Current challenges and solutions in Wealth & Asset …FILE/EY... · Adapting IT infrastructure & data management ... and stricter regulations are forcing banks ... Current challenges

Current challenges and solutions in Wealth & Asset Management

The financial services industry is in the midst of transformation toward a new reality.The whole picture must be understood, from every perspective.

Those who do not adapt will be left behind.

Contents

Introduction 4

A new reality 6

Impact of VUCA on wealth & asset management 10

1. Rethinking the strategy 12

2. Transforming business models 14

3. Transforming control & support functions 16

4. Adapting IT infrastructure & data management

taking into account information security 20

5. Changing corporate conduct and culture 24

Implementing new regulatory requirements 26

Auditing in the new reality — assurance, prospects and added value 28

Your contacts 32

4 | Current challenges and solutions in wealth & asset management

Einleitung


Einleitung

Current challenges and solutions in wealth & asset management | 5

Switzerland is one of the market-leading countries for global asset management. However, the framework conditions have changed.

Pressure on margins, changes in customer behavior and stricter regulation are forcing financial institutions to rethink. Technology and digitization are also accelerating change. And we are not talking about gradual adjustments. Rather, the sector is essentially facing a paradigm shift. This is setting in

motion a series of revolutionary changes that impact financial services providers from every angle. New ideas and solutions are needed. And the fact of the matter is: those who do not adapt will be left behind.

In the following pages we take a closer look at the increased expectations on wealth & asset management providers. We hope you enjoy reading this booklet and we look forward to discussing its contents with you.

Bruno PatusiPartnerHead of Wealth & Asset Management Switzerland


A new reality

The financial industry is undergoing a fundamental transformation process that will create a new reality. In the past, the financial industry was heavily dollar-based and mainly controlled by the Western world, with low levels of automation and tech nology in its business processes. In the new reality of the future, the financial industry will be based on multiple currencies, with a multipolar orientation and business process which are highly automated and digitized.

The drivers behind the current transformation process are the shift in the geopolitical power structure; demographic change; changes in customer behavior; changing values in society; technological advances in social media and data management; and sharp increase in regulation following the financial crisis.

The current change process is shaped by four factors: volatility, uncertainty, complexity and ambiguity (VUCA). These forces are impacting all financial institu-tions.

Business fundamentals are changing and value chains are undergoing restructuring. This is not an orderly transition; on the contrary, what we are seeing is a seismic shift that is generating instability. This phase has already started and is set to continue over the next ten years.

Current challenges and solutions in wealth & asset management | 7Current challenges and solutions in wealth & asset management | 7


Volatility UncertaintyThe next few years will be marked by erratic changes. The speed and extent of the shifts are increasing and it is not possible to predict a trend or recognize a recurring pattern. Challenges now appear suddenly, without advance warning, and demand an immediate response. This increased volatility is apparent in the price trajectory of commodities and securities and the erratic development of the global economy.

Increased volatility leads to greater uncertainty. The future can no longer be derived from the past. During this period of transition, future challenges can no longer be clearly defined. Companies must expect surprises. They have to learn to act without any certainty about future developments.


Complexity AmbiguityIncreased connectivity and economic globalization are two of several factors fueling complexity in the alignment and leadership of companies. The wave of consolidation that can be expected within the financial industry and the resulting larger organizational units will also add to the complexity.

These changes — increased volatility, uncertainty and complexity — ultimately engender ambiguity. The new reality allows many interpretations. The significance of individual events is no longer clearly identifiable and it is becoming increasingly difficult to distinguish between cause and effect. These developments heighten the risk of erroneous conclusions and misinterpretation.


Impact of VUCA on wealth & asset management

To survive in the rapidly approaching new reality, institutions have to take an interdisciplinary approach.

New regulatory requirements must also be implemented and audits must increasingly provide foresighted assurance and generate added value.

