Joint client servicing

Private bankers are under pressure and small institutions or specialist units of universal banks especially so. They will have to review their offering to a demanding wealthy clientele in order to meet changing expectations. A private banking branch needs to have assets under management of over $7bn in order to break even, according to a study in 2001 by the Boston Consulting Group entitled “Richer Prospects in Wealth Management”. This figure was confirmed by a recent UBS Warburg study. On the other hand, the clients are becoming more demanding, volumes are rising, returns are falling. New technology delivers as many new headaches as it brings solutions. Greater efficiencies add to the pressure on margins, while IT budgets burgeon. If technology makes a new service possible, then clients will demand it. Therefore, smaller private banking units should consider getting rid of operations and production in order to focus on client advisory and servicing activities. Many if not all small and medium-sized private banks or private banking units of universal banks have recognised that outsourcing must be at least considered in the light of rising fixed costs and weak revenue growth. Many are willing to enter into alliances to achieve better results. This is particularly true in portfolio management with mutual funds. Because smaller private banks have used an open architecture for decades, they are experienced in partnering with other service providers in the finance industry. And more importantly, it has become a competitive advantage to have the capacity to advise private clients on the selection of products offered by third parties. However, banks need more than a broader product shelf. They need a type of partnership that helps them to cope with conflicting demands on time and resources. If banks are to devote their attention to core activities – advising clients as well as acquiring new ones – they should outsource routine duties to a partner who understands the business. This will allow them to expand their range of services without having to invest additional capital while the partner oversees the efficient and cost-effective management of the back-office banking processes. Critically in such a partnership, banks should be able to retain control over the link in the chain with the most added value potential – the private client. Banks need more than IT or operations outsourcing. They need to refocus on core activities. UBS therefore proposes going one step further than production outsourcing. That is to combine forces with UBS. The bank uses the UBS platform and benefits from the knowledge and experience of its business partner. UBS offers them a partnership, which is based on a modular service offering that allows partner banks to optimise elements or even the entirety of their value chains, from cash, currency, and securities management, through to sophisticated risk management services, front to back. The word “partner”, rather than client, is used advisedly. Combining forces The UBS collaboration model is triangular, connecting the partner bank (financial intermediary), its clients and UBS. The partner bank signs a framework agreement with UBS, which regulates the mutual business relationship. The clients mandate the bank to manage their assets and appoint UBS as the custodian bank to maintain the necessary accounts. As a matter of course this model applies to all financial intermediaries, not only to banks. What’s important is UBS’ undertaking to respect the partner bank’s client relationships, now and in the future. The bank alone advises and talks to its clients, and has the power of attorney over their accounts. Meanwhile, UBS works in the background on behalf of the partner bank, providing the necessary advice and support. In other words, providing “joint client servicing”. UBS’ relationship with the bank’s clients thus consists solely of reporting on the performance of their portfolio. Naturally, this business model can be operated at various locations, depending on the specific personal and business requirements of each bank. UBS specialist teams are ready to serve their client bank in Switzerland, in Europe and overseas. Wherever the bank is located, however, it has access to an exhaustive range of UBS private banking business resources. UBS has a total of 88 private banking branches worldwide and 42 UBS representative offices. As UBS’ partner, the bank receives a complete “virtual private banking” solution supported by the UBS international market presence and global range of products. The bank’s clients have access to the private banking services of an international Swiss bank, without the bank having to build up this network for itself. Operating globally Through UBS’ services, the bank has the possibility to tap into new markets and client segments. With UBS technologies at its fingertips, it will have access to all vital information necessary to advise and service its clients successfully. And UBS’ e-business services give the bank online access to its client’s asset information, online order entry, worldwide online research and many other solutions. On request, UBS also delivers training for the bank’s employees. With UBS as custodian bank, the bank will be working in partnership with one of largest and most renowned private banks in the world. Not only it will profit from particular expertise in all areas of private banking, but it will also receive professional support from members of the personal advisory team. And, most importantly, it will be able to enhance the value added from managing its clients’ assets. Enhancing Strength Today, banks are seeking to enhance their abilities to deliver their proposition to a target private client base. They seek to offer efficiently delivered, rigorously structured and relevant products and services. Together with them, UBS explores in a four-step approach alternatives in which it can assist them in achieving these objectives. The initial step analyses the bank’s aims. The second develops the proposal, taking into account all relevant considerations. In a third step, the negotiation phase determines the deliverables and results in the signing of a partnership. The fourth step concludes with the implementation of the offering, enabling the bank to approach its clients with an enhanced private banking offering. 1 Information request Derived from the private banking strategy of the respective bank, UBS conducts a structured interview to evaluate the needs and the preferred interaction in the portfolio management process for each client segment. At the presentation of the findings, the bank’s preferences are discussed and clarified. This allows UBS to identify opportunities to enhance the bank’s strength and leverage the current offering to its clients. For each identified client segment, for example affluent, private banking, HNWI and UHNWI clients, UBS offers to the partner bank and its clients portfolio management related service ranging from non-discretionary to discretionary mandates. 2 Proposal request After analysing the needs and preferences, the discussions with the bank’s specialists in the product, servicing and system support areas start. This is in order to identify the range and clarify the details of the future collaboration. While the generic offering is defined, legal, compliance and tax issues must be considered being in line with local market regulations. As a result of this process step, UBS submits its proposal for the partnership, highlighting the forms of working together in the various product fields and client segments. Tailor-made solutions allow banks to leverage their offering. 3 Negotiation The submitted proposal is the basis for the negotiation phase. Together, the partners make the business decisions necessary to enter into the partnership. As the proposal contains detailed options and different ways of working together, the negotiation process clarifies the remaining issues. Based on each party’s contribution to the value chain, the compensation scheme is negotiated and defined. Step three concludes with the first milestone of the successful partnership: the signing of a co-operation agreement. 4 Delivery The offering and the available system support define the communication and information exchange platforms best suited to meet the bank’s clients’ requirements. As those delivery channels develop over time, the offering available to the bank’s clients can be gradually increased, thanks to an easy-to-implement structure in an initial phase. It can then be enhanced to a fully automated system applying state-of-the-art technology. This allows each partner bank to continually enhance the offering to its clients assuring greatly increased client satisfaction. Christian W. Hafner is managing director and head of Business Sector Intermediaries at UBS Private Banking

All for partnerships UBS is one of the largest asset managers and a world leader in the private banking sector. Besides the traditional private client business, UBS focuses on the financial intermediaries market as an important client segment, and continuously enhances its wide range of products and services for financial intermediaries such as banks, brokers insurance companies, independent asset managers and financial advisors. UBS’ offering is in a joint client servicing approach or by enabling the financial intermediaries to enhance their own offering to their private banking clientele allowing them to benefit from UBS’ experience in portfolio management. Today, collaboration is the name of the game. Banking clients everywhere are becoming more discerning, volumes are growing, but at the same time their volatility is increasing. The pace of technological change continues to accelerate, which is driving up costs and reducing the scope for value creation. UBS recognises the potential of partnerships and is presenting “The Bank for Banks” at the Sibos conference in Geneva (Sibos, Geneva, Palexpo, 30 September to 4 October 2002, UBS Stand D175). With the introduction of this service package, UBS is offering banks a wide range of modular services. By outsourcing business areas, banks are able to concentrate on their core competencies and deploy their resources more effectively, while UBS can make optimum use of its own capacities and expertise.