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Designing Enhanced Supervision for the Evolving Wealth Management Ecosystem

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Designing Enhanced Supervision for the Evolving Wealth Management Ecosystem

Converging and rapidly evolving industry trends are creating a new wealth management environment demanding Wealth Managers redefine supervisory governance to best support the firm’s growth strategies while balancing strong risk management. In this new Accenture Finance & Risk presentation we explore the evolving wealth management trends and challenges and outline four key business supervision design questions to support sustainable, long-term growth.

Converging and rapidly evolving industry trends are creating a new wealth management environment demanding Wealth Managers redefine supervisory governance to best support the firm’s growth strategies while balancing strong risk management. In this new Accenture Finance & Risk presentation we explore the evolving wealth management trends and challenges and outline four key business supervision design questions to support sustainable, long-term growth.

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Designing Enhanced Supervision for the Evolving Wealth Management Ecosystem

  1. 1. DESIGNING ENHANCED SUPERVISION FOR EVOLVING WEALTH MANAGEMENT ECOSYSTEM DISCUSSION DECK FEBRUARY 2018
  2. 2. Copyright © 2018 Accenture. All rights reserved. 2 ADAPTING TO NEW WEALTH INDUSTRY TRENDS & CHALLENGES Converging and rapidly changing industry trends are creating a new wealth management landscape demanding Wealth Managers reevaluate existing business supervision models and risk frameworks to more effectively manage risk and support growth. Firms should realign their business supervision model to adapt to growing industry challenges and implement a governance framework that best supports the firm’s growth strategies while balancing revenue interests and risk management NEW COMMUNICATIONS CHALLENGES • Firms to effectively monitor and manage data disclosures in order to meet compliance requirements • New communications channels (i.e. social, mobile) adding complexity for managing sensitive data protection • Since the global financial crisis, over $300B risk and conduct fines2 have been levied • Penalties and brand damage arising from Financial Advisor misconduct demands increased monitoring activities SUITABILITY RISKS & REGULATIONS SHIFTING CLIENT DEMOGRAPHICS • Over the next 30 years, roughly one third of assets will change hands1 from Seniors and Boomers to their spouses and the next generation • An aging client population presents risk related to serving seniors / vulnerable investors CHANGING CLIENT EXPECTATIONS • Clients expect a holistic and personalized wealth offering with flexible pricing options • New complex products and offerings require new risk frameworks and specialized training 1. “The “Greater” Wealth Transfer – Capitalizing on the Intergenerational Shift in Wealth. Accenture 2018 2. “Banks’ post-crisis legal costs hit $300bn,” Financial Times, June 7, 2015
  3. 3. Copyright © 2018 Accenture. All rights reserved. 3 BUSINESS SUPERVISION MODEL DESIGN PRINCIPLES To meet industry challenges, wealth managers should enhance their regulatory supervision models and realign supervisory responsibilities in order to increase consistency and effectiveness of supervision, protect reputation, and support long-term growth. Key Supervision Model Design Questions Does the Business have a Holistic Risk View and understanding of underlying risk inter- dependencies? Increasing complexity in the risk and regulatory ecosystem is heightening the need to develop a holistic view of risk Siloed views of risk impede firm’s ability to govern risk across the enterprise, and allow gaps in coverage to remain undetected Effective supervisory arrangements, practices and capabilities are required for consistent supervision at scale Many firms are moving towards centralized supervision and utilizing managed services to unlock efficiencies and build specialized workforce capabilities Are Governance Structure, Roles & Responsibilities clearly defined and effective at support ing sustainable growth? Do resources have the Skills and Capabilities to meet new business supervisory requirements? Business supervision demands a fundamentally different workforce with more specialized training in analytics Advances in technology, including workforce digitalization and process automation, lead to a focus on complex decision making and data analysis Firms are investing in data, analytics and technology to empower supervisors and deliver the future state model Leading firms applying analytics and Artificial Intelligence (AI)-driven solutions to permit forward-looking surveillance that is self-learning and self-improving Are the Technology Capabilities sufficient to surveil the supervisory model and allow for scale?