Pictograms for Strategic Solutions

Customer Protection

Capital Markets Reform

Tax transparency

Prudential Basel III

Recovery & ResolutionPlanning

Culture change

Business Optimization

Technology Enabled Transformation

Customer Agenda, Digitalization & Revenue

Strategic Change

Tax transformation

Enterprise Intelligence & Data Management

Finance Change

Risk & Actuarial Transformation

TAX

TAX


Customer Protection


Tax transparency



Culture change




Strategic Change

Tax transformation


Finance Change


TAX

TAX


Customer Protection


Tax transparency



Culture change




Strategic Change

Tax transformation


Finance Change


TAX

TAX

Transforming control& support functions

Rethinking the strategy

Transforming business models

Adapting IT infrastructure & data management

Changing corporate conduct and culture


One thing is clear in the current environment: those who do not adapt will be left behind. Companies must take measures in order to master their entry into the digital world. The corporate strategy must be reconsidered and the business model optimized. Changes in customer behavior, pressure on margins and stricter regu lations are forcing banks to reorient their value chains. Banks will need new ideas and concepts in the new reality. And we are not talking about gradual adjustments. Rather, the sector is essentially facing a paradigm shift. IT is a key strategic element as a means of guaranteeing an organization’s growth, scalability and efficiency in the context of VUCA.


Olaf Toepfer Partner

Nick Blaydes Executive Director

Peppi Schnieper Partner


“Strategy is defined by where to play and how to win.” Olaf Toepfer, Partner


In past decades, corporate strategies were based upon a fundamental understanding of value creation, the validity of which has eroded over time. Financial institutions must rigorously adapt their strategy to a new reality. However, many aspects of the future playing field are not yet foreseeable. And companies must be agile enough to respond more quickly. Specific aspects of the strategy have to be reviewed more than once a year. In addition, companies have to cope with an unprecedented array of parallel strategic priorities: implications of regulatory changes, sustainable enhancement of efficiency, profitable earnings growth and a reorientation of the business model to a new reality.

These developments put a company’s performance capability to the test. A strategic interpretation is key to converting risks into opportunities, driving ahead market consolidation, transforming

business models and optimizing the value chain. Restructuring operations and acquisitions will be core elements of many corporate strategies in the coming years. In the new reality, the message is clearer than ever before: Get big, get niche or get out.

An isolated perspective does not help our customers achieve their objectives. This is why our strategy advisors are fully integrated members of a team, contributing the proven experience that is critically important for you on subjects ranging from regulatory aspects or operations and IT to finance, tax and legal.

We also stand out from our competitors because of our pragmatic, results- oriented approach, offering the benefits of our technical advisory know-how combined with transaction support skills.

EY’s strategy team can work with you to help you adapt successfully to the new reality.


Customer Protection


Tax transparency



Culture change




Strategic Change

Tax transformation


Finance Change


TAX

TAX




Achim BauerPartner

Bruno PatusiPartner

Christian SoguelPartner

Business models that proved successful in the past may not necessarily work in the new reality. One of the driving forces is the conjuncture whereby profitable cross-border business in its previous form has fallen away. The dramatic changes in the market environment and in customer behavior go hand in hand with the rapid development of new technologies. Digitization is also an increasingly important success factor in the asset management business.

The extent to which financial institutions are affected by these changes varies, as do the challenges they face. But they all have one thing in common: financial institutions must align their pricing and service offerings more closely to the needs of their customers and shift from a product-centric to a customer-centric business model. They must find ways of working toward seemingly conflicting goals in parallel. In effect, this means either increasing efficiency while pursuing growth or reducing costs while investing in IT systems.

Reorientation in investment advisory services One thing is clear in the current environment: financial institutions must renew their value proposition to their customers. This requires a review of the key processes throughout the entire value chain, from the time a customer opens an account through to the investment advice and investment process and on to

“The entire value chain needs to be adapted to the new economic framework conditions.” Achim Bauer, Partner


customer reporting. New technologies and digitization play a key role in this respect.

