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Content

Preface From the Editors Desk Analytics for a New Decade 01. Post-Crisis Analytics: Six Imperatives 02. Structuring the Unstructured Data: The Convergence of Structured and Unstructured Analytics Revitalize Risk Management 03. Fusing Economic Forecasts with Credit Risk Analysis 04. Unstructured Data Analytics for Enterprise Resilience 05. Why Real-Time Risk Decisions Require Transaction Analytics Optimize to Drive Profits 06. Ten Questions to Ask of Your Optimization Solution 07. Practical Challenges of Portfolio Optimization Understand Your Customer 08. Analytics in Cross Selling A Retail Banking Perspective 09. Analytics as a Solution for Attrition 10. Customer Spend Analysis: Unlocking the True Value of a Transaction 11. A Dynamic 3600 Dashboard: A Solution for Comprehensive Customer Understanding Fight Fraud More Effectively 12. Developing a Smarter Solution for Card Fraud Protection 13. Using Adaptive Analytics to Combat New Fraud Schemes 14. To Fight Fraud, Connecting Decisions is a Must Improve Model Performance 15. Productizing Analytic Innovation: The Quest for Quality, Standardization and Technology Governance Leverage Analytics Across Lines of Business 16. Analytics in Retail Banking: Why and How? 17. Business Analytics in the Wealth Management Space 125 135 117 93 103 109 61 69 77 85 47 55 21 29 37 05 13

Analytics in Financial Services

17
Business Analytics in the Wealth Management Space
Guruprasad Rao Harpreet Arora Senior Industry Principal Client Engagement & Head of IT Consulting, Manager, Architecture & Innovation Banking and Capital Enterprise Solutions Markets, Infosys Technologies Infosys Technologies Limited Limited K N Rao Principal Tech Architect, Head, BI Consulting, Infosys Technologies Limited

Today's difficult investing environment has (if nothing else) driven one thingan increasingly demanding breed of investors. From managers of institutional investments, to high net-worth individuals, to trusts, investors want an increased breadth and depth of information. To effectively respond to these demands, wealth management firms must invest in improved information management and analytics. This article provides a roadmap for firms to harness the power of information and satisfy the new breed of investor.

corporations, and trusts. Catering to the needs of these clients is a team of advisors, researchers, client relationship managers, portfolio managers, traders and brokers, that work to help Wealth Management is undergoing a major clients make investments across a swath of facelift these days. The golden era of eternal increases in investment values has passed. The productsequities, debentures, mutual funds, futures, works of art, commodities, fixed credit crunch, recession, regulations, and deposits and ETFs. continued global financial instability have

Introduction

forced consumers and wealth managers alike to err on the side of caution. To achieve the necessary portfolio growth, firms are increasingly learning to harness the power of their informationoften through analytics. However, to accomplish this, they must first understand their data and structure it appropriately.

Despite a rapidly evolving competitive landscape, wealth management firms need to adapt to economic and market developments, and continue to focus on their clients' portfolios.

For most institutions, these clients take the form of high net-worth individuals (HNIs),

Wealth management lifecycle

Figure 1

TRANSFER ? GivingCharitable ?Legacy Planning ?Wealth Stewardship

TRANSFER

UTILIZATION ? Income PlanningRetirement ?Inflation Protection ? Care PlanningLong Term

UTILIZATION PRESERVATION ?Risk Management ?Tax Mitigation ?Business Succession Planning

PRESERVATION

PROTECTION

GROWTH

PROTECTION ?PlanningInsurance ?Asset Protection ?Portfolio Risk Mitigation

Wealth Management Lifecycle

GROWTH ?Asset Allocation ?College Planning ? PlanningRetirement

Managing a Wealth of Information

Disparate Information The investment advisory teams work on different sets of applications as they deal with a variety of investment products. Clients may not be interested in all the investment avenues offered by a wealth management unit, hence their details may be scattered across various trading applications. At times, this results in storing customer details differently across disparate applications. Some applications need to store investment details for a short time only, while others need to store the details for a very long timeprimarily due to regulatory demands.

periodic basis. Table 1 highlights reports that are often prepared. Complex Information Requirements Depending on the client relationship, investment decisions are made either on a discretionary basis or a non-discretionary basis. Wealth management organizations earn their revenue based on a fees and returns basis, so it is imperative for them to track the value of these investments and align them to the market on a periodic basis. Apart from this, the wealth management firm is also interested in understanding which investment advisor is generating more income, which portfolio manager's mutual funds are doing well, and which researcher is performing research with a high-value-add that can be leveraged for greater returns on the investment.

