Many asset management firms are implementing customer relationship management (CRM) systems to automate their sales and marketing processes and build more comprehensive views of their customers. Likewise, many are building interactive client portals and applications, as well as client reporting and document automation capabilities, to better service customers, create operational efficiencies and meet regulatory reporting requirements. As a next step, asset managers can devise a strategy to share the information generated by these customer-facing portals and apps with their CRM systems, and vice versa, to proactively engage the customer on an increasingly personalized level. In this article, Thomas Kracz discusses why creating this level of client engagement is essential to ensure asset managers generate and retain the interest and attention of younger customers, and survive the impending wealth transfer from Baby Boomers to Gen Xers and Millennials.
Beyond CRM: Tapping the Combined Power of Customer and Product Data
Amazon, LinkedIn and Facebook know everything about their customers—from when they need to order another printer cartridge to the movie they plan to see next week. While it’s nice, and a little bit unnerving, that they know so many personal details, wouldn’t consumers prefer to see this level of knowledge and capability in the hands of organizations that have far more significance in their lives? More to the point, why don’t the institutions that manage financial assets know their clients this well?
Firms like Facebook have a slight advantage. Consumers spend considerable time on their websites and applications, or at least log into them—often from mobile devices—thereby generating a stream of continuous data that is used to track and analyze their every move. Consumers are drawn to these websites because they provide highly desirable information, services and user experience.
Fortunately, asset managers can create a similarly compelling experience for their customers. In fact, asset managers have two inherent advantages: (1) they manage money, which plays an important role in a customer’s life, and (2) their relationships with customers often begin with a detailed investment profile, which offers a baseline for insights into their needs and expectations. From day one, customers have specific reasons to visit their asset managers’ websites, such as to check investment performance and obtain information necessary to make the experience personally rewarding. But a truly desirable experience requires a continuous flow of information about the customer’s behaviors and actions that can be gathered, analyzed and leveraged to provide services and information that are of increasing value to the customer.
A Virtuous Cycle: Building the Digital Hub for Client Engagement
The first step for asset managers is automating processes and data management such that the information customers require—and that asset managers are required to provide—is easily available, timely and in the desired format. Often, this first step is taken to address operational efficiency and reduce cost, but it also creates the minimum essential service necessary for a customer to consider a return visit. If the data is bad, incomplete or not current, the customer moves on. However, if the information is accurate and easily accessible, the customer will likely return with relative frequency. At that point, there is an opportunity to gather data that can be used to enhance subsequent visits—and the entire customer journey.
Theoretically, this insight-enrichment process could be further enhanced by tapping additional sources of information through customer interaction. For example, asset managers could provide updates on what’s happening in the financial markets that day, the latest economic and world events, the most recent financial performance of the customer’s employer, local weather reports, tuition costs for area colleges or the price of a recently purchased house in the customer’s home or neighboring towns. The ultimate goal of these event-driven updates is to personalize the customer’s experience and build a far more insightful story about his or her goals and plans for the future.
Integration and Synchronization
Achieving all this requires a high level of integration and coordination with critical systems, including:
A client portal or digital hub for client engagement that attracts customers and keeps them coming back for more, in addition to providing essential services and timely, accurate information.
A CRM system to maintain richer prospect and customer profiles, as well as drive sales, service and marketing processes that are increasingly tuned to customer needs and expectations—even those they didn’t know they had. The profile could be fed by the initial investor profile, but would be continually replenished by various sources of information—directly from customer interactions, analysis of digital client behavior, trading and investment patterns and predictive behavior.
Web and marketing analytics engines to churn through raw data and draw meaningful conclusions about customers that the CRM system can act upon.
Dashboards and other tools to assess the effectiveness of marketing programs and processes, allowing the asset manager to reallocate resources for optimal effect, tapping the more intimate knowledge of the customer contained in the CRM system.
An artificial intelligence (AI) capability to explore customer behavior in a much more expansive context (e.g., world news, economics, occupations, personal relationships, etc.) via integration with external data sources. Such a capability might be useful for forecasting customer behavior at a more refined level, while more advanced levels of AI might actually articulate the specific causes for such behavior.
Tying these systems together to work uniformly and in real time is essential because customer impressions and decisions, particularly among the younger generation, are often made in an instant these days. Asset managers, as well as the wealth management advisors who sell and support their products, must create digital hubs to attract and retain younger customers.