  4. 4. Copyright © 2018 Accenture. All rights reserved. 4 INTEGRATED & HOLISTIC APPROACH TO RISK MANAGEMENT A changing regulatory and industry landscape is creating new challenges for wealth managers, confirming the need for a focused business supervisory function to proactively manage risk and compliance holistically across the business. Key Considerations • Apply an integrated risk management approach across various non-financial risk exposures (i.e. Sales Practice, Operational Risk, Fraud) to remove siloes and connect the dots to allow supervisors to more readily identify patterns and trends • Increase collaboration and define responsibilities between the business and second line of defense partners for complete risk coverage and reduce duplication of work • Define a common risk and control taxonomy structure to allow shared language across various risk types and functions and alignment around single understanding of risk and ratings • Document clear risk escalation paths and empowered governance review committees to review issues and outlined required remediation plans • Invest in data, reporting and analytics tools to permit the business to build and test hypotheses to uncover emerging issues and root causes Independent Financial Advisors & Third-Party Brokers Local Branches, Financial Advisors, Relationship Managers 2nd Line Support Functions Risk Compliance Fraud Financial Crime Data Security Vendor Mgt Business Continuity Wealth Management Business Relationship & Lead Management Lead & Prospect ManagementMarketing & Campaign Management Client Servicing Client Onboarding Client Risk Profiling Client Servicing Client Reporting Client Alerts Mgt Execution Trade Processing Cash Management Breaks Mgt Settlements Product Product Design New Product Approval Product Marketing Product Mgt Investing & Portfolio Management Investment Strategy Portfolio & Risk Analytics Trade Order Management Trade Compliance Manage Books & Records, Reporting & Administration Portfolio Accounting Asset Servicing Reporting Financial Mgt & Administration Vendor Management Front/MiddleOfficeBackOffice Target Wealth Management Risk Framework
  5. 5. Copyright © 2018 Accenture. All rights reserved. 5 REDEFINING SUPERVISORY GOVERNANCE Many firms are assessing front office supervisory arrangements between the field and central office and realigning the current supervision model to help reduce risks exposures as well as improve efficiencies and core supervisory capabilities. Industry Operating Model Options Implementation Considerations: When determining the implementation approach, other factors should be considered A centralized function that acts as a starting point for supervisory process management, governance and field support. This model provides advantages for complex and large organizations, allowing for increased resource specialization but requires strong collaboration with second line of defense partners for effectiveness. Centralized Model Other functional areas Central Office A Central Office R C I End-to-end supervisory activities are facilitated by segregated groups within each business or region. This allows more direct interactions with Financial Advisors, Broker- Dealers and clients. The challenges with this model include conflicting governance structures, duplication of effort and increased spend risk, and difficulty in aggregating data. Decentralized Model Other functional areas Central Off./ Field A Field R C I The Hybrid model has Supervisory Activities performed in both a Centralized and Decentralized model to allow specialization in certain skills and maintain more direct connection with the field. Hybrid Model Other functional areas Central Off./ Field A Central Off./ Field R C I A managed services approach to process transformation allows for consistent, ongoing process adjustments and improvement throughout an organization. Managed services models include third-party services, hub-and-spoke, workforce creation and partnership models. Managed Services Other functional areas Central Office A Service Provider R C I Local Considerations Consider key local nuances and potential risk exposures Activity Relevance Consider whether supervisory activities are still relevant for future state Non-Supervisory Activities Additional activities currently performed by supervisors to support branches Branch Consolidation Develop real estate strategy and identify branch consolidation opportunities Success Tracking / MIS Implement KPI metrics and MIS to monitor success tracking Note: RACI = Responsible (R), Accountable (A), Consulted (C), Informed (I)
  6. 6. Copyright © 2018 Accenture. All rights reserved. 6 REQUIRED RISK MANAGEMENT SKILLS AND CAPABILITIES Risk management demands a fundamentally different skillset from operational task processing and general compliance as complex decision making / analysis and technology / data management often requires talent reskilling and recruiting new talent. Continuous Monitoring & Investigations Employee Compliance Focus and Proficiency Communications Business Acumen Legal Skills Analytics Tech. Acumen Perf. Monitoring Control Oversight Risks & Controls Considerations for Required Skills for a 2020 Workforce: Increased workforce digitalization and process automation facilitates a transition of the risk and compliance role from General Risk Managers to Deep Subject Matter Advisors that focus on solving complex problems Risk and compliance professionals will be able to refine specialties (Product, Business, Regulation) through dedicated career paths and provide more effective business oversight and advisory support Staff to be savvy in leveraging technology innovations for which continuous training will be required While new technology may help to alleviate skill shortages in selected areas, investments will be needed to re-skill / recruit new resources to best deliver on new advisory- focused, data-driven roles
