Wealth Management Business Model

In my other article, it was mentioned that there is a promising business opportunity in the field of wealth management. The fact that most large banks hold this type of service is just too obvious to miss. But how exactly do we conduct business in wealth management? What are the fees for the service? What are the revenue drivers? Well, the list can go on, but let's take a tour on how wealth management business can form itself.

Market Segmentation
Being different than regular financial planning service, wealth management is exclusive. It is designed to meet the demand for private banking, where on this segment the package offered is very limited in a sense of promotion to potential consumers and highly comprehensive. Why so serious? Well since we are dealing with the riches, the high net worth people, we also require all the resources needed to deliver the highest quality of service, not to mention the complexities of wealth management nature, which deals up to wealth transition through generations. Now this puts so much resources that wealth management business practitioners need to comply. And that means high price to pay.

Business Model
Wealth management service sells financial planning and personal + private banking services. Those are the core activities. If one wants to add one more relevant aspect, that can be wealth transition, which deals a lot with managing inheritance. But the main items in conducting wealth management, as mentioned in my wealth management article, are wealth accumulation and protection. But how do we put that in concrete operation?

Well, we first focus on wealth accumulation. We conduct the following phases: develop client's investment objectives (this may include the whole wealth plan up to retirement and children education and succession), set strategies (this includes allocating assets), submit investment proposal to the client, and making a continuous review for every investment progress up to the end of contract. Oh, yes. It's a contract-based service.

If we want to summarize the assessment process of a specific client, we can follow these list:
1. how we can maintain client's income and liquidity,
2. how we can manage tax well and protect client's wealth,
3. how we can manage to maintain client's lifestyle quality, and
4. how we should manage client's legacy.
After meeting each of the points above, we are ready to put the answers into strategy development. But after all those efforts, how do we get revenue?

Wealth Management Service Revenue
Of course from fees for the services we perform as a wealth manager. To be specific, we can at least receive a certain percentage for our wealth managing service. And since the service lasts for quite a long time, both the wealth manager and client can come to an agreement on fee payment, will it be annually paid, or per semester doesn't matter. The most important thing is the agreement. Stick to that.

The revenue model above is fair enough. But we can add an additional revenue besides this core service fee, especially if we an independent wealth management practitioner. Channeling fees! Of course as an independent wealth management practitioners we can choose whatever or whichever financial vehicles that matches our strategy formula, unlike banks which always have the propensity to promote its own financial products.

For instance, if we want to have a specific type of insurance with competitive premium, we can simply access the insurance market where we can find plenty of alternatives to choose from, be it general insurance, health care plans, or life insurance. Or if we need money market products, we have the liberty to make a beauty contest to choose which banks provide the most interesting and competitive offer. This scheme can also be applied for various alternative investments, like property, jewelry, or paintings. The good thing about this whole independent thing is that we can provide buyers for banks, insurance agencies, property agencies, artists and so on. And as a common practice in channel marketing, we are eligible to receive a certain fee that is subject to agreement made with the sellers. Another revenue comes, and this type of revenue can be recurring items if in conducting wealth managing we implement some short term strategies where we can regularly find new vehicles to allocate and reallocate some part of the portfolio fund. Brilliant isn't it?

Well, this is supposedly how wealth management business model goes. Of course variations are very much possible, so long as they are in line with decent strategy and ethics. Later on, I'll try to post some other aspects in finance and investments. They are simply interesting :).

(Images sources: mirageglobal.files.wordpress.com and www.wnrs.com).

The Magic in Turnaround

What's a Turnaround? In a nutshell, it's a systemic efforts to bring a company back to its normal state. That is, normal profitability. Profit is everything needed by a company to run another good operation after facing a tornado. Does it sound simple? Probably. But the fact is, turnaround is difficult. It's not just some smart effort to make a sexy breakthrough. It's really complex. Some say it requires a certain magic to conduct one.

The Process
If we look at the fundamentals, we will see that everything needed in conducting a turnaround is clear: find the disease, fix the process, and promote more.

The first thing, finding the disease, is begun with diagnosing the whole body of the company. What felt uncomfortable or wrong? Management can feel all of them. It is reflected firstly from the financial statements and other management reports. But sometimes a tiny itch doesn't instantly make us scratch. Depending on the significance, uncomfortable symptoms can steal attentions but not necessarily result in concrete actions. This is where management commitment is needed the most. Set priorities. Only by setting priorities right can we be able to recognize the real disease of our operation. Is it on the production section, administration, or marketing? Set priorities and diagnose well.