Gen Xers and Millennials may not have significant assets today, but they will soon, and some do now. Gen Xers are turning 50 and in their peak earning years. Older Millennials are in their mid-30s, hitting their stride financially, and they are set to inherit wealth from their Baby Boomer parents, with fewer brothers and sisters to share it with. Over the next 30 years, $30 trillion will be passed down from Baby Boomers to Gen Xers and Millennials1 . Sixty-six percent of children fire their parents’ financial adviser after they inherit their parents’ wealth, according to an Investment News survey. Therefore, asset managers and advisors will need to fight for their share of these assets.
The younger generations—and even the older Gen Xers—grew up with technology. They are accustomed to an overflow of digital information and have little tolerance for organizations or institutions that cannot provide them with the information they need, when and how they need it. For them, it is a baseline expectation. Asset manager retention rates for younger customers are much lower than for older customers. Those that don’t align their services and technology with the needs of the digitally savvy will see increased customer churn.
As asset managers build the internal business case for creating digital hubs, they should consider the tactical benefits of increased operational efficiency. They should focus on the lifetime value of the customers most likely to engage with these hubs, as well as the strategic value of the insights derived from analyzing their actions. To do this, they must tightly integrate CRM with customer-facing digital platforms. The ability to generate these insights and use them to create an Amazon- or Facebook-like level of familiarity and comfort with the younger generation will improve customer satisfaction, increase retention and position asset managers to survive, if not thrive, as the assets of the younger generation grow exponentially.
Thomas C. Kracz is a Vice President and leader within Sapient Global Markets’ Solutions practice. Based in Boston, Tom has more than 25 years of experience in technology services for global capital markets, having held senior management positions with established software and consulting firms. At Sapient Global Markets, he is responsible for identifying, cultivating and managing strategic technology solutions.
Bringing finance into the 21st Century – How COVID and collaboration are catalysing digital transformation
By Keith Phillips, CEO of TISATech
If just six or seven months ago someone had told you that in a matter of weeks people around the world would be locked down in their homes, trying to navigate modern work systems from a prehistoric laptop, bickering with family over who’s hogging the Wi-Fi, migrating online to manage all financial services digitally, all while washing their hands every five minutes in fear of a global pandemic… You’d think they had lost their mind. But this very quickly became the reality for huge swathes of the world and we’re about to go through that all over again as the UK government has asked that those who can work from home should.
Unsurprisingly, statistics show that lockdown restrictions introduced by the UK government in March, led to a sharp increase in people adopting digital services. Banks encouraged its customers to log onto online banking, as they limited (and eventually halted) services at branches. This forced many customers online as their primary means of managing personal finances for the first time.
If anyone had doubts before, the Covid-19 pandemic proved to us the importance of well-functioning, effective digital financial services platforms, for both financial institutions and the people using them.
But with this sudden mass online migration, it’s become clear that traditional banks have struggled to keep up with servicing clients virtually. Legacy banking systems have always stilted the digitisation of financial services, but the pandemic thrust this issue into the limelight. Fintech firms, which focus intently on digital and mobile services, knew it was only a matter of time before financial institutions’ reliance was to increase at an unprecedented rate.
For years, fintechs have been called upon by traditional players to find solutions to problems borne from those clunky legacy systems, like manual completion of account changes and money transfers. Now it is the demand for these services to be online coupled with the need for financial services firms to cut costs, since Covid-19 hit the economy.
Covid-19 has catalysed the urgent need to bring digital transformation to a wider pool of financial services businesses. Customers now have even higher expectations of larger institutions, demanding that they keep up with what the younger and more nimble challengers have to offer. Industry leaders realise that they must transform their businesses as soon as possible, by streamlining and digitising operations to compete and, ultimately, improve services for their customers.
The race for digital acceleration began far before the recent pandemic – in fact, following the 2008 financial crisis is likely more accurate. Since the credit crunch, there has been a wave of new fintech firms, full of young, bright techies looking to be the next big thing. Fintechs have marketed themselves hard at big conferences and expos or by hosting ‘hackathons’, trying to prove themselves as the fastest, most innovative or the most vital to the future of the industry.