A typical wealth management team needs to prepare a list of reports for clients as well as for the bank (if not independent) on a

Wealth management firms are also interested

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A wide array of wealth management reports

Table 1

Report Type Performance Attribution Risk Cash Flow Fee Paid Holdings Valuation Benchmark Comparison Corporate Action Reconciliation Physical Certificates List Cash Management Securities Reconciliation

Description Performance of the various components of the clients' investments, across different industries and instruments Market Risk statement to the customers on their portfolio Cash Flow information to the customers Fees collected and invoiced to the customers Exhaustive list of all the holdings in different forms Mark to Market valuation of the Investments /Assets Comparative statements: Plan Vs Actuals Dividends due & Corporate Actions due Reconciliation of the expected cash flow from sale / purchase of assets, dividend allotments with the physical / demat list of certificates List of Assets in Physical Certificate form Reconciliation, Overnight balances, Overnight calls Reconciliation statement

in understanding the risk appetite of their clients and the nature of their investment portfolioboth critical in suggesting a suitable investment strategy.

earnings/ losses and other fees and costs involved in various transactions. To get started, data must be collected from trading systems and other record storage systems and assembled to reflect individual client portfolios. A complete list of master data (including the customer master data and trading reference data) also needs to be maintained. This master data hub can also act as a golden source for master data and meta master data for the entire unit/ organization. The proper communication and exchange of meaningful information across various individuals, departments, and stakeholders is critical.

Information Management Framework

All this calls for effective information management and dissemination to all parties concerned. The Information Management Framework (IMF) should enable the establishment of a single version of the truth, and enable the viewing of the complete investment portfolio segregated by clients/ sectors/ investment arenas/ profiles. Such a framework should also associate the influencers and decision-makers within the wealth management organization Most importantly, for the IMF to function, to specific actions/ decisions. Finally, the the source systems' data must be arranged in a framework should effectively reflect the meaningful manner, with a provision to store detailed transactions and other details on clients, products and industries. Provisions

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Information management framework components

Figure 2

SOLUTIONS

PERSPECTIVES

FRAMEWORKS

TRANSACTIO N SYSTEMS ERP, CRM, Banking, HRMS, Legacy

BUSINESS INTEGRATIO N EAI, ESB, SOA

DATA WAREHOU SE

PLANNING & BUDGETING

BUSINESS DECISIONS

ANALYTICAL WORKFLOW

PLATFORMS

INDUSTRIES

ANALYTICS

should be available to look at aggregated data and then drill down to the details when required. In such a manner, the IMF unites the entire wealth management unit for informationsharing through master/ reference data standardization. It also enables the unit to bring out the single version of truth, as it integrates the source systems' extracted data at a target database in a single schema.

provides a single version of the truth made available in a prioritized and easily understandable format. The set of KPIs and Metrics can easily be divided into the following subject areas: Assets Growthn Clientsn Growth/ Churn Assets Quality/ Productsn Credit Riskn

Performance Management Framework

Operations Riskn Other Financial Metricsn

Employee Productivity (Trader,n A Performance Management Framework Investment Advisor, Client Relationship (PMF) can be defined on top of the Manager) established IMF to monitor the organization's health on a number of aspects. This is accomplished through the Employee Effectiveness (Investmentn use of a well-defined set of KPIs and Metrics. Advisor) Essentially, the PMF on top of the IMF Processn Effectiveness

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Logical architecture of information management framework

Figure 3

Enterprise Data Sources (Multiple, Disparate)

Databases 3rd Party Interfaces XML/ Unstructured Flat Files Applications

Information Processing & Integration

Information Acquisition Information Consolidation Information Transformation

Information Organization
Information Enrichment Verification & Validation

Graphical Analysis

Information Presentation & Sharing

Information Analysis & Presentation

Customer

Content

Delivery Channels

Partners

Business Analytics Dimensions

Some of the applicable KPIs/ Metrics under the above-mentioned subject areas are expanded upon in Table 2 on the next page.

Business Analytics Framework

Business Analytics (BA) play an even greater role in increasing the wealth of the clients, by providing critical insights into the markets, geographies and economic trends. BA enables this by analyzing the data that is already gathered through the IMF and perfected by the PMF.

create an interactive environment where clients carry out a variety of simulations hypothetically redistributing their investments across different asset classes and geographies. BA, by the way of a Global Balanced Asset Allocation System (GBAAS), can play this role.

