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Client Onboarding: Move to Channel of Choice and Reap Rewards

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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

TABLE OF CONTENTS
INTRODUCTION .............................................................................................................................................. 4 METHODOLOGY ........................................................................................................................................ 5 THE CASE FOR MULTICHANNEL CLIENT ONBOARDING TODAY ...................................................................... 7 BARCLAYS LEVERAGES TABLET DEVICES TO DEPLOY SELF-SERVICE ONBOARDING .................................. 8 BANKS' CURRENT ONBOARDING CHALLENGES AND IMPROVEMENT OPPORTUNITIES ................................. 9 RETAIL BANK ............................................................................................................................................. 9 WEALTH MANAGEMENT DIVISON .......................................................................................................... 10 MORTGAGE DIVISION ............................................................................................................................. 11 SEVEN ATTRIBUTES OF A MATURE AND CLIENT-FOCUSED ONBOARDING PROCESS ................................... 14 EFFICIENT: TARGET ACCOUNT OPENING CYCLE TIMES .......................................................................... 14 RETAIL DEPOSITS ............................................................................................................................... 14 BROKERAGE ....................................................................................................................................... 15 AUTOMATED WORKFLOW ...................................................................................................................... 16 RETAIL BANKS .................................................................................................................................... 16 WEALTH MANAGEMENT ................................................................................................................... 17 MORTGAGES ..................................................................................................................................... 17 MULTICHANNEL WORKFLOW ................................................................................................................. 18 THE BENEFITS OF MULTICHANNEL ONBOARDING TO THE WEALTH MANAGEMENT INDUSTRY ..... 20 CLIENT AWARENESS ................................................................................................................................ 22 EXTRACTS DATA FROM PHYSICAL DOCUMENTS ..................................................................................... 23 VISIBLE AND RESPONSIVE ....................................................................................................................... 24 CONSISTENT ACROSS BUSINESS LINES AND CHANNELS ......................................................................... 25 CONCLUSION ................................................................................................................................................ 26 ABOUT KOFAX ............................................................................................................................................... 27 ABOUT AITE GROUP...................................................................................................................................... 28

LIST OF FIGURES
FIGURE 1: SMARTPHONE AND TABLET ACCESS TO FINANCIAL INFORMATION, BY GENERATION ................. 4 FIGURE 2: MOST IMPORTANT BUSINESS DRIVERS SHAPING PRIVATE BANK TECHNOLOGY BUDGETS IN 2013 ...................................................................................................................................................... 7 FIGURE 3: BANKS AIM FOR TECHNOLOGY TO IMPROVE MORTGAGE LOAN ORIGINATION PROCESSING ... 13 FIGURE 4: BROKERAGE AND MANAGED ACCOUNT PROCESSING TIMES IN THE UNITED STATES................ 15 FIGURE 5: STATE OF WORKFLOW AUTOMATION IN U.S. BROKERAGE ACCOUNTS ..................................... 17 FIGURE 6: MORTGAGE-ORIGINATION PROCESS ........................................................................................... 18 FIGURE 7: AVAILABILITY OF ONLINE ONBOARDING CAPABILITIES FOR INVESTMENT ACCOUNTS .............. 20 FIGURE 8: BENEFITS OF PROVIDING ONLINE ACCOUNT OPENING CAPABILITIES THROUGH THE CLIENT PORTAL: WEALTH MANAGEMENT FIRMS WITH ONLINE ACCOUNT OPENING VS. FIRMS WITHOUT . 21

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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

FIGURE 9: FINANCIAL ADVISOR APPLICATIONS AVAILABLE ON TABLET DEVICESU.S. FINANCIAL ADVISORS ............................................................................................................................................................. 22 FIGURE 10: CLIENT AWARENESS MATURITY LEVEL FOR ONBOARDING ....................................................... 23 FIGURE 11: ADVISOR FIRM SATISFACTION CORRELATES WITH HIGH ACCOUNT OPENING PROCESS VISIBILITY ............................................................................................................................................. 25

LIST OF TABLES
TABLE A: BARCLAYS ONBOARDING INITIATIVES IN EUROPE AND AFRICA ..................................................... 8 TABLE B: NEW RULES AND REVISIONS DRIVE UP ONBOARDING COSTS, NO END IN SIGHT ........................ 11 TABLE C: MULTICHANNEL APPROACH TO ONBOARDING WORKFLOW ........................................................ 19

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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

INTRODUCTION
Bank customers have become used to accessing the information and applications they want through their device and channel of choice. This same choice should be available when it comes time for customers to apply for products and services at their bank. Many banks still continue to require a branch-based or in-person application process, particularly on the investment and lending sides of the business. While requiring a customer or prospect to visit a branch to start onboarding may provide the best outcome for the firm, from a sales and regulatory (i.e. Know Your Customer regulations) standpoint, banks are likely to lose opportunities to competitors that offer a more flexible onboarding process that fits a customer's preferred way of engaging with their bank. For example, Generation Y customers are more likely than older generations to prefer completing an application on a mobile device, particularly on a tablet. In a December 2011 Aite Group online survey of 1,014 U.S. investors, almost all of the Generation Y investors surveyed indicated using a smartphone to access financial information and one-third did so using a tablet device. By contrast, only 11% of older baby boomers and silent generation investors were accessing financial information through smartphones and 5% through tablet devices (Figure 1). Smartphone and tablet adoption for financial management is much higher today, more than a year following the survey, but generational differences are unlikely to have changed. Figure 1: Smartphone and Tablet Access to Financial Information, by Generation
Q. Through which smartphone or tablet devices do you access financial information? (1,014 investors holding at least US$25K in investable assets)

