Other parts of this series:
Rapidly evolving client expectations and converging industry trends are resulting in a fundamentally different retail wealth management front office, creating new challenges for business supervisory and risk officers.
Significant shifts in client demographics, intergenerational wealth transfer and the maturation of new client-facing digital tools have altered how clients interact with Wealth Managers and integrated financial institutions. In response, firms are required to serve a greater number of clients at a reduced price, while preserving margins and providing an elevated level of personalized service. This creates new risks and challenges for the business to manage. Recent industry headlines regarding sales practices, fraud and conduct culture have confirmed the need for a focused and effective supervisory program to proactively manage risk.
At this critical inflection point, firms are making governance and operating model decisions, prioritizing key technology investments, and assessing the responsibilities between the home office, field management operations and outsourced managed services, so they can adapt to a changing industry environment.
As I previously discussed in “Designing Enhanced Supervision and Evolving Management Ecosystem,” firms should assess and realign their current business supervision and risk framework across four key design factors (see slide 3 in presentation below) for more consistent, effective supervision, to protect the firm’s reputation and support long-term, sustainable growth.
Designing the new business supervision model and determining key talent and technology investment decisions should not occur in isolation. The most successful programs consider supervisory arrangements, practices and capabilities, and any regionally specific risk exposures and challenges at retail branch locations, to design the most effective business supervision model.
Calibrating the retail business supervision diagnostic framework
The first step involves calibrating the retail business supervision diagnostic framework. Performing a targeted retail business supervision review can help the firm better understand the business’s ability to manage risk, and identify weaknesses and failings within the business supervisory and risk management framework. By applying a defined diagnostic approach and testing critical use-cases, the firm can strategically assess, measure and benchmark supervisory practices and capabilities, unlocking critical insights to make informed business supervision model enhancement investments.
To effectively review the retail business supervision capabilities, we recommend testing use-cases within six critical focus areas:
- Roles, responsibilities and capabilities: Assess whether the roles, responsibilities and capabilities of individuals comprising the business supervisory structure are understood, reviewed and tested, within both the retail branches and central office.
- Policy adherence: Review the business supervisors’ ability to understand, maintain and adopt adherence to compliance and business polices and manage underlying risks.
- Client interaction model: Review business supervisors’ understanding of client interaction models (human, digital and hybrid) and their ability to maintain compliance and good client outcomes.
- Sales practices and investment suitability: Assess the business’s ability to deliver sales practices compliance, product and account suitability, and customer-centric outcomes. Focus particularly on the firm’s ability to manage senior and other vulnerable investor challenges and meet various national and local consumer protection rules.
- Client communications and social media: Assess the record retention, supervision and monitoring of client communications across all forms (including social media). Scan for use of unauthorized emails for client correspondence.
- Employee conduct and culture risk: Assess the firm’s behaviors and norms, identifying any problematic sub-cultures within the regional retail branches. Take steps so that the culture drivers (e.g., performance incentives, training programs, style of business) help promote a culture of compliance and adherence to firm values.
Firms should select a series of use-cases within each of the six diagnostic review focus areas to both assess and benchmark supervisory capabilities across various regional retail branch locations. The assessed use-case will vary based on the firm’s specific business strategy and any known challenges.
Prior to executing the regional branch supervision assessment, the firm should engage selected stakeholders from the business and supporting second line functions (e.g., Risk Management, HR) and review regulatory trends, industry best practices, and previous audit and compliance findings to determine priority use-cases. This helps the firm target branch reviews to unlock the most relevant insights, while reducing the pressure and time commitment on stakeholders.
With a fully calibrated diagnostic review framework, the firm should have what it needs to begin execution. In my next post, we’ll take a look at how that can work.