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The evolving role of the Chief Risk Officer (CRO) and the importance of technology and data to the Wealth Management Sector

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Alex Farrall

January 11th, 2023

The evolving role of the Chief Risk Officer (CRO) and the importance of technology and data to the Wealth Management Sector

In this piece, Barrie Jackson, the newly appointed Chief Risk Officer (“CRO”) of Solomon Wealth speaks on the changing dynamic of the Chief Risk Officer role: the evolution from ‘defence to attack’, the importance of technology, data and intelligent analytics to the wealth management sector and his experience working with Drax.

The evolution of the Chief Risk Officer in Wealth Management; from defence to offence approach.

Across many firms, particularly large corporate firms, the risk function has been set up to prevent things going wrong through a comprehensive risk strategy and providing oversight of risk matters and risk culture. However, the role of the CRO has been evolving from a risk mitigation standpoint to a growth standpoint, moving from a ‘how do we make sure not to get anything wrong’ to ‘what risk should we take that will increase business productivity, customer experience and development in our products’, changing the face of risk management from a defensive to an offensive.

How does this change the perspective of a CRO in a wealth management business?

In short, by redirecting the conversation from the more traditional standpoint of worrying about advisors giving bad advice, to worrying if you are enabling your advisers to give more great advice.

The way I look to manage a risk function, and what I look to do as a CRO, is first and foremost to address the culture in the business. Culture doesn’t come from the risk function, it comes, in part, from the senior leadership team but also from everybody in the business overall, reinforcing and supporting the culture. In a wealth management business, there are significant regulatory requirements, but you also have very well-qualified advisors who need the empowerment, support, and confidence to make the right decision for each individual client.

In the UK, we have become more and more fearful of things going wrong and seemingly avoiding the ‘risk’ of trying. Things have always had the potential to go wrong, but there is a lack of understanding of how serious the consequences are if they go wrong and an appreciation of what the true risks are. As a result, particularly in large firms, but also some smaller ones, processes and controls have been implemented which significantly reduce risk, but also hinder the potential opportunities for growth (and good client service). More and more we see firms overcompliance themselves, going far beyond the necessary rules and regulations and limiting their potential gains.

So how can a CRO go about implementing a change from defence to offence?

By creating an environment where debate and discussion can happen openly, and board members have a willingness to change and challenge where necessary. Sharing of new ideas and bringing discussions to the table bring about change and challenging of the status quo, shifting the focus to ‘what can’t we do’ to ‘what can we do’.

Technology and Data in Wealth Management

In my experience, you cannot run a truly efficient wealth management business without the technology, data and analytics to support it. Technology is an ever-evolving tool, providing deeper, quicker, and more thorough insights than ever before, giving the ability to improve client experience, identify value sooner as well as analyse around advisor strategy and client base.

From a risk point of view, the right technology can identify which advisors are pushing the envelope more than we are comfortable with, and which perhaps are not pushing it enough. We can dive into data on risk profiles and see the figures around clients with adventurous portfolios as well as client demographics and make comparisons with clients of similar demographics. The technology provides the data which can lead to open conversations with our advisors and can make the compliance monitoring piece frictionless and non-invasive. We can monitor in close to real-time, and systemic issues can be picked up much sooner.

The role of the Board CRO is about educating and understanding if the Board is going to react badly if something goes wrong. With the right analytics, you can identify sooner if any issues are recurring or a one-off. An example is an advisor bouncing their client from risk profile to risk profile because they are trying to call the market, going against our investment strategy and philosophy. Investigations into such activities, while looking back at historic data, are lengthy and invasive. The right technology and data allow a streamlined, non-invasive, quick report, reducing lengthy investigations and flagging issues sooner than they might have otherwise been detected.

The data that I need from a risk management and compliance perspective is almost identical to the data that you would want from a business growth and development angle. For example, we might find data to show advisors creating a higher conversion rate due to the types of clients they are meeting. As with any Client/Advisor relationship, which is built on confidence, trust and personalities, data can help uncover which type of clients are matching up well to which advisors, optimising and targeting clients where there is more likely to be a successful relationship.

Technology can significantly enhance the customer experience and identify potential issues far sooner. Traditionally in the market, advisors will have an annual review with their clients. Data and analytics can identify if this strategy is the most value-add to each individual client. An example from Covid-19 was when many of the big dividend players were instructed not to pay dividends due to the uncertain credit outlook. Some of our clients who were using their dividends as income needed sooner and more regular communication, as part of an ongoing advice service, not linked to an annual review. In these situations, we were able to tailor the needs and the communication with the client, based on their individual situation, providing a more personal and useful service, and cutting out any unnecessary meetings. The use of the right technology gives advisors access to information quicker and more effectively. As a client, it enhances the client service, tailoring the client requirements while also meeting the regulations. You can only do that with data, intelligent analytics and the human desire to use them well.

Alex Farrall, Associate Director, Financial & Professional Services Practice

Mobile: 07896 637974

Email: af@draxexecutive.com

Euan Corbett, Partner, Financial & Professional Services Practice

Mobile: 07713 802248

Email: ec@draxexecutive.com

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