49% 30% 10% 5%

25% 22%
7% 5% 14%14%12% 6%

22%
14% 7%

3%

5% 5% 1% 1%

6% 5% 3% 2%

iPhone

Android Phone

BlackBerry

Apple iPad

Other smartphone Other tablet device device

Generation Y (21 to 31, n=241)

Generation X (32 to 46, n=302)

Young Boomer (47 to 57, n=227)

Older Boomer and Silent Gen. (58 and older, n=244)

Source: Aite Group survey of 1,014 U.S. investors, December 2011

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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

Onboarding is a critical process in the client life cycle as it sets the stage for the rest of the customer relationship. Banks that require too rigid an onboarding process may leave first-time customers with a poor impression of the firm, thereby reducing their appetite to conduct more business with the bank after the first account setup or loan approval. Past Aite Group research has shown that more cross-selling takes place within the first 90 days of a client relationship than at any other time in the client life cycle. Clients are more likely to be attentive to new products and services when they are already undergoing a change in their financial lives, and delivering a positive onboarding experience to clients maximizes these revenue opportunities. Providing customers with the ability to apply for bank and investment products through Web and mobile devices is not only about adapting to customers' preferencesthese initiatives also result in significant cost savings for banks in the form of reducing manual, low-value-added work for sales and service representatives, loan officers, and financial advisors. Leveraging mobile devices and Web forms to capture data and documents allows banks to convert essential information and documents into an electronic format more quickly, thus speeding up the entire onboarding workflow. Achieving efficiency during the onboarding process has become a necessity not only to meet clients expectations and preferences, but also to comply with the growing number of regulatory requirements which impact the onboarding process to protect customers and firms from taking undue risks (e.g. product suitability requirements, FATCA, new mortgage origination and closing documentation requirements etc.). In an ideal world, a multichannel onboarding workflow would allow front-facing staff to learn of any errors, regulatory risks, and sales opportunities within minutes of submitting client information, allowing them to focus on delivering an optimal and tailored client experience immediately. This white paper examines the strategic value of investing in mobile and Web-based onboarding capabilities to achieve banks' current priorities of improving the client experience, restoring profitability, and meeting regulatory requirements. The report reviews banks' current and expected onboarding challenges (both for new-to-bank and existing clients) and illustrates the components of a mature and customer-focused onboarding process.

M E T H O D O LO GY
This white paper is based on ongoing, in-depth Aite Group discussions with senior management at global banks from mortgage, retail, commercial, and wealth management departments. The analysis is also based on the following Aite Group surveys and interviews: Interviews with executives at 10 of the 30 largest private banks and wealth management firms in North America based on assets conducted in Q1 2013 A global survey of executives at 54 banks with more than US$10 billion in assets, Q2 2012 Surveys of U.S. financial advisors, including one survey of 400 advisors conducted in January 2013 and another survey of 515 advisors conducted in March 2012. The financial advisor survey data discussed in this report has a 5% margin of error. Tests of significance were conducted at the 95% level of confidence.

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Client Onboarding: Move to Channel of Choice and Reap Rewards

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A survey of 1,014 U.S. investors conducted in December 2011 Executives contributing to our research have extensive business or IT responsibilities and titles that include chief technology officer, chief risk officer, chief information officer, executive vice president, vice president, senior vice president, and director. Also incorporated are results from discussions with regulators and reviews of government reports, guidance, and industry surveys.

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Client Onboarding: Move to Channel of Choice and Reap Rewards

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THE CASE FOR MULTICHANNEL CLIENT ONBOARDING TODAY


Banks have been challenged since the 2008 crisis with achieving revenue and profitability targets in a low-growth economic environment. The limited funds that banks have available to invest in technology initiatives are currently being channeled to meet the short-term objectives of reducing costs and meeting regulatory requirements. Recent conversations with North American private bank executives reveal that while the top strategic priority of these firms is to improve the client and advisor experience, in part through Web and mobile initiatives, the dominant business drivers of 2013's technology budget are reducing costs and meeting regulatory requirements. Attracting and retaining clients comes only in second place at many private banks (Figure 2). Figure 2: Most Important Business Drivers Shaping Private Bank Technology Budgets in 2013
Q. Please rank the following business drivers based on their importance in setting IT priorities for 2013 in the full-service wealth management organization or the private bank. (n=9 private banks) 3 out of 9 firms Leading business driver of 2013 tech. budgets 3 2 1 Meeting regulatory requirements Attracting new clients 3 3 1 4 Retaining clients Retaining/attracting advisors Reducing costs

1 Second most important driver of tech. budgets

Source: Aite Group interviews with 10 top 30 private banks and wealth management firms.

As firms struggle with how to deploy limited funds to achieve the three key business objectives of reducing costs, meeting regulatory requirements, and improving the client experience, they must prioritize initiatives that can achieve more than one of these objectives. Leveraging mobile and Web technology to improve onboarding process efficiency and the client experience can meet all of three.