  7. 7. Copyright © 2018 Accenture. All rights reserved. 7 ENHANCING TECHNOLOGY TOOLS Leading Wealth Managers’ Supervision / Surveillance functions are leveraging analytics and data mining tools to manage compliance risk, make better business decisions with more insightful and meaningful data, more proactively monitor compliance with various regulations and controls in effect and to drive efficiency. Management Information Reporting Specialist Supervisor In-process Controls Expert Rules / Machine Learning / AI Advanced Analytics / Data Visualization Standard & Ad-hoc reports Special supervisory control unit Controls to stop & detect instances of Non-compliance Exception-based rules to identify improper activities Predictive analytics to predict future non-compliance Time Maturity Descriptive Analytics Maturity of Analytics Function Take a leadership position with investments in AI, analytics, or managed services Connect compliance infrastructure, skills and capabilities across business lines Wait for others to make compliance changes before leap-frogging ahead of them Innovators Integrators Improvers
  8. 8. Multisource Alerts or KRIs Prioritization Protocol Issue Resolution Monitoring Assign Actions & Monitor ResolutionsPrioritize issues Reporting Communicate Copyright © 2018 Accenture. All rights reserved. 8 INTEGRATED SURVEILLANCE APPROACH The industry is moving towards a more holistic surveillance approach to manage the dependencies between non-financial risks and to promote better risk governance. An integrated surveillance approach with an end-to-end workflow to collect data, distinguish the relevant cases / alerts to focus on, assign and monitor mitigating actions and provide dashboards / reports should be considered. Collect data 8 Analytics Insights y1 x2x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x xx x x x x x x1 x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x3xx xx x x x Use predictive analytics to identify correlations, root causes between issues Use Machine Learning to learn from action resolved and false positives to: • auto adapt models for better prediction • suggest potential actions Use advanced visualization to identify patterns Predict Issues Suggest Resolution Actions Identify Patters Advisory Areas Compliance E-Comms Surveillance Customer Complaints Trade Surveillance Activity Volumes Information Risk Processing Breaks Aggregated Data Repository *Illustrative Data Sources Communicate and report on the various data available issues, risk, false positives, resolutions Identifies KRIs that are above thresholds / limits Identifies relevant alerts ! Sorts compliance findings by priority Use risk scorecards to prioritize Financial Crime Issues Non-Disciplinary Issues (systems, procedures, training, …) Disciplinary Issues (Investigation, revocation, etc..…) Closed cases (false positives) Issues Action Plan Action PlanAction Plan Issues Action PlanAction PlanAction Plan Issues Action Plan Action PlanAction Plan Investigate and assign actions on relevant cases Insight / Prioritization Issues (Risk weight & model review) Issues Action Plan Action PlanAction Plan
  9. 9. Copyright © 2018 Accenture. All rights reserved. 9 FROM UNDERSTANDING TO OUTCOME: ENHANCED SUPERVISION Projects typically begin with an assessment to understand key business risks, diagnose issues within current supervisory arrangements and capabilities, and align leadership on key objectives. From Accenture’s experience, success is found by firms that focus on change management, communications and fostering key business partnerships (i.e. with Human Capital Management) in addition to defining future state vision. Perform risk assessment and identify priority risks Review supervisory arrangements, practices and capabilities Design sustainable future state business supervision model Perform talent review and determine talent management decisions Implement sustainable program & track success 1 2 3 4 5 Current State Assessment Future State Design Supervision Transformation Risk and Current State Capability Assessment estimated at 6-12 weeks Future State Vision & Sustainable Program Design estimated at 10-14 weeks Delivery & Implementation estimated TBD • Difficulty to articulate a strategic vision and benefits at company level or define why the transformation is required • Lack of understanding on the firm growth profile and its supervisory requirements results in poor investment in infrastructure and a misalignment in resources • Centralized supervisory arrangements fail to grasp key local nuances and increase potential risk exposures • Existing resources lack skills to meet future state role responsibilities; hesitation in exiting staff who do not meet the desired skills resulting in lack of fit • Failure to develop training programs to support transition of existing staff and onboarding of new resources results in critical skill gaps to meet new responsibilities • Need to navigate technology advances and proliferation of market solutions and address challenges of integrating solutions for data quality / standardization Managing Change Complexities
  10. 10. Copyright © 2018 Accenture. All rights reserved. CONTACTS Craig McIntosh Accenture Capital Markets Wealth Management Analytics Lead craig.mcintosh@accenture.com Zachary White Accenture Finance & Risk zachary.d.white@accenture.com Samantha Regan Accenture Finance & Risk Global Regulatory and Compliance Lead samantha.regan@accenture.com Bailey Hansford Accenture Finance & Risk bailey.hansford@accenture.com ABOUT ACCENTURE Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions— underpinned by the world’s largest delivery network —Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With more than 435,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com 10 DISCLAIMER This presentation is intended for general informational purposes only and does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

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