Branding, transparency and listening to clients
Three factors gained credibility in 2003 for global private banking senior management: branding, client feedback and transparency. Senior management are now incorporating these elements when assessing the strength of their own business or when eyeing M&A targets.
The fourth quarter frenzy of acquisitions all paid heed to these factors. While the valuations continue to be choppy, the range between the high and low prices is narrowing.
Branding, as a key factor in building private banking businesses, began at the start of 2003 as UBS took a SFr1bn (e640m) write down on the Painewebber brand. This was the outcome of an extensive re-assessment of its core brand and its relevance to clients, employees and ultimately to the bottom line.
UBS was matched in this arena by HSBC Republic, Citigroup Private Bank, Morgan Stanley and Deutsche Bank, which all undertook major brand assessments in 2003.
Client feedback is thus a key component in determining the commercial pulse of the business. For too long, non-US institutions have incorrectly steered away from client feedback, arguing that clients do not want to be consulted, surveyed or even challenged. As a result a major chasm between the needs of the clients and the interests of the financial institution has emerged.
In some cases, major work will now have to be undertaken to win back the hearts, minds and fee revenue of clients.
Nevertheless, more institutions now recognise clients want to be part of the process. Their feedback is invaluable in determining the strength of the relationship, identifying new commercial opportunities and positioning the firm strategically. A few non-US institutions are beginning to make cautious steps in this direction, including Coutts and Merrill Lynch Investment Managers.
The US houses have developed more sophisticated segmented research strategies for this process of client auditing, which should spread to the international markets in the coming 24 months.
Removing the veil
Transparency is the last of the trinity that gained credence in 2003. Here, transparency is understood as the reporting of the business performance of the wealth management firms. There is a likely 24-36 months to go before global private banks become more comfortable about discussing openly their performance. Once this happens, there must then be a reporting industry standard to which the banks will comply. The key benefit will be that clients, intermediaries and employees will be able to compare apples with apples.
In 2003, the half-yearly Scorpio Partnership Business Performance Benchmark studies, the Wernlin Directory and the Private Asset Management awards all strove to raise this level of understanding in the business. While there continues to be resistance from many firms, it is starting to ebb. Indeed, the objections stated by some firms have many similarities to the arguments against client surveying two years ago.
For example, that clients came to them for a certain je ne sais quoi, which once identified and measured would be destroyed. In the long term, business planning is best served by factual analysis rather than mystical charm.
Private banking is a customer-centric commercial business and those that do not adopt the standards akin to other industries where the private individual is the core revenue source will fade away.
Looking ahead, the consequence of increased management attention on branding, client surveying and transparency should lead to a more confident strategic planning process at many firms. It is anticipated that in 2004 more firms will adopt a proactive strategy to these three areas – which had previously been deemed as the “soft” aspects of the business.
Sebastian Dovey is managing partner at wealth management strategy
think-tank Scorpio Partnership