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Client Onboarding: Move to Channel of Choice and Reap Rewards

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BA R C L AYS LE VE R AG E S TA B LE T D E V IC ES TO D E PLOY S E LF S E RV IC E O N B OA R D IN G
Barclays has recognized the importance of automating the onboarding process to achieve cost savings and improve the client experience. In the bank's latest investor presentation on its 1 transformation plans, onboarding improvement initiatives were cited as top strategic cost savings opportunities. Barclays has aggressive plans to reduce annual operating expenses by US$2.6 billion by 2015 through investments of more than US$4 billion. One of the ways the bank plans to achieve some of these cost savings is by increasing customers' ability to service themselves through client-friendly tools and applications available across channels (mobile, tablet, phone, and branch). The firm estimates that its European instant account opening initiatives, which are based on using the iPad to open accounts with less staff involvement, can generate up to US$60 million in cost savings. While the Portugal initiative described in Table A still requires customers to visit a branch to open an account, distributing the iPad application to the bank's general customer base will be a trivial undertaking from a technology standpoint. Table A: Barclays Onboarding Initiatives in Europe and Africa
Barclays onboarding initiatives Africa customer onboarding Description Customer experience Benefits

Deployed new customer onboarding process in 800+ sites Redesigned/automated manual processes, e.g., identification and verification through biometrics, image and workflow, automated document validation

Shortened home loan approval cycle to 4 days from 13 General customer onboarding reduced from 5 days to 12 minutes

92% reduction in back-office document validation times

Europe instant account opening

In Portugal, deployed 200+ iPads with 200 additional expected in Q1 2013 Spain and France gradual rollout in 2013 UK planned for 2013

Onboarding cycle time reduced from 90 minutes to 30 minutes 20% of accounts opened within 15 minutes and 95% in less than 30 minutes More than 75% reduction in paper

80% reduction in account opening FTEs Potential cost savings across Europe would be up to US$60 million

Source: Barclays Strategic Review presentation, February 12, 2013

1. Barclays Strategic Review, February 12 2013.


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Client Onboarding: Move to Channel of Choice and Reap Rewards

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BANKS' CURRENT ONBOARDING C HALLENGES AND IMPROVEMENT OPPORTUNITIES


This section summarizes the key business model challenges faced by banks today across the retail bank, wealth management division, and mortgage department. These challenges come from the following: Clients' changed preferences for how they want to purchase financial products and manage their financestoday, across channels at any time and place they choose Regulatory requirementsin particular, requirements that aim to protect consumers from improper investment sales practices and those aimed at reducing poor mortgage-origination practices Profitability pressuresbanks have to meet both client needs and regulatory requirements at a time when budgets and hiring remain modest

R E TA IL BA N K
Retail banks around the world, especially in Europe and North America, are facing unprecedented challenges to their business model. In the face of these myriad challenges, retail banks are looking to reinvent themselves. Many are trying to develop new operating models based on the customer rather than the transaction, and it often starts with the onboarding process. Creation of a better onboarding online experience: The industry is seeing significant improvements in the online buying experience of all financial services products. In the past, the experience was often siloed or restricted by product type (deposits versus loans) and not differentiated or rewarded (by new relationships versus loyal customers, for example). Other industries, such as the retail sector, as well as new entrants to the banking industry have already impacted customer expectations and set new standards in the area of online experience. Financial institutions need to implement greater sophistication at selling via digital channels, enhance greater cross-sell capabilities in countries where the practice remains limited (e.g., the United States), and develop new lines of business and financial products altogether. Banks in Europe are already trying to sell more products online, including more complex products (e.g., investment products) that require deep customer knowledge or extensive onboarding experience. Transformation of the retail branch network: Banks are starting to transform the branch from a place of transactions to a place for building relationships. The onboarding process must follow a similar evolution and migrate from an accountcentric process to a relationship-focused one that can adapt to meet a customer's expectations.

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Client Onboarding: Move to Channel of Choice and Reap Rewards

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Dramatic increase in the ability to use data analytics: In order to drive top-line revenue, banks either have to acquire new clients (at a cost) or increase their share of wallet from existing customers. Driving sales and managing customer relationships across all channels with better integration is not possible without a strong business intelligence product that works in conjunction with the onboarding solution.

W EA LT H MA N AG E ME N T D IV IS O N
Wealth management firms globally are challenged with meeting more stringent investor protection regulatory requirements, including enhanced suitability requirements (FINRA 2111 in the United States, the Markets in Financial Instruments Directive [MiFID II and III] in Europe, and the U.K. Financial Services Authority's suitability guidance), and determining whether clients must pay taxes in the United States (FATCA). These new rules have required firms and financial advisors to gather significantly more information, about clients and prospects to better understand clients tolerance and capacity to take risks. In the United States, FINRA 2111 requires financial advisors to capture new information during the account opening process, including age, investment experience, investment time horizon, liquidity needs, and risk tolerance. The rule also requires advisors to consult this expanded set of client information prior to making investment strategy recommendations throughout the client relationship, implying that the information captured at the beginning of the client relationship must be kept up to date and accessible through the customer relationship management systems or the advisor desktop. In the United Kingdom, the FSA has been very aggressive in examining suitability practices and with publishing both the poor and the best ones. In early 2013, the FSA announced it had carried out 231 "mystery shops" across six major banks and building societies which resulted in several firms taking immediate action to make improvements to their advice processes, including 2 establishing better controls around the new business process . One of the study's key findings is that advisors did not gather enough information about the client or prospect to ensure their 3 advice was suitable in 15% of the cases. Regulators and clients require financial advisors to invest more time and effort into understanding their clients' holistic financial picture and ensuring that the products they recommend are in their clients' best interest. This time and effort increases the cost of delivering financial advice at a time when revenue has not yet recovered from the financial crisis. To achieve this level of client focus, financial advisors need to spend less time on low-value-added tasks, such as filling out paperwork and routing documents. Client-facing onboarding tools that clients can fill out on their own, through Web or mobile interfaces, or in collaboration with
2. Mystery shopping is a tool used to gather information about an establishments products or service s for the purpose of assessing quality and/or monitoring regulatory compliance. The mystery shoppers identity and purpose is generally not known by the establishment under review. 3. A mystery shopping review: Assessing the quality of investment advice in the retail banking sector , FSA, February 2013. http://www.fsa.gov.uk/static/pubs/other/thematic_assessing_retail_banking.pdf
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financial advisors through a user-intuitive device that can also image documents (e.g., tablet devices with embedded cameras), give advisors more time to understand their clients and more time to analyze the information clients provide.

