Making Risk Management Work for Wealth Managers: A PwC Survey
Weatherill, Bruce, Prince, Tim, The RMA Journal
Value is added to survey results when the sponsoring organization offers its own perspectives as well. In a survey of 130 global organizations with a business line in private banking and wealth management, PricewaterhouseCoopers blends a dose of reality with encouraging prospects for risk management within wealth management units.
Getting Risk a seat at the table. Risk management should quite rightly be high on the agenda for wealth managers, and the forecast is for a quantum shift in focus from a largely negative stance to a more positive one. PricewaterhouseCoopers highlighted this through a survey of organizations with private banking and wealth management areas.
On the one hand, the survey indicates that a worrisome number of organizations continue to view risk management primarily as a loss-prevention mechanism and not a value-adding tool. Evidence of this exists in a negligible number of respondents who report that risk management is sponsored and promoted by the CEO. On the other hand, many survey participants believe that over the next three years their organizations' risk management stance will develop. Over 30% of the participants believe that their organizations' view will focus on stakeholder value, integrated risk, and value management. While this desire to move their risk management frameworks forward is not in question, how they will achieve this in such a short period of time remains to be seen.
Roughly 85% of the participants state that their risk management frameworks have been in place for fewer than five years. This is good news, as it means there has not been time for things to become stale. However, the risk environment also has changed during this time and again 85% say they are updating their current risk management framework. It would appear that perhaps the desire to move from a "risk management adding little value" stance to a "value management" stance may, after all, have substance.
Third-party caveat. Many survey participants seek to focus on their core competencies; thus, they outsource noncore parts of their business to third-party providers. While outsourcing may be relatively effective, organizations need to be aware that the third party they are placing their trust in may not necessarily have the same risk management procedures in place that they do.
Of those that have outsourced certain areas of their business, 63% believe that the third parties should have risk management that is equivalent to their own. When asked if the third parties actually have equivalent risk management frameworks, 39% said yes, and the good news is that they had done some investigation to find out. The bad news is that 36% responded "don't know," which means they actually have no idea if the third party has any type of risk management process, let alone one on a par with their own!
The reputational risk here is a very real one. A problem at the third-party provider could well have profound effects on the organization that did the outsourcing. With brand, reputation, and image being key differentiators in the wealth management world, organizations looking to outsource some of their noncore functions should ensure that third-party risk management structures meet their requirements.
Risk management must trickle down, but sometimes doesn't. For a majority of participants (55%), risk management and compliance reports are tabled quarterly at board meetings. A further 34% discuss risk and compliance even more regularly. So, the tone from the top is clearly one that is increasingly embracing risk management.
However, this stance is not necessarily filtering down through the organization. Many are aiming toward risk becoming more integrated into the core operating process, but it is a big challenge. The ideal--an enterprise-wide focus on risk management--will happen only through 1) communication with staff on the relevant policies and 2) staff ownership of risk. …