Second one, fix the process. Now that we have located our disease, we can see the way how to cure it. We can see how we should fix anything that goes wrong. Sometimes this stage requires high decisiveness ability because often we have to face unpopular issues, like discontinue a certain line of business, layoffs, reorganize, etc. Be wise and brave.

Last phase, promote more. What is meant here is business promotion to increase sales. Where do profits come from? Sales! Well, profitable sales to be exact. But no matter, sales are the key to making and gaining profits. Sometimes companies need to divert some significant amount of resource to promote sales. It's understandable. Revenue is the basis for providing profitability.

Efficient Yet Tough Strategy
Conducting a turnaround scheme is sometimes faced with unpopular issues like slimming to achieve better alignment. Employees fear this because it can mean layoffs. Layoffs are of course disastrous. Being out of job means having no income to live life. This is hard. That's why top management must consider this as the only last resort.

Prior to coming to that last resort, top management can apply some efficient strategy that focuses on alignment. Management theory says that when an organization is aligned well, information streams are run efficient. Each and every information within the company flows to the right person and on the right time, making operations move effective and efficiently. This is what has to be achieved. Should this be conducted properly, there should be no alternative for layoff.

Easy as it may sound, making a good alignment is not easy. Understanding the whole business process is simply not enough. We have to have a lot more information and knowledge to anticipate leaks that may potentially break the sought after alignment. There may never be enough resources to capture the whole information we can seek to find. Not only that, filtering all the information and extracting the knowledge is yet another thing to consider.

The answer to that is commitment and ever-learning culture of the organization. Make a vow on commitment and create a set of individual learning system that make custody of all the acquired knowledge the organization gain. Preserve all the knowledge to enable constant learning. The system needs to be separated from other systems in the organization in order to have a helicopter view of the whole business operations run everyday. This will make executives pleased.

Well, it is efficient, but it is tough,

Starbucks' Cultural Penetration in China

Do you drink coffee? If you do, then you will probably be glad to hear your champion Starbucks' expansion to China. It's a special case for Starbucks to expand its market to China for at least two reasons. The first one is the fact that Chinese are typically not coffee drinkers, they drink tea. And secondly, it's the belief that China will become Starbucks' major market right after the United States. Business is business, something of a profitable growth for shareholders. And what Starbucks sees is a potential that is being implemented and should deliver quite a decent return for the investment committed.

Cultural Penetration
It is interesting to understand how Starbucks grab the pressure to penetrate Chinese market due to its cultural preference of drinking tea rather than coffee. More over, the overall 306 stores/coffee places in China gives profit contribution twice as big as that of 2008. There's something of a miracle here, as bringing generations worth of culture to shift is like moving a mountain. The very crucial aspect of this high profile is in fact the youth, Chinese youth. They are the ones that bring all the sales possible through the cultural shift of drinking, from tea to coffee. It is believed that coffee represents change, the change of a lifestyle. And lifestyle promotion is a powerful marketing tool as it uphold some certain image as well as prestige. Just like in fashion industry, no matter how unusual it is, designers' work always get to the top of people's mind.

Lifestyle promotion usually works extremely well with youngsters. This is due to several reasons. One, youngsters are people who are seeking their identity and thus preserve the quality of high determined curiosity that brings them to experimenting new alternatives and ways different to what has believed and practiced by their predecessors. They are the most likely group who will always become the trendsetter for their new ideas influenced by their own environment. This is where the lifestyle commercial promotion kicks in. Product endorsers only need to provide sufficient influence to the expanding minds of youngsters, make it interesting enough to grab the attention of youngsters and they will take the influence into account. It is even more powerful if the influential ideas or ways are attached with certain image, like macho image for Oakley sunglasses perhaps.

Two, youngsters are raw potentials that can literally make change. The late Indonesian president, Soekarno, once said that a hundred youngsters can make him move mountains. Youngsters are filled with passion, something of a fuel to our activities. When passion meets and greets inspiration, the result is a masterpiece. All those influences made by product endorsers are met with the youngsters' passion, no wonder the effect is astounding: changing the culture of a nation, penetrating to its very core. Now China has become a country of coffee drinkers. This may be the beginning of a new leading market for Starbucks, where thousands of stores and coffee places operate within a new-born legacy: cofee enjoyment.

So, cofee everyone?