A new business model Pressure on margins is growing. Financial institutions have to operate more cost-effectively and efficiently in the new reality, as asset management revenues increasingly come under pressure. In the current environment, key questions must be asked with regard to the business model: At which locations do institutions wish to have a presence? Which booking centers are of relevance to them? Where should they centralize IT, operations and back office? Which functions and services should they deal with in-house and which ones should they outsource? The path to the future is marked by more automation, industrialization and standardization of the core business.

Digitization as a key success factorDigitization is not limited to online banking and apps. Digitization refers to the networked automation of standard izable process steps while prioritizing the planned data flow as a feature of the architecture. Financial institutions must radically rethink their processes “front to back” and focus upon the value contribution and differentiation characteristics integral to every action throughout the value chain.

A strategic (external and internal) customer-oriented digitization strategy ultimately leads to an urgently needed cost reduction. This will significantly increase the sustainability of the economic business model in the asset management business.

The key prerequisites for future success include a sharper customer focus; the creation of new pricing and serviceofferings; a review of the existingportfolio; and the simplification ofcomplex processes. The key to success is to strike the best possible balance between customers, costs and digiti zation — with fewer, but better resources and processes.

EY’s knowledge of the entire peer group and the benchmarks at all stages of the value chain can give you a competitive edge based on wide-ranging industry models, backed by our many years of experience.

Our integrated approach to business optimization is based upon the underlying factors of time, costs and quality within your organization, with the aim of identifying areas where sustainable optimization is possible.


Marco AmatoPartner

Marc RyserPartner

Rolf GeierPartner

Transforming control & support functions

The control functions, finance, compliance and risk management have already seen dramatic changes in requirements since the start of the financial and economic crisis, coupled with increased expectations regarding cost efficiency.

Now, the new reality calls for a strategic realignment of the control and support functions. What is important is that this will entail a sustainable improvement in efficiency by industrializing administrative and transaction-based workflows, based upon an approach to standardization, automation and outsourcing. Even more impor tant, however, are the requirements for a change in the contribution that these functions make to value creation, and an entirely new type of cooperation between the functions. In the new reality, strategic planning, financial planning, capital allocation, compliance, risk and liquidity management must all be closely coordinated with respect to critical aspects.

The new environment also requires companies to make significant adjustments to central support functions, especially in the management of finance, risk and tax. These three areas should not be considered in isolation. Rather, they need to be integrated into a consistent system, enabling the functions to provide organizations with relevant information during this period of uncertainty.

Finance Today’s advanced technologies enable integrated and timely financial reporting. As evidenced by the volatility of markets, there are no safe havens left today, be it in currencies, commodities or elsewhere. Financial institutions must understand these influences and factor in their consequences in order to keep pace with a rapidly changing market and anticipate the corres pon ding ramifications. Transparency of current indicators is merely a starting


point — leading players are already able to forecast and plan in real time using integrated programs. The new paradigm in financial control is a “no surprises” culture.

Risk transformation Today’s unprecedented pressure from regulators (including the delimitation of capital, liquidity and management responsibility) is colliding with eroding margins, efforts to improve performance and cost cutting in the core and non-core businesses. This is forcing financial services providers to redesign their risk functions (mandate, organization, guidelines, methodology, process and control functions, data and culture) in order to fulfill the requirements in this rapidly changing environment.

Tax Demands on tax functions have increased tremendously over recent years. Globalization, rapid and wide-reaching

changes in the legal framework conditions, greater transparency and shorter financial close cycles are just some of the challenges that tax managers face. The financial and reputation risks are increasing accordingly. In order to survive this situation with scarce resources, efficient and stable processes are required along with tax-specific applications. These applications relieve tax managers from routine tasks and enable them to concentrate on value-adding activities.

With our comprehensive approach, we can support your transformation program — from the business case through to implementation.

Whether you are launching a reorientation or harmonizing your various support functions, EY is your partner of choice.

As one of your key strategic sponsors, we will work to help ensure that you benefit from the “no surprises” approach.

With our comprehensive approach, we can support your transformation program — from the business case through to implementation.

Whether you are launching a reorientation or harmonizing your various support functions, EY is your partner of choice.