However, even during this period where accelerating innovation in online financial services and legacy systems is crucial, the conditions brought about by the pandemic have not been conducive to this much-needed transformation.
The second issue, which again was clear far before the pandemic, is that fact that no matter how nimble or clever the fintechs’ solutions are, it is still hard to implement the solutions seamlessly, as the sector is highly fragmented with banks using extremely outdated systems populated with vast amounts of data.
With the significance of the pandemic becoming more and more clear, and the need for better digital products and services becoming more crucial to financial services firms and consumers by the day, the industry has finally come together to provide a solution.
The TISAtech project was launched last month by The Investing and Saving Alliance (TISA), a membership organisation in the UK with more than 200 leading financial institutions as members. TISA asked The Disruption House, a specialist benchmarking and data analytics business, to create a clearing house platform for the industry to help it more effectively integrate new financial technology. The project aims to enhance products and services while reducing friction and ultimately lowering costs which are passed on to the customers.
With nearly 4,000 fintechs from around the world participating, it will be the world’s largest marketplace dedicated to Open Finance, Savings, and Investment.
Not only will it provide a ‘matchmaking’ service between financial institutions an fintechs, it will also host a sandbox environment. Financial institutions can pose real problems with real data and the fintechs are given the space to race to the bottom – to find the most constructive, cost-effective solution.
Yes, there are other marketplaces, but they all seem to struggle to achieve a return on investment. There is a genuine need for the ‘Trivago’ of financial technology – a one stop shop, run by an independent body, which can do more than just matchmaking. It needs to go above and beyond to encompass the sandboxing, assessments, profiling of fintechs to separate the wheat from the chaff, and provide a space for true collaboration.
The pandemic has taught us that we are more effective if we work together. We need mass support and collaboration to find solutions to problems. Businesses and industries are no different. If fintechs and financial institutions can work together, there is a real chance that we can start to lessen the economic hit for many businesses and consumers by lowering costs and streamlining better services and products. And even if it is just making it that little bit easier to manage personal finances from home when fighting with your children for the Wi-Fi, we are making a difference.
What to Know Before You Expand Across Borders
By Sean King, Director of International Tax at McGuire Sponsel
The American retail giant, Target Corporation, has a market cap of $64 billion and access to seemingly limitless resources and advisors. So, when the company engaged in its first global expansion, how could anything possibly go wrong?
Less than two years after opening its first Canadian store in 2013, Target shut down all133 Canadian locations and terminated more than 17,000 Canadian employees.
Expansion of an operation to another country can create unique challenges that may impact the financial viability of the entire enterprise. If Target Corporation can colossally fail in its expansion to Canada, how might Mom ‘N’ Pop LLC fare when expanding into Switzerland, Singapore, or Australia?
Successful global expansion requires an understanding of multilayered taxes, regulatory hurdles, employment laws, and cultural nuances. Fortunately, with the right guidance, global expansion can be both possible and profitable for businesses of any size.
Any company with global ambitions must first consider whether the company’s expansion outside of the U.S. will give rise to a taxable presence in the local country. In the cross-border context, a “permanent establishment” can be created in a local country when the enterprise reaches a certain level of activity, which is problematic because it exposes the U.S. multinational to taxation in the foreign country.
Foreign entity incorporation
To avoid permanent establishment risk, many U.S. multinationals choose to operate overseas through a formal corporate subsidiary, which reduces the company’s foreign income tax exposure, though it may result in an additional level of foreign income tax on the subsidiary’s earnings. In most jurisdictions, multinationals can operate their business in the foreign country as a branch, a pass through (e.g., partnership,) or a corporation.
As a branch, the U.S. multinational does not create a subsidiary in the foreign country. It holds assets, employees, and bank accounts under its own name. With a pass through, the U.S. multinational creates a separate entity in the foreign country that is treated as a partnership under the tax law of the foreign country but not necessarily as a partnership under U.S. tax law.
U.S. multinationals can also create corporate subsidiaries in the foreign country treated as corporations under the tax law of both the foreign country and the U.S., with possibly two levels of income taxation in the foreign country plus U.S. income taxation of earnings repatriated to the U.S. as dividends.
