Private banks expect continued growth

Unlike the fund management industry, the Italian private banking sector is flourishing, enjoying a growth rate of about 5 per cent a year. Estimates by McKinsey consulting, showing that only 30 per cent of the potential pool of private banking clients in the country avail themselves of the services of a private bank, have led to expectations of further expansion, said Stefano Preda, president at ultra high net worth boutique Banca Esperia, at the recent PWM conference in Milan. His optimism is reinforced by comparing the young Italian private banking market, not even 10-years old, with other mature markets, where this percentage can reach 60 or 70 per cent. Professor Preda emphasised that the credibility of the institution and the talent of the advisers can really make the difference in a world where all wealth managers make the same promises to clients. “Investors never have such a trust-based relationship with an institution as when they entrust a bank with their money.” It is paramount for a private bank wanting to succeed to stay away from conflicts of interest, by refraining for example from offering investment banking or stock placement activities. Conflicts of interest are difficult to manage in the long term and will inevitably set the bank’s financial interest against that of the client, said Professor Preda. The consensus of the participants in the panel debate on the primary importance of both client relationship and asset allocation was unanimous. The quality of the relationship is highly correlated to the final portfolio performance, explained Paolo Molesini, CEO, Intesa Sanpaolo Private Banking. “