After the turmoil of the previous two years, the world’s private bankers and wealth managers have learned to adapt to a radically changed environment for them and their clients. With frenetic markets and new regulatory changes the space in which wealth managers operate becomes more challenging with every advancing day.
There is a notable increase in the demand from high net worth clients for:
· more accessible and liquid investment products.
· increasing exposure to multiple asset classes with greater demand for structured products and alternatives as well as conventional investments.
· greater demand for discretionary portfolio management, perhaps due to high market volatility, with greater transparency over performance and interim reporting
· significant investment support to make their own decisions, across products, performance and associated risks
As always a clients’ investment appetite is driven by market sentiment however clients are less loyal, smarter and more active than before. They demand a higher level of trust and service from their wealth managers. Indeed the aggressive pursuit of talent within the sector coupled with the troubling staff retention rates make the core value of private banking, a solid, namely an open, trusting relationship between the investor and the banker, more elusive. The capabilities of a wealth manager need to combine the technical and financial skills of a trader to create bespoke client solutions with the client focused soft skills of a sales person to build a strong relationship.
So, where are opportunities for a modern-day wealth manager? There are three main drivers that are evident today, namely
1. Ruthless focus on client needs, appropriate to the individual, to build loyalty and trust to keep clients ‘sticky’
2. Empowerment of, and investment in, bankers, support staff and channels – ‘the front line’ - to increase service quality
3. Firm-wide cost efficiency, in order to maximise firm profits as well as pass greater benefits to the end client
Put another way, the positive tensions between looking after talent, at all levels of the firm, providing top tier service to clients and proactively managing operational efficiency remains the key challenge for leadership teams across the globe.
Client loyalty and trust needs to be built on constantly to ensure retention. Offering a more diverse product base and in particular expanding the offering of sticky products (i.e. products which establish a long-term relationship between the client and the institution) have proved to be successful strategies for creating and maintaining institutionalisation. Clients with transaction accounts, credit cards, loan commitments and less liquid longer-term investments – typically alternatives, insurance products, tax and trust/estate planning – prove to be more loyal to their bank than others. This approach may be particularly relevant for emerging markets such as Asia, where Private Banking is even more relationship-based than in other parts of the world, and where there is a natural tendency for high net worth clients to be more attached to their relationship managers than to the institution.
And it’s not all about products. It goes without saying that the view a client has of its bank is only as good as the service that it receives, and today, that needs to mean more than the individual that their relationship with their private banker. In a world where a diverse range of services are demanded, requiring specialist knowledge or interaction with a range of channels, the service proposition that the bank offers to its clients is critical. Firms that focus on empowering their front line – across all levels of the organisation – and delivering a consistent and tailored service across channels will reap rewards in terms of client advocacy and loyally. For high-net worth clients specifically, diverse strategies are being deployed. On the one hand providing bespoke, tailored services to the individual appropriate to their lifestyle choices and investment needs, and on the other - for those individuals for whom empowerment is important – providing accessible, investment house-strength decision support, risk assessment and reporting is where they will build trust and loyalty into the future.
Finally, it is crucial for firms to achieve a good balance between cost and growth to maintain their competitiveness at an optimal run rate. At a time where the private banking and wealth arms of larger banks are continuing to benefit from increased investment in response to capital restrictions in other areas of the bank, ensuring that the cost base remains favourable relative to income is critical. Now, more than ever, the operating model needs to be fit for purpose, focusing unique, value-add investment in those areas that are directly visible to clients, and leveraging wider bank infrastructure and operations for the majority of underling functions across the bank. For independent private banks, the opportunity is arguably even greater, being less constrained by regulatory impacts and capital constraints. The drive greater efficiency to a global cross functional business model, decoupling front office from back office, assessing sourcing opportunities to benefit from scale economies and automation and reducing the size of middle office functions that appear so prevalent in many private banks that support a global technology infrastructure goes a long way to reducing the structural cost base. By investing in their operating model banks can create synergies that reap long term benefits and generate success.
Recognising and meeting the leadership challenge across clients, talent and costs in tandem requires significant focus however a step-change in rewards – in terms of client advocacy and profitable returns – can be pursued with pace with the right management commitment from the top.
Baringa Partners’ people have work extensively in the UK and International banking industry helping clients to drive greater customer loyalty, adapt their operating model in line with growth and reduce firms’ long-term, structural cost base. To find out more, visit our website, www.baringa.com or contact Claire.paisley@baringa.com
Posted by Áine Carey and Claire Paisley on the 18th of October 2011
