The following is an article from the Singapore Business Times, January 13, 2010, written by the Managing Director and Head of Private Banking Southeast Asia and Australasia for Credit Suisse, Dr. Francois Monnett.
He gets it, but do they really “walk the talk?”
Retaining clients, rebuilding trust
The sustainability of the private banking business model comes under scrutiny in the wake of the massive industry shake-up. In the aftermath of the massive industry shake-up which has taken place over the last 18 months, we are confronted with a very different operating landscape in private banking. Together with a significant loss of trust and confidence in the markets and industry, clients are also expecting higher standards of service and advice, as well as greater transparency and disclosure over products and services. There is also a shift towards safer, simpler and more liquid investment solutions.
One major implication is the critical question of the sustainability of the private banking business model. During the boom period, many institutions built their private banking model primarily based on the assumption of continued growth and perhaps a certain belief in its immunity to economic cyclicality. The infrastructure that many private banks have put in place to deliver value to clients and the fact that much growth has been built through expensive acquisition of bankers have also resulted in a costly model.
Revenue generation in private banking, particularly in the Asia-Pacific, has been very much volume-driven with a heavy reliance on a sales culture. With slowing revenue generation and increasing cost-income ratios in the past 18 months, the sustainability of this business model has been seriously tested. Much of the pressure is also coming from outside, namely from regulators and clients, that will propel the industry towards more radical and dramatic changes to the business model.
In the rapidly changing regulatory environment, investment suitability is here to stay and investor protection will become an even more important dimension in this business. There is also a lot of discussion on offshore banking, capital requirement and bankers’ compensation.
But the most important driver for change is the disillusioned clients. There has been a significant loss of investors’ trust and confidence in the markets, in regulators, in the financial institutions as well as their advisers. We have also observed among clients a flight to safety and quality, a shift from risk aversion to loss aversion, and a back-to-basic type of appeal for more direct and liquid investment vehicles.
Very importantly, there is a much greater need for transparency and disclosure. This is not just about the products, but also the service levels that clients pay for, fee structures, performance of their investments, as well as transparency regarding business partners and counterparty risk.
Client segmentation
For private banks to reclaim and reaffirm their critical status as trusted advisers, we need to enhance our value proposition on a few levels. First and foremost, we need to focus on client segmentation and differentiation to significantly lift service levels.
To put the client at the centre of a segmentation strategy is the only way to avoid the ‘one size fits all’ approach, which doesn’t work to lift service levels. This requires a disciplined, systematic and structured approach to defining client segmentation that goes well beyond assets under management. It has to consider the source of the client’s wealth – is it inherited or built? It has to consider the investor’s behaviour – is he or she a delegator, a participator or self-directed?
We also need to understand better the investor’s knowledge, experience, sophistication as well as domicile. Once these dimensions are clearly mapped out, the resulting value proposition has to deliver a tiered service offering in a disciplined and consistent way that will define different access to product specialist or management as well as the depth and breadth of the service offering.
Eventually, we will be measured as well in terms of the level of transparency and interaction we achieve with our clients. Risk management has to be an integral part of the advisory process and an investment suitability framework is the ultimate transparent guide to portfolio construction.
This involves the profiling of clients – the detailed and structured assessment of their knowledge and experience vis-Ã -vis the complexity of the portfolio solution, and their risk and loss tolerance. This profile is used to build a portfolio which is simulated in terms of asset allocation and is fully disclosed to the client.
Consistent client experience
The private banking business is all about execution. We need to deliver on the promise of being a trusted adviser in a consistent way. A major pre-requisite for a consistent client experience lies in the bank’s IT-based processes. From the relationship manager (RM) accessing an open architecture platform with thousands of solutions for the client, implementing a common advisory process, to utilising portfolio construction tools that build asset allocation against the client’s profile and analyses of risk scenarios – this level of consistency can only be achieved through a control process.
The re-engineering of processes is critical not so much for productivity gains, but has enormous impact on how much time the RM is able to spend with clients and the quality of the client experience. A recent study shows that RMs spend as much of their time marketing services to new clients as solving and dealing with administrative matters. If we are not able to free RMs from the loss in valuable client-interacting time, we will not live up to the promise of being a trusted adviser.
From a client perspective, there is also a constant request for better, more consolidated and comprehensive client reporting. They also want more direct access to almost real time data through client portals.
As private banking continues to grow in the Asia-Pacific, automation, IT systems and the re-engineering of processes will increasingly become the backbone of the business. How good a bank’s infrastructure is will be the cornerstone in delivering quality client experience. It will optimise relationship management time with clients and ensure a culture of consistency throughout the firm.
Re-skilling of RMs
If we want to differentiate ourselves in terms of providing an advice-centric operating model to clients, we will also have to consider the extent to which we need to re-skill our RMs. The permanent education of RMs is of paramount importance. Particularly in Asia-Pacific where the industry is still young and fast-growing, there is an immediate need to make sure that the culture of a firm is being consistently instilled into the new joiners that all bankers interact with their clients through a consistent and structured advisory process.
Eventually, as front organisations continue to expand, we also need to enable RMs to grow in their roles over time, from a junior level adviser, to an expert RM or a manager and leader. This requires a long-term, modular and state-of-the-art training curriculum and development model that captures the career cycle of each RM. It is also important to align reward systems with the clients’ satisfaction. When we measure performance, we need to focus not only on ‘What financial performance did you achieve?’ but also the ‘How did you achieve it?’ metric. This softer side of performance measurement has to be benchmarked against the values of the bank and how it wants its RMs to run the business, and against the client’s satisfaction. This will involve tracking the degree of adherence to the sales and advisory process, risk management tools and control standards, as well as client satisfaction surveys.
This greater alignment is a condition for regaining and earning more trust with our clients in the new landscape, acknowledging the new landscape, refining and sharpening the value position and eventually delivering on a bank’s brand promise.
Trip Allen, Team Egyii, Singapore
No doubt that the financial crisis has spanked the image of banks and financial institutions in the eyes of the client. Not all institutions have practiced the force feed of complicated products on unsuspecting clients, but all institutions have undoubtedly suffered the consequences from the overall reputation of the financial world.
What am I talking about here? Coffee? A hospital?
Successful.
Customer experience