As one of your key strategic sponsors, we will work to help ensure that you benefit from the “no surprises” approach.


“Requirements for control and support functions will change fundamentally in the new reality.” Marco Amato, Partner



Adapting IT infrastructure & data management taking into account information security

Andreas ToggwylerPartner

Davide GobboExecutive Director

Robert RümmlerSenior Manager

The strategic importance of IT and the value of data must be recognized as a key production factor. There must be a clearly defined technology strategy at the heart of every financial services company. IT systems and harmonized data management make it possible to implement the necessary changes to business models and processes with agility and cost efficiency. In addition, the appropriate protection of data is key.

By integrating IT architecture and implementing efficient data management, financial services providers can improve their agility and equip themselves to react to changes more quickly and adequately. The integration of data and application architectures remedies some of the legacy complexity that has developed over time. This approach willsimultaneously unlock opportunities to tap into new business areas and improve risk mitigation with the help of data

and intelligent analyses. Dynamic data that can be collected and evaluated over time is gradually becoming more important than static data. Dynamic data makes it possible to measure customer behavior and to implement new types of segmentation — offering significant advantages for marketing, sales and digitization especially. Methods of this sort have already become established in retail banking and are also emerging as a critical success factor in the asset management business. These new approaches also open up the way to efficiently supplying management and supervisory authorities with the information they require. The value of data is therefore significantly increasing for financial institutions as well as the need to protect this data from new cyber risks.



Customer Protection


Tax transparency



Culture change




Strategic Change

Tax transformation


Finance Change


TAX

TAX

IT systems Current IT systems, often legacy systems that have developed over time, are in need of a thorough overhaul. The growing mass of information and the constant increase in cost pressure are forcing institutions to examine possibilities for stepping up the joint use of key resources. This calls for IT architecture that allows standardization and industrialization of business processes. End-to-end integration at application level is the basis for a faster and more efficient response to regulatory requirements.

Data management Data has a particularly significant role in the new reality. The prerequisite for functional data management is an integrated data architecture that enables efficient business-wide generation of standardized analyses and reports from a variety of perspectives. A comprehensive data management concept is essential

in order to respond efficiently to regulators‘ increased requirements. This is why the growing complexity of data management calls for an expansion of data governance, in order to ensure the integrity and quality of data throughout the enterprise.

Digitalization and security Changes in customer behavior in a changing market — due to digitization in particular — are significantly increasing demands on companies‘ analytical capabilities. Processes and technologies are needed that enable forecasting of likely customer behavior and the development of a customized offering. The most common applications include client segmentation, strengthening customer loyalty, increasing turnover and profitability, and credit scoring. Digitalization and the introduction of new distribution channels are also leading to new challenges with regard to

data security. Cyber risks and threats will continue to increase and financial institutions will have to make sure that their cyber security measures are aligned to the fast and significantly changing environment they are operating in.

EY offers you a wide range of cross- functional advisory services in the field of digitization — from strategy to implementation.

With our comprehensive approach, we support financial institutions with the transformation of their IT infrastructure and with customer-centric data management taking into account the increased data security requirements.

Whether you are launching a reorientation or harmonizing your existing solutions, EY is your partner of choice.

EY offers you a wide range of cross-functional advisory services in the field of digitization — from strategy to implementation.

With our comprehensive approach, we support financial institutions with the transformation of their IT infrastructure and with customer-centric data management taking into account the increased data security requirements.

Whether you are launching a reorientation or harmonizing your existing solutions, EY is your partner of choice.


“Data and analytics play a decisive part in coping with the implications of VUCA.”Davide Gobbo, Executive Director


24 | Current challenges and solutions in wealth & asset management24 | Current challenges and solutions in wealth & asset management

Jörg ThewsPartner

Eric LefebvreExecutive Director

“ A performance-oriented culture is not the result of corporate success — it is the decisive factor in that success.” Jörg Thews, Partner



Corporate culture must be developed and influenced over the long term in order to attain effective implementation of organizational objectives and to make businesses more dynamic and adaptable. In this sense, culture is even more important than structure as a competitive factor.

