A key challenge faced when developing new or enhancing existing wealth management solutions is ensuring that all aspects of the value chain are covered, from defining the targeted client segments, though providing value, to ensuring the right capabilities. The wealth management canvas provides a holistic framework for designing, discussing, testing, and documenting wealth management solutions.
When designing new or enhancing existing wealth management solutions, numerous things can go wrong.
- You may approach the wrong customer segment
- You may fail to meet actual customer needs
- You may be unable to build a trust relationship with your customers
- Your solution may not differentiate itself enough from that of your competitors
- Your price may not be aligned with the value delivered
- You may fail to deliver upon the promises made
- Your offering may be understood differently by different stakeholders
To overcome these, and many other obstacles, we have developed the wealth management canvas (WMC) framework. It provides a common language for designing, discussing, testing, and documenting wealth management solutions.
The wealth management canvas
The wealth management canvas, shown in Figure 1, provides a holistic framework for designing, understanding, and communicating about wealth management solutions. It is based on the successful Business Model Canvas from Osterwalder and Pigneur (2011) for describing generic business models and tailored to the wealth management industry. It is composed of four major modules:
- The customer module (green),
- the offerings module (red),
- the factory module (blue), and
- the financials module (grey).
In addition it is covered by a yellow cloud, representing the external environment.
When using the WMC, keep in mind that it should be developed through an iterative, rather than linear, process. Challenges faced in one area may be solved by adjusted the WMC in another area. For example if your offering does not satisfy the needs of the identified customer segment, you may either change the offering or adjust the customer segment.
At the core of the customer module sits the customer segmentation (CS). It defines which customers are targeted. The WMC requires distinguishing between end users, that is, customers who actually take advantage of the offering, and decision takers, that is, those who decide whether or not to purchase the offering. Many wealth management solutions fail because they assume that the end use is also the decision taker. Associated with the CS are the needs (CN) that the customers want to have satisfied.
To reach the targeted CS, the WMC requires defining how the customer relationship is managed. This also means understanding how trust is build and maintained.
The fourth and last component of the customer module defines how the offering is delivered to the customer, that is, what packaging and legal structure will be used.
The offerings module describes the offering proposed to satisfy the identified CN. It is composed of three elements:
- The value proposition (VP) describes how the offering will add value for the customer by satisfying one or more of the identified CN.
- The product or service (PS) defines what the customer will actually get.
- The investment philosophy (IP) describes the fundamental beliefs that are at the core of delivering the offering. It links the VP to the PS.
Once the offering, the factory module describes how the promises made will be satisfied (by defining the return and risk characteristics) and which key activities (functions, processes) need to be performed. Expensed resources and skills (personnel …), investments (intellectual property, technology …), and external partners and suppliers round up the definition of the factory module.
The fourth module of the WMC focuses on financials. Unless you intend to compete purely on price, the financials module should be completed last.
- The revenue streams need to be described and related to the customers’ perception of value delivered. The focus should be on the model behind the revenue streams rather than the actual figures.
- The cost structure identifies the key expenses and capital in-vestments related to producing and delivering the offering.
The wealth management canvas may at first look somewhat abstract. To illustrate its power, consider the example shown in Figure 2.
Let’s consider as CS, homeowners with a mortgage that they need to or want to amortize over time (the CN). In this case the end user is also the decision taker. The customer relationship is directly attached to the mortgage relationship. In addition, to ensure trust in and avoid bad press due to misunderstandings of the offering, only customers with investment experience are targeted.
Rather than amortize the mortgage directly through monthly installments, the offering allows to invest the monthly installments into a segregated account which is managed such as to
- reduce the interest risk exposure due to the indirectly amortized part of the mortgage and
- generate a net positive return in excess of the interest rate costs of the indirectly amortized part of the mortgage.
The investment is managed passively in a segregated account based on the IP that, in the long run, onboarding financial risks is rewarded. The main focus is on diversifying and managing the portfolio risk, taking into account the interest risk of the mortgage liability.
The portfolio return is derived from the onboarded risks in such a way to cover the interest rate costs of the indirectly amortized part of the mortgage. In addition risk is diversified over multiple non-interest rate risk categories.
The key activities are
- ensuring that the customer understands the offerings, its implications and risks and
- construction and managing the portfolio based on the interest risks inherent to the mortgage and expected risk premium.
Investments are driven by automating the portfolio construction and management activities using technology.
Key partners are mortgage providers.
The business model is built on top of two complementary revenue streams, that is,
- a portfolio management fee, as percentage of the value of the assets in the portfolio and
- a retrocession from the mortgage provider based on the size of the indirectly amortized assets.
Main cost drivers are personnel and investments in technology.
Developing successful wealth management solutions requires more than formulating a sound investment case.
- Successful wealth management solutions focus identifying targeted customer segments and satisfying their specific needs.
- The value proposition should be based on a sound investment philosophy and relate to the customers’ needs through a trusted relationship.
- Delivering on the promises made requires focusing on both return and risk.
The wealth management canvas provides a holistic framework for designing, discussing, testing, and documenting wealth management solutions.
A final note
The wealth management canvas is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. It is based on work by Osterwalder, A. & Y. Pigneur (2010). If you are interested in receiving a copy of the WMC, please don’t hesitate to contact us.
Osterwalder, A. & Y. Pigneur (2010). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, John Wiley & Sons, Hoboken, NJ