The important inputs required for the BA environment to function are as follows: n data in dimensional hierarchy, Master along with the customer investment profile and risk appetite n data arranged as per geographies, Research industries and focused organizations

For example, by using analytics, a firm can

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Applicable KPIs and metrics

Table 2

SI No. 1

Subject Area Assets Growth

KPI Parameters
?of business growth across category, with existingVolume

clients/new clients ? business growth across categorySpeed of ? order conversion ratio, with discretionary/Advise to non-discretionary? ? growth across categoriesNet new 2 Clients Growth / Churn
? of new clients added/ churnedNumber ?categories exited /entered by new/ existing clientsProduct ? growth in clientsNet new ?Client satisfaction ?Client interactions ?Cross-selling results ?Assets category performance ?assets at risk/ problem across categoriesClient's ?Client portfolio performance ?actual credit risk vs preferred risk appetiteClient's ?Asset portfolio's actual credit risk vs allowed risk ? Concentration RiskIndustry ?Compliance Risk ? RiskStatutory ?Documentation Risk ? RiskSettlement

Assets Quality / Products

Credit Risk

Operations Risk

Other Financial Metrics

? return on economic capitalRisk adjusted ? risk adjusted assetsReturn on ?Liquidity ?Client on-boarding efficiency ? trades executed per hourNumber of ? settlements done per hourNumber of ? Mark to Market (MtM) done per hourNumber of ? discretionary vs. non-discretionary agreementsNumber of ? quantity by categoryTrades/ sales ?Target Achievement ? Staff at different operationsNumber of ?SLA adherence ? mistakesNumber of

Employee Productivity

Employee Effectiveness

Process Effectiveness

n Projections on the research data for about n to drill down from the KPIs to Ability 10 years dimensional architecture, and then to contributing detailed transactions n data categorized and profiled Research into different risks n Most importantly, the ability to model the data for some projections and n Availability of statistical tools, interactive simulations visualization tools and interactive decision-making data architecture

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Technology Framework

Data Integration (DI) Component

The technology framework should address all The functionalities expected from the DI the three frameworksInformation Component are: Management, Performance Management and Business Analytics. This forms the n Extraction: Automated data extractions underlying foundation for addressing the from internal and external systems, either functionalities. in a data pull or push method. Sometimes, for important data, it is required in a real-time manner. The important components of the Technology Framework are: n Validation: This is very important to ensure the accuracy and completeness of n Data Integration (DI) the extracted files. n Data Management (DM) For the data integration component to work n Data Arrangement (DA) efficiently, without interfering with the performance of the source systems, the n Data Exploration and Analysis (DEA)

Technology architecture for business analytics

Figure 4

Security (Identity & Access Manageme nt)

Internet

Mobile

Intranet

Stock Market Feeds External Analyst Feeds External B2B Internal Analyst Feeds Equity Research data Market Risk Directives

Portal Server Business Process Management

Simulation

Risk Modelling

Allocation Engine

ESB / SOA

Business Intelligence Enterprise Apps LDAP Intermediary Operational Data Store Legacy Apps

Asset Manager

Warehouse

Analyst Desktop

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required data is extracted in as-is manner into hubs golden sources of master data for the a staging area, in text files. From here, the data entire organization's use. is loaded into tables for easier handling.

Data Management (DM) Component

The functionalities expected from the DM component are: n Data cleansing is required for Cleansing: data coming from source systems that is not clean or standard. This step ensures that the data is standardized: using one set of rules for the format and meaning.

Data Exploration & Analysis (DEA) Component

This layer forms the interaction and exploration layer for the business users. The functionalities expected from this DEA component are: Allow external and internal users selectiven access to the data by defining security rights. Providen various exploration means in the form of standard reports, ad hoc reports, KPIs/ Metrics and alerts through Dashboards. Interactiven visualization tools also come under this categoryenabling users to explore the data in their own way to identify outliers and trends. Statistical tools enable the users ton perform some future projects and trends using the historical data. To be effective, the Technology Framework must have the capability to seamlessly integrate and orchestrate with back-end applications, legacy applications, and enterprise applications.

n Transformation: The transformation rules perform simple to complex calculations and arrange master data in hierarchies.

Data Arrangement (DA) Component

The functionalities expected from the DA component are: nModel: Schema is the most Data important overall technical component. This dictates the way the data is arranged to ensure consistency and accuracy. Usually, a normalized schema is required for these activities.

n Dimensional Data Model: This type of data schema ensures an interactive environment for the business users. This also allows the data to be drilled up and down along the hierarchies presented in the master data.

Conclusion
Several leading banks in the wealth management space are in the process of making major improvements in their information management capabilities. In most cases, these changes are occurring in the statutory area and risk management. However, this is only a stepping stone. Wealth management firms can tap into the potential of business analytics to differentiate and ensure customer satisfaction.

n Sometimes data may be arranged in departmental data marts, in a combination of dimensional and aggregated techniques, to enable the departmental users to exclusively work on them.

Data arrangement also makes the master data

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