To achieve this, corporate goals, values and desired behavior patterns must be reviewed and transformed into actual work practices and decision-making principles in day-to-day working life.

A corporate culture that is successfully geared to the goals calls for effective and efficient implementation of the strategy and organizational requirements as the outcome of the activities and decisions of all employees.

Ultimately, the necessary, desired culture is not recorded on paper — it is evident in everyday working life and in day-to-day dealings with clients. Any deviations must be specifically addressed and corrected using the various mechanisms that are available.

This creates trust, which is of paramount importance in the wealth and asset management business. The conduct of client advisors, for example, in their regular interaction with customers is a particularly critical factor here. The desired behavior should not be controlled primarily by checks and the threat of sanctions, but by an understanding of objectives and values, and by gearing all the elements of the organization toward supporting the implementation of that behavior. To ensure a lasting transfor mation, operational change must go hand in hand with cultural change. Key target groups must be defined for an

adaptation of the culture, and they must be involved in determining the vision, the objectives and the behavior patterns. If all the main players and decision-makers are involved in initiatives to deal with specific issues, cultural change will happen naturally. A performance-oriented culture is not the result of corporate success — it is the decisive factor in that success.

Let’s join forces to transform your corporate culture into a competitive advantage. Benefit from EY’s international competence centers in Switzerland and our wide-reaching experience with peer group companies.

Our approach is designed to deliver changes in corporate culture with direct, measurable and lasting impact.


Customer Protection


Tax transparency



Culture change




Strategic Change

Tax transformation


Finance Change


TAX

TAX


Implementing new regulatory requirements

Philippe ZimmermannPartner

Christian RöthlinPartner

IMD II; MiFID II; MiFIR; FIDLEG; EMIR; PRIIPs; CRD IV; CRR; AIFMD; UCITS V + VI; ELTIF; EuVECA; MAD II; RDR; FATCA; and Dodd-Frank Act — these are just a few examples of the masses of abbreviations and acronyms that financial institutes around the world have to grapple with. Regardless of their size and diversification, all businesses have to negotiate their way through this labyrinth of regulatory changes. Failure to comply means risking sanctions and fines.

Customer protection Financial services providers must adapt to the new reality. This also includes complying with the tighter customer protection regulations (e.g., FIDLEG, FINIG and FinfraG). In the asset management business, the focus is on the appropriateness and suitability test. Regulatory reforms in the area of inducements and retrocessions also require a fundamental review of the

“In the tax world, FATCA is no doubt the catalyst for a massive increase in transparency — but it is one tile in the overall mosaic. It is increasingly evident that we are going to see a rising tide of regulatory and tax initiatives in the coming years.”

Philippe Zimmermann, Partner


entire value chain from the perspective of product development and sales.

Tax transparency Financial institutions have recognized and accepted that there is no way to bypass total tax transparency. The implementation of different initiatives to improve tax transparency is, however, complex, not to mention time and cost-intensive: taxable funds are mobile and honest tax payers make for more demanding customers. In the future, banks in the offshore business will be in direct competition with other banks in the customer’s home country.

Financial institutions must proactively tackle the issue of tax transparency. The key factors at the customer level are the Foreign Account Tax Compliance Act (FACTA) on the one hand, and Automatic Exchange of Information (AEI) on the other hand. At company level, the Organisation for Economic Co-operation

and Development (OECD) has initiated the Base Erosion and Profit Shifting (BEPS); thus the trend toward total tax transparency does not stop at companies.

Regardless of whether national or international regulations are involved, we believe that an integrated approach to present and future regulatory changes will prove beneficial in the long term.

Through our globally connected teams with local roots, EY maintains continuous dialog with national and international authorities and regulators.

We can deploy our wealth of experience to help you exploit synergies. That is what makes us a strategically important sponsor of choice in preparing and implementing these regulatory regimes. Interdisciplinary teams with extensive experience in the asset management business are on hand to offer you support.