M O RTG AG E D I VIS I O N
Since 2008, banks have viewed mortgages, and more importantly compliance, as a major disruptor in any attempt to automate or initiate self-serve opportunities for customers involved in refinancing an existing residential real estate loan or in a new home purchase. Regulators have crafted and changed rules with depressing frequency, modifying guidance almost as soon as it is implemented. The worst for some lenders is the uncertainty of what the "final" guidance will be along with tight implementation deadlines. Documentation requirements in both origination and closing processes, policy changes in underwriting, and distribution requirements to both servicers and secondary markets have elongated the adjudication process and kept IT resources engaged with little time for discretionary projects. Table B demonstrates the explosion of final rules that impact the mortgage loan application and decision process produced in just the first three months of 2013. Table B: New Rules and Revisions Drive Up Onboarding Costs, No End In Sight
Final rules issued Q1 2013 Loan originator compensation requirements under the Truth in Lending Act (Regulation Z) Appraisals for higher-priced mortgage loans Process changes required Revision to license and compensation requirements for mortgage loan originators and financing of single premium credit insurance Creditors must obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used Provide applicants free copies of all appraisals and other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling, and notify applicants in writing that copies of appraisals will be provided to them promptly New wording in RESPA documents addresses servicers' obligations to correct errors asserted by mortgage loan borrowers, to provide certain information requested by such borrowers, and to provide protections to such borrowers in connection with force-placed insurance Expands the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA), revises and expands tests for coverage under HOEPA, and imposes additional restrictions on mortgages that are covered by HOEPA, including a pre-loan counseling requirement

Disclosure and delivery requirements for copies of appraisals and other written valuations under the Equal Credit Opportunity Act (Regulation B) Real Estate Settlement Procedures Act (Regulation X)

High-cost mortgage and homeownership counseling amendments to the Truth in Lending Act (Regulation Z)

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Final rules issued Q1 2013 Homeownership counseling amendments to the Real Estate Settlement Procedures Act (Regulation X) Ability to repay and qualified mortgage standards under the Truth in Lending Act (Regulation Z)

Process changes required Imposes certain other requirements related to homeownership counseling, including a requirement that consumers receive information about homeownership counseling providers Requires creditors to make a reasonable, good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for "qualified mortgages" Requires establishment of escrow accounts for higherpriced mortgage loans secured by a first lien on a principal dwelling; the rule lengthens the time for which a mandatory escrow account established for a higher-priced mortgage loan must be maintained; also exempts certain transactions from the statute's escrow requirement

Escrow requirements under the Truth in Lending Act (Regulation Z)

Sources: 2013 CFPB publications

In addition, lenders report lengthy decision times and high costs to banks and borrowers due to the inability (or unwillingness) of most mortgage processing groups to automate either the loan origination or the onboarding process. Aite Group's 2012 CIO survey revealed that well over half of bank CIOs are unsatisfied with their mortgage loan origination technology capabilities mortgage loan origination IT capability has the lowest satisfaction ratio (35%) for credit processes (Figure 3). At the same time, banks have impetus to move ahead in the next two years. Over half of bank CIOs seek to be "stellar" with mortgage loan origination and almost half of CIOs surveyed see IT spending in the area of mortgage loan origination increasing over a twoyear periodmore than any other segment of consumer credit.

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Figure 3: Banks Aim for Technology to Improve Mortgage Loan Origination Processing
Q. Please help us understand your institution's IT initiatives in consumer lending. (Average N=26) Firm's satisfaction with capability Yes Consumer loan origination Mortgage loan origination Credit decisioning Mortgage loan servicing Default management No

Firm's goal with capability

24-month IT spending forecast

Likelihood to ... (Check all that apply) Bring Hire IT in- services house vendor 7% 8% 12% 4% 0% 4% 6% 17% 12% 8% 4% 9% 20% 12%

Be Be good Down stellar enough 53% 36% 38% 54% 57% 46% 47% 47% 64% 62% 46% 43% 54% 53% 3% 4% 0% 9% 4% 4% 4%

Flat

Up

Build

Buy

Outsource 10% 16% 12% 8% 4% 8% 10%

39% 35% 56% 48% 46%

61% 65% 44% 52% 54% 62% 56%

60% 48% 71% 52% 65% 58% 59%

37% 48% 29% 39% 30% 38% 37%

43% 40% 40% 33% 43% 40% 40%

43% 40% 36% 33% 48% 48% 41%

Small-business 38% loan origination Average 44%

Color coding is applied by column section: Red=lowest value, Yellow=midpoint, Green=highest value
Source: Aite Group's global survey of banks with more than US$10 billion in assets, Q2 2012

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SEVEN ATTRIBUTES OF A MATU RE AND CLIENTFOCUSED ONBOARDING PROCESS


This section explores the characteristics of a mature and highly efficient onboarding process. To compete in an always connected, highly informed, multidevice environment, banks require an onboarding process that is Efficient to meet clients' expectations for speed while managing regulatory risks Automated, with the workflow tools necessary to automate and track the completion of process steps Multichannel, taking advantage of mobile and Web technology to capture images, documents, and data using the devices customers and financial services representatives already carry Client-aware and can treat clients differently based on their prior experience with the bank (new-to-bank or existing) and their life stage Able to extract data from pictures of the physical documents that will always be a critical input to the onboarding process Visible and responsive, providing front-office staff with transparency over the process and alerts Consistent across channels and devices to ensure that the customer's experience is best in class no matter how the customer chooses to engage with the bank

E F F IC I E N T: TA RG E T AC CO UN T O PE N IN G C YC L E T I ME S
What processing times should banks strive to achieve to meet client service expectations, manage risk, and comply with regulatory requirements? The answer differs by product due to differences in regulatory requirements and product risk profiles (for clients and banks). RETAIL DEPOSITS The primary goal of an effective onboarding process for retail deposits (checking, savings, CDs, and money market accounts) is to approve and fund all qualified, legitimate applicants in an efficient, automated single session, with minimal risk of fraud. Consumers apply online primarily because they expect the process to be fast and simple and to spare them from a trip to the branch. In order to offer a real-time onboarding experience, the process must include

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Real-time identity verification designed to screen out fraudsters and comply with the 4 customer identification program (CIP) and "Know Your Customer" (KYC) regulations Real-time funding verification designed to help financial institutions determine whether applicants are making authorized deposits to fund the new account Real-time account funding, allowing initial funding of the newly created account BROKERAGE Banks should target to open and fund standard brokerage accounts within one business day from the time the client agrees to open the account (Figure 4). For fee-based accounts, the process stretches to one and a half to two business days to allow for the development of the investment proposal and the home office review process, which can take more time than for a brokerage account when portfolios veer from standard, packaged products. A highly efficient managed account opening process is one in which funds are ready to be traded the day after the investment proposal is signed off by the client. Achieving these time frames consistently requires onboarding systems that can capture application information and identify and communicate any errors immediately to advisors and clients. Onboarding solutions should be able to send messages to advisors and clients about the status of the account opening process across devices and communications channels (text message, email, and client portal). Figure 4: Brokerage and Managed Account Processing Times in the United States
Q. What is the account opening cycle time, measured in days between receipt of the client agreement, to open an account and funding of a new account for the following account types?

Large firm (n=66)

Avg. Brokerage 36% 27% 18% 11% 5% 1.1

Fee-based/managed

24%

19%

24%

24%

5%

1.3

Small/midsize (n=143)

Brokerage

23%

24%

20%

27%

4%

1.6

Fee-based/managed

19%

21%

16%

32%

8%

2.0 8 to 14 days

Real time

Not real time, but same day

1 day

2 to 4 days

5 to 7 days

Source: Aite Group Survey of 515 U.S. financial advisors, March 2012

4. A joint regulation (FDIC, NCUA, U.S. Treasury, OTS) to implement section 326 of the U.S. Patriot Act and require banks, savings associations, credit unions, and certain non-federally regulated banks"" to have a customer identification program"".
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AUTO MAT E D WO R K F LOW


Achieving the account opening time frames discussed above across accounts requires an automated onboarding workflow. An automated workflow routes electronic data and documents (document images) to the applications and approvers that need to analyze the information. Workflow tools should also be able to track the completion of process steps and kick off the next step in the process. RETAIL BANKS Scalability for opening retail deposit accounts is achieved by eliminating the manual components of the onboarding process. Applicants need to be able to complete the application and get realtime feedback in one single session. The workflow automation is centered on the following components: Real-time identity verification. This step is designed to screen out fraudsters and comply with the CIP and ""KYC regulations. Even as the applicant fills out the application, financial institutions can begin to reach out to third-party data providers that compile public records, credit bureau files, and government data to assess the validity of the Social Security number, driver's license, passport, and address information the applicant has provided. It also includes real-time screening against government watchlists, including the OFAC Specially Designated Nationals, Sanctioned Programs and Sanctioned Countries, and Palestinian Legislative Council (PLC) lists, as well as out-of-wallet challenge questions. Ideally, this process is automated and will generate an approval or a rejection decision immediately. Real-time funding verification. This process is designed to help financial institutions determine whether applicants are making authorized deposits to fund the new account. Verifying account ownership is done via three methods; however, only two are real time. data analysis uses third-party data providers or account aggregation whereby the applicant provides login information to the funding account, enabling the financial institution to confirm information in real time. Another method commonly used is known as micro-deposit or trial deposit authentication, whereby the financial institution makes small deposits into the funding account and asks the applicant to verify the amounts. This process typically takes two days or more. Real-time account funding. This process will allow initial funding of the newly created account. Real time is achieved by the applicant using an existing debit/credit card or by an account-to-account transfer within the financial institution if the applicant has an existing account. Another method commonly used is funding the account via ACH processing; however, this process typically takes two days or more. Enhanced customization of rules for applicant approval, cross-selling of multiple financial products, and funding transactions. Integration with core systems or other systems of record for true straight-through processing.

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WEALTH MANAGEMENT While more than half of financial advisors indicate that they are able to open brokerage accounts within one business day, the reality is that this process breaks down in too many instances. Reducing the percentage of accounts with errors (not-in-good-order accounts) is an important objective of many advisors and wealth management firms. The wealth management onboarding workflow is in dire need of automation today. An Aite Group survey of just over 500 U.S. financial advisors conducted in March 2012 reveals that more than one-third of financial advisors still consider filling out paperwork by hand to be their primary method of opening accounts. Paper-based applications increase the potential for errors and limit the firm's ability to find and fix errors quickly. This study also found that less than half of financial advisors surveyed have access to onboarding solutions that automate the approvals workflow (e.g., submitting to a compliance officer for approval) and tracking the approval (Figure 5). Only one-third of advisors indicate that their account opening systems are integrated with other business applications, including customer relationship management (CRM) and document management systems. This lack of integration significantly limits the automation of the onboarding workflow and the ability to analyze application data for compliance, marketing, and sales purposes in a timely manner. Figure 5: State of Workflow Automation in U.S. Brokerage Accounts
Q. For brokerage accounts, please indicate the extent to which account opening systems and processes provide the following capabilities. (Percentage of advisors indicating the solution "completely provides" capabilities, n=211) Tracks and enables account and product approvals workflow

48%

Enables an electronic/paperless workflow

37%

Integrates with other business applications (e.g., CRM, imaging, workflow)

33%

Source: Aite Group survey of 515 U.S. financial advisors, March 2012

MORTGAGES Accepting and adjudicating a residential mortgage application is a labor-intensive, documentcentric, frequently regulator-scrutinized process that typically represents the single largest and most stressful action for a consumer. Further adding to initial processing delays is the U.S. market approach to funding these loans, which usually includes a transfer of the complete loan and its documentation to one third party for purchase and to another for servicing. The original

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Client Onboarding: Move to Channel of Choice and Reap Rewards

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bank's goal is to keep this customer and gain the opportunity to reach further into the customer wallet. For customers, process time is critically important; in the past, institutions have worked to streamline and automate this process as much as is feasible. Studies have shown that consumers want to initiate mortgage loans from online channels and that the largest impediments have been document delivery and electronic signatures. Mobile devices that have the capability to take and transmit picturesalong with applications and signaturesand to receive necessary documentation has become the middleware that moves the online channel to full service for receipt and adjudication of loan applications. These devices are critical if firms want to achieve the low end of the processing time frames shown in Figure 6. Figure 6: Mortgage-Origination Process

Application Prequalification Product selection Application completion Loan registration Rate lock Loan submission Property appraisal Compliance documents
Pricing, delivery, and processing decisions made (includes good faith estimates) 0 to 20 days
Source: 2013 Aite Group

Underwriting
Credit report and models Other scoring models (ID) and documents (Pay) Automated credit policies Appraisal evaluation Commitment issuance Credit, property, loan approval decisions made 2 min. to 20 days

Pre-Closing and Closing

Post-Closing and Delivery

Automated mortgage insurance U/W Commitment condition compliance Survey, title, insurance, etc. ordering All document preparation Closing instructions Signatures Funding authorization
Vendor services ordered and MI decision made (Includes RESPA) 3 to 30 days

Post-closing document tracking Servicing system setup Loan package audit Shipping Investor pool placement
Investor placement, servicing rights and decisions made 3 to 60 days

M U LT I C H A N N E L WO R K F LO W
A mature onboarding solution is one that can support a multichannel workflow (Table C). Some applicants are comfortable providing personal information such as their Social Security number and driver's license online, while others are more comfortable providing such data over the phone or at the branch. By supporting multiple channels, the onboarding process provides maximum flexibility to the financial institution and the applicant. The entire application can be
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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

completed in a single channel (online, branch, or call center) or can occur across multiple channels. Items that are most easily completed online, like acceptance of terms and conditions or completion of an e-signature, can be done in the online channel, while other items can be completed in the branch or call center. Multichannel support also gives the financial institution the ability to proactively reach out to applicants who have started but not completed the onboarding process. With a multichannel workflow tool, applications that stagnate can be proactively moved toward completion. Table C: Multichannel Approach to Onboarding Workflow
Onboarding Stages Build awareness Create interest Acquire client Engage client Cross-sell client Channels Used Mass media, social media, direct marketing, financial institution's website Social media, search engines, branch, ATM, financial institution's website, direct mail Branch, call center, financial institution's website, financial institution's mobile app Branch, call center, ATM, financial institution's website, social media, direct mail, online banners Branch, call center, outbound phone campaign, ATM, financial institution's website, direct mail, online banners, outbound email program Branch, call center, outbound phone campaign, ATM, financial institution's website, direct mail, online banners, outbound email program

Retain client

Source: Aite Group

When selecting an onboarding solution for multichannel deployment, banks should keep in mind that the solution should support the following: Customization of the user interface to integrate seamlessly with other online and mobile properties The ability to efficiently change the user interface and business rules across multiple devices through one centralized application The ability to optimize the content displayed given the screen size and the operating system Integration with systems of record, including hosted and home systems to ensure the application data is available to all agents and processes required to complete the onboarding process and service the customer thereafter Pre-filling of online forms for existing customers with existing customer information (regulatory constraints may prevent pre-filling of some sensitive client information);
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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

this not only saves existing customers some time but also demonstrates to customers that the bank knows them THE BENEFITS OF MULTICHANNEL ONBOARDING TO THE WEALTH MANAGEMENT INDUSTRY In the wealth management group, providing customers with the ability to open accounts online, or at least start the online account/origination process online, saves financial representatives' time with gathering client information and filling out forms. Despite these benefits, very few wealth management firms allow clients and prospects to open accounts or start the onboarding process through the client portal. An Aite Group financial advisor survey of 529 U.S. financial advisors conducted in January 2013 reveals that clients of only 17% of financial advisors have access to an online portal that enables online account opening, and clients of one-third of financial advisors can upload documents to the client portal to share with advisors (including document images and statements; Figure 7). Figure 7: Availability of Online Onboarding Capabilities for Investment Accounts
Q. What can clients accomplish on your firm's client site/portal? (n=306 U.S. financial advisors)

Start/complete the client onboarding/new 17% account process

Upload documents to share with advisors or to store key financial documents

27%

Source: Aite Group survey of 529 U.S. financial advisors, January 2013

Financial advisors whose clients have access to these capabilities are more likely than other advisors to state that their client portal saves them time with gathering client data/information and that the client portal has driven clients to bring more assets to the firm (Figure 8). These advisors are also more likely to indicate that the portal keeps them better informed of their clients' financial livesallowing clients to complete application forms electronically provides a one-point-in-time snapshot of their financial information which they are likely to continue to update after investing the initial time entering the information. Access to updated client information on a continual basis generates multiple benefits, including faster account opening for subsequent accounts, better (and more compliant) advice delivered, and deeper advisorclient relationships.
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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