Under U.S. entity classification rules, certain types of entities can “check the box” to elect their classification to be taxed as a corporation with two levels of tax, a partnership with pass-through taxation, or even be disregarded for U.S. federal income tax purposes. The check the box election allows U.S. multinationals to engage in more effective global tax planning.
Toll charges, transfer pricing and treaties
When establishing a foreign corporate subsidiary, the U.S. multinational will likely need to transfer certain assets to the new entity to make it fully operational. However, in many cases, the U.S. multinational cannot perform the transfer without recognizing taxable income. In the international context, the IRS imposes certain outbound “toll charges” on the transfer of appreciated property to a foreign entity, which are usually provided for in IRC Section 367 and subject to various exceptions and nuances.
Instead, the U.S. multinational may prefer to license intellectual property to the foreign subsidiary for a fee rather than transfer the property outright. However, licensing requires the company and foreign subsidiary to adhere to transfer pricing rules, as dictated by IRC Section 482. The U.S. multinational and the foreign subsidiary must interact in an arms-length manner regarding pricing and economic terms. Furthermore, any such arrangement may attract withholding taxes when royalties are paid across a border.
Are you GILTI?
Certain U.S. multinationals opt to focus on deferring the income recognition at the U.S. level. In doing so, they simply leave overseas profits overseas and delay repatriating any of the earnings to the U.S.
Despite the general merits of this form of planning, U.S. multinationals will be subject to certain IRS anti-deferral mechanisms, commonly known as “Subpart F” and GILTI. Essentially, U.S. shareholders of certain foreign corporations are forced to recognize their pro rata share of certain types of income generated by these foreign entities at the time the income is earned instead of waiting until the foreign entity formally repatriates the income to the U.S.
The end goal
Essentially, all effective international tax planning boils down to treasury management. Effective and early tax planning can properly allow a company to better achieve its initial goal: profitability.
If global expansion is on the horizon for your company, consult a licensed professional for advice concerning your specific situation.
Pandemic risks eclipse treasury priorities as businesses diversify investments to mitigate impact
The Covid-19 pandemic has shunted aside existing challenges to sit atop treasurers’ priority lists, according to “The resilient treasury: Optimising strategy in the face of covid-19”, a survey run by the Economist Intelligence Unit (EIU) and sponsored by Deutsche Bank.
The results show that treasurers are looking to diversify their investments in a bid to mitigate the pandemic impacts, including heightened liquidity, foreign-exchange and interest-rate risk. As many as 55% plan to increase investments in long-term instruments, with 48% increasing investments in bank deposits, another 48% in local investment products, and 47% in money-market funds.
“The Covid-19 pandemic has drastically altered business plans in 2020. It has placed a certain level of strain on treasury processes, but the challenge it presents has been managed by traditional treasury skills. It is clear that pandemic risk will be on the treasury checklist for years to come, but it is one of many risks the department faces and will continue to manage,” says Melanie Noronha, the EIU editor of the report.
Despite Covid-19 looming large, other challenges wait in the wings. Notably, the replacement of the London Interbank Offered Rate was identified by 38% of respondents as the main challenge of their function.
Technology, meanwhile, continues to be a pressing issue, with treasury teams becoming increasingly reliant on IT solutions. Here, data quality is rising up the list of concerns. Already highlighted as very or somewhat concerning in 2019 by 69% of respondents, the figure rose to 78% in 2020. Acquiring the necessary skill sets to realise the full benefits of this data and technology is also a continuing priority – with some progress registered from last year. In 2020, 30% of respondents say they have all the skills they need to manage technological change, up from 22% in 2018.
“Treasury’s focus on technology is not only helping teams operate more efficiently in a remote-working environment, it has long played – and continues to play – a key role in realising their long-term priorities,” notes Ole Matthiessen, Head of Cash Management, Corporate Bank, Deutsche Bank. The survey shows that
Release 1 | 2 managing relationships with banks and suppliers (highlighted by 32% of respondents) and collaborating with other functions of the business (also 32%) remain top of the agenda – and seamless digital systems will help give treasurers the bandwidth and insight to be more effective partners for both internal and external stakeholders.
Based on a global survey of 300 treasury executives, conducted between April and May, the survey explores stakeholders’ attitudes among corporate treasurers towards the drivers of strategic change in the treasury function – from the pandemic through to regulation and technology – and their priorities for the next five years.
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