Auditing in the new reality — assurance, prospects and added value

Patrick SchwallerPartner

Stéphane MullerPartner

Clarity, simplicity and certainty have enormous value in the new reality of increasing volatility, uncertainty, complexity and ambiguity. These are the very factors that make assurance and trust possible. Ultimately, they are the essential prerequisites for soundly based analyses and sustainable decisions.

A comprehensive audit offers far more than a mere confirmation of compliance with legislation, regulations or relevant standards. It helps companies to understand the various financial reporting documents, such as financial statements, risk and controlling reports or performance reports, and to set them in the relevant context. It provides transparency and clarity with regard to the essential business processes and the quality of the control functions.

A comprehensive audit is future-oriented; it provides impetus and benchmark comparisons, and singles out relevant opportunities and risks. In these ways, we create added value for companies’ stakeholders and investors. We focus our organization consistently on the financial industry, and we occupy a leading position in the audit sector. Our approach makes us a reliable and trustworthy service provider as we tackle the challenges and future opportunities for banks, insurers and fund companies, day after day and around the globe.


The EY service spectrum essentially spans:

Financial Audit Regulatory Audit Compliance Audit IT Security Audit Sustainability Audit Risk Assurance Services Investment Performance Services Financial Accounting Advisory Services Internal Audit

We are here to help you. Talk to us.

“Comprehensive audits reduce uncertainties and increase confidence — key requirements for good decisions.”

Patrick Schwaller, Partner


“Change equals opportunities. For you. For us.” Bruno Patusi, Partner


Marcel StalderPartner Leader Financial Services Switzerland +41 58 286 31 11 [email protected]

Bruno PatusiPartner Leader Wealth & Asset Management Switzerland +41 58 286 46 [email protected]


Olaf ToepferPartner +41 58 286 44 71 [email protected]

Nick BlaydesExecutive Director+41 58 286 33 [email protected]

Peppi SchnieperPartner +41 58 286 37 03 [email protected]


Achim BauerPartner +41 58 286 35 53 [email protected]

Bruno PatusiPartner+41 58 286 46 [email protected]

Christian SoguelPartner+41 58 286 41 [email protected]

Transforming control & support functions

Marco AmatoPartner +41 58 286 83 [email protected]

Marc RyserPartner+41 58 286 49 [email protected]

Your contacts


Rolf GeierPartner+41 58 286 44 [email protected]

Adapting IT infrastructure & data management

Andreas ToggwylerPartner+41 58 286 59 [email protected]

Davide GobboExecutive Director+41 58 286 35 [email protected]

Robert RümmlerSenior Manager+41 58 286 42 [email protected]


Jörg ThewsPartner +41 58 286 35 [email protected]

Eric LefebvreExecutive Director+41 58 286 46 [email protected]

Implementing new regulatory requirements

Philippe ZimmermannPartner+41 58 286 32 [email protected]

Christian RöthlinPartner+41 58 286 35 [email protected]

Auditing in the new reality — assurance, prospects and added value

Patrick Schwaller Partner+41 58 286 69 [email protected]

Stéphane MullerPartner+41 58 286 55 [email protected]

34 Insurance Trends in the Market | Thema der Seite EY 2014 – All Rights Reserved34 Insurance Trends in the Market | Thema der Seite EY 2014 – All Rights Reserved


From all perspectives — understand the whole picture.

www.ey.com/ch/perspectives

EY | Assurance | Tax | Transactions | Advisory

About EY

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice.Please refer to your advisors for specific advice.

EY is a global leader in assurance, tax, transaction andadvisory services. The insights and quality services wedeliver help build trust and confidence in the capitalmarkets and in economies the world over.We develop outstanding leaders who team to deliveron our promises to all of our stakeholders. In so doing,we play a critical role in building a better working worldfor our people, for our clients and for our communities.

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Current challenges and solutions in Wealth & Asset …FILE/EY... · Adapting IT infrastructure & data management ... and stricter regulations are forcing banks ... Current challenges