the account is
with a different firm. It is also disregarded whether
the account is tax-deferred or not.
• Holistic risk management. The consolidated
household view allows the advisor to perform a
household-level asset allocation and to avoid the
single-stock concentration that often arises with
entrepreneurs and corporate executives.
• UMHs allow advisors to manage clients on a
household level throughout the advice process.
Traditionally, only financial planning was performed
on a household level with investment management,
and reporting was done on a product level. With
UMHs, the client’s evolving objectives, which are
identified and maintained through holistic financial
planning, become the explicit goals or guidelines for
investment management and client reporting.
• The holistic client management that is facilitated
by the UMH approach allows advisors to assume
an expanded role and to become the client’s Chief
Financial Officer. Taking into account a client’s total
assets, including assets held away, not only leads to
better investment management results and increased
tax efficiency but also brings the advisor closer
to becoming the trusted person for all financial
concerns. Ultimately, this approach will lead to an
increased share of wallet.
Looking Ahead
With the definition of the UMH concept, the SMA
industry has set very ambitious goals for itself. While
the concept is striking in that it would bring family
office quality investment management to the high-net-
worth-client segment, a short-term implementation of
the full UMH concept is highly unrealistic. Not only
is it currently not possible to obtain reliable, granular
data for held-away client assets, but there are also no
industry-wide mechanisms in place that would allow the
implementation of coordinated investment management
and household-level tax management.
While the holy grail of UMH implementations seems to
be ruled out for a while, the wealth management industry
can learn a great deal from the UMH concept already.
By implementing a single-firm, in-house UMH and
providing both a household-level view and coordinated
investment management across all business units within
the own wealth management operation, wealth managers
would be able to make significant advancements towards
true, holistic wealth management.

Alois Pirker
Senior Analyst
Aite Group.

Alois Pirker is a senior analyst at Aite Group, LLC, specializing in wealth management and separately managed account
technology, advisor-focused platforms and tools, and data warehousing. He was originally an associate director of investment
solutions at UBS Wealth Management in London, where he developed business requirements and managed the delivery of
various initiatives targeted at the launch of UBS’ separately managed accounts business throughout Europe.

38
For information on obtaining additional copies, reprinting or translating articles, and
all other correspondence, please e-mail: bcm@infosys.com. FINsights
Technology Insights for the Financial Services Industry

WEALTH
MANAGEMENT