Figure 8: Benefits of Providing Online Account Opening Capabilities Through the Client Portal: Wealth Management Firms With Online Account Opening vs. Firms Without
Q. In your opinion, what top 3 benefits does the client site provide to you and your practice? (Advisors with client portals that enable account opening vs. advisors without online account opening capabilities) Saves time with gathering client data/information 47% 29% Financial advisor clients can start/complete the onboarding process online (n=51) Financial advisor clients can't start/complete the onboarding process online (n=255)

Keeps me informed of my client's complete financial life

31% 17%

Drives clients to bring more of their assets to the firm

24% 9%

Percentages differ significantly from one another across responses


Source: Aite Group Survey of 529 U.S. financial advisors, January 2013

In addition to making the application available online for clients to open accounts on their own, wealth management firms should consider enabling financial advisors to open accounts with clients during the client meeting. Many financial advisors are already leveraging their tablet devices to guide their meetings. They should be leveraging these devices to fill out application forms either by handing the tablet directly to the client or by filling the form out on behalf of their clients. This approach is likely more suitable for high-net-worth clients, who may expect a high-touch service from their advisors. Advisors can make the in-meeting application process even more efficient when they come to the meeting with applications already partly filled, or when they can leverage mobile applications (smart phone or tablet) to take pictures of documents (i.e., a passport or a driver's license). The benefits to advisors of completing an application process through a tablet device during a client meeting are multiple and include advisors' ability to Demonstrate value by helping clients complete a process that they may usually be responsible for Complete the sales process in one interaction Leave the meeting with validated forms Avoid carrying (and losing) physical documents and paperwork that contain sensitive client information Speed up the account opening process and other downstream processes by immediately transmitting client information to workflow, document management, financial planning, CRM, and other advisor applications

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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

Wealth management firms have barely scratched the surface of the possibilities the tablet device offers to enhance advisor client collaboration and relationships. While several private banks leverage tablet devices to deliver prepared portfolio reviews and other documents to clients, few advisors report using their tablet devices to complete interactive and collaborative processes with the client, including financial planning and gathering client information and documents (Figure 9). Figure 9: Financial Advisor Applications Available on Tablet DevicesU.S. Financial Advisors
Q. Please indicate whether the following applications are available to you via a tablet device. (n=408) Advisor dashboard (book overview, alerts, etc.) Customer relationship management (CRM) 9%

8%

Broker workstation

6%

Financial planning Document management (including imaging and workflow)

4%

2%

Source: Aite Group Survey of 529 U.S. financial advisors, January 2013

While wealth management firms are only at the beginning stages of offering online and mobile account opening capabilities, mortgage departments are further along. Mortgage loan origination solution providers see growing requests for mobility tools and channel delivery, with particular focus on e-doc delivery and signatures as well as the electronification of processes listed in Figure 6 above.

C L IE N T AWA R E N E S S
The onboarding process must be aware of who the customer is. It should treat existing bank customers, for example, differently than brand-new customers. Modifying the process for existing clients and avoiding recapturing/rekeying of information that the client has already provided for another line of business will speed up onboarding and improve customer satisfaction. The use of data analytics and the development of a customer-specific approach rather than pushing products to a large group of customers are other elements contributing to onboarding success. This can be achieved by collecting key customer data or insights to better understand and serve the customer, including understanding channel, communication and language preferences as well as the customer's life stage. The benefits of using this information include
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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

minimizing abandonment and maximizing adoption (Figure 10). Other data attributes that may drive targeted messaging for deposit account holders are direct deposit flag, online banking usage, online bill pay usage and biller data, debit card, average account balances, total number of products/services, homeownership status, and household income. Figure 10: Client Awareness Maturity Level for Onboarding
High

Life stage marketing Event-based marketing


Sends outbound messages to customer groups in response to specific events or actions such as new account opening or account balance threshold

Life cycle marketing


Targets individual customers based on their unique attributes and engagement with the financial institution based on data modeling and database marketing

Mass marketing
Sends outbound messages to broad customer groups on a regular basis

Targets a segment of customers that are experiencing a lifechange event such as purchase of a new home or preparing for retirement

High Customer intimacy

Low

Source: Aite Group

E XT R AC T S DATA F RO M PH YSIC A L D O C U ME N T S
When applying for accounts and loans, customers must submit copies of government-issued documents and, for certain products and processes (as is the case with mortgage originations), bank representatives must indicate that they have seen original copies of these documents. Tablets and mobile devices can now take pictures of these documents when presented in branches, thus allowing banks to upload their images to internal systems. But, these devices do not come with the ability to extract data from these documents to populate account opening applications. Banks required specialized mobile applications with imaging and data extraction capabilities to achieve auto population of forms and trigger the rest of the onboarding workflow. Imaging and data extraction capabilities are particularly important for mortgage departments to acquire today in light of banks' requirements to better measure credit risk as part of Basel III
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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

stress testing. Mortgage departments are reviewing historical loans in paper format to measure their exposure or to review the historical process. Imaging these paper documents in order to automatically extract and analyze the information they contain would eliminate significant manual work. An additional significant pain point in mortgage processing is that many mortgage wholesalers, servicers, and government sponsored entities are being required to buy back mortgage loans originally sold into the secondary market. This is usually because the portfolio investors or their agents made the case that the institution failed to follow its credit policies and procedures when adjudicating these loans and are therefore responsible for losses. Banks and servicers struggle to work manually through processes of ten or more years ago in order to reduce the institutions loss exposure. Complicating the effort are bank mergers (sometimes two or three) that make it virtually impossible to pinpoint the policies in place at the time of application. The human resource cost alone is staggering as workers search for the cause of each distressed loan one loan at a time. Results are predictably abysmal. Coupled with automated analytical tools, document imaging and data extraction capabilities would provide significant time savings and more accurate results.

V I SIB L E A N D R E SP O N S IV E
Onboarding processes that are electronic from beginning to end can be tracked, reported on, and managed. As the client's application data and documents cycle through the multistep process, the various actors involved in the process must be kept up to date. In particular, when errors are identified in the application data or when the process is stalled for longer than expected, process stakeholders must be informed immediately. As more and more sales and service agents, financial advisors, and loan officers carry mobile phones and tablets, they should be able to obtain messages or alerts about the process through these devices as well as through their work desktops or email inboxes. Clients should also be informed of issues in their application as they occur, particularly if the onboarding process is stalled because they need to provide additional information or documents. A mature onboarding solution would have the ability to automatically generate an email or text message informing the client to take action. In wealth management departments, financial advisors request alerts when an application is not in good order. With this information at hand, the advisor can be proactive and help resolve the issues or, at a minimum, use this information to assuage any client concerns regarding the process delay. Aite Group's 2012 financial advisor survey showed that financial advisors who say they have complete visibility into the onboarding process report that they have higher firm satisfaction compared to financial advisors who say they have no visibility into the process (Figure 11). Investing to improve onboarding process visibility can have a direct impact on the bottom line of wealth management firms if these initiatives increase advisor satisfaction and retention.

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Client Onboarding: Move to Channel of Choice and Reap Rewards

April 2013

Figure 11: Advisor Firm Satisfaction Correlates With High Account Opening Process Visibility
Visibility Into Brokerage Account Opening Process vs. Level of Satisfaction With Firm Account opening solution provides complete visibility (n=108)*

70%

22%

7%

Partially provides (n=69)

59%

29%

12%

Does not provide (n=35) Satisfied or very satisfied

46%

34%

20% Unsatisfied or very unsatisfied

Areas of dissatisfaction and satisfaction

Percentage outlined by a square differs significantly from percentage outlined by a circle


Source: Source: Aite Group survey of 515 U.S. financial advisors, March 2012

C O N S IST E N T AC RO S S B U S IN E S S L IN E S A N D C H A N N E L S
As the onboarding process expands into new channels to take advantage of mobile technology and to better meet the needs of clients, banks must ensure that the onboarding experience and core process steps are consistent across channels. Standardization across channels and devices is important not only from a branding and client experience perspective but also when meeting compliance requirements. An online onboarding process typically complies with the same core regulatory requirements as an offline process. While processes will be, and should be, different across channels based on the constraints of the device and differences in the sales process, the look and feel and the core business and regulatory requirements should be the same.

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CONCLUSION
Across the globe, banks have been undergoing tremendous change since the financial crisis of 2008. These adjustments have been driven largely by profitability pressures and changing investor preferences. While banks may look to the myriad regulatory requirements and conclude that they cannot afford to allocate much to client experience initiatives, they must reconsider this assessment and identify initiatives that can both meet the needs of regulators and ensure their long-term competitiveness. Banks that fail to incorporate mobile and Web technologies to enable their client-facing processes will be left behind. Here's why: Aite Group's recent research on investors reveals that young investors, including the future high net worth, are prepared to shift their assets to firms that can provide them with more convenient services and more online/mobile tools. Providing this generation of investors with a time-consuming and paper-intensive onboarding process will give them the impression that the firm will not be able to meet their ongoing needs for convenience in their financial lives. More and more financial services representatives, including financial advisors and mortgage loan officers, will consider a firm's technology capabilities as an important factor in their workplace decision. Firms that provide a highly inefficient working environment in which they are left in the dark about the status of their customers' processes will be unappealing to the new generation of representatives. Regulators across the globe will continue to ensure that financial institutions are delivering solutions that are in the best interests of customers and that they are not taking undue risks. To accomplish these objectives, regulators will require more documentation of the sales process and they will investigate this documentation. Firms that are still storing key client documents in paper format will have trouble responding to information requests of regulators in a cost-effective manner. Banks should look to solutions that are adaptable to changing customer preferences and changing regulatory requirements. Application forms and underlying business rules will change often. Solutions that enable banks to efficiently change the user interface and business rules across multiple devices through one centralized process should be prioritized.

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ABOUT KOFAX
Kofax plc (LSE: KFX) is a leading provider of innovative smart capture and process automation software and solutions for the business critical First Mile of customer interactions. These begin with an organizations systems of engagement, which generate real time, information intensive communications from customers, and provide an essential connection to their systems of record, which are typically large scale, rigid enterprise applications and repositories not easily adapted to more contemporary technology. Success in the First Mile can dramatically improve an organizations customer experience and greatly reduce operating costs, thus driving increased competitiveness, growth and profitability. Kofax software and solutions provide a rapid return on investment to more than 20,000 customers in banking, insurance, government, healthcare, business process outsourcing and other markets. Kofax delivers these through its own sales and service organization, and a global network of more than 800 authorized partners in more than 75 countries throughout the Americas, EMEA and Asia Pacific. For more information, visit kofax.com.

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Client Onboarding: Move to Channel of Choice and Reap Rewards

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ABOUT AITE GROUP


Aite Group is an independent research and advisory firm focused on business, technology, and regulatory issues and their impact on the financial services industry. With expertise in banking, payments, securities & investments, and insurance, Aite Group's analysts deliver comprehensive, actionable advice to key market participants in financial services. Headquartered in Boston with a presence in Chicago, New York, San Francisco, London, and Milan, Aite Group works with its clients as a partner, advisor, and catalyst, challenging their basic assumptions and ensuring they remain at the forefront of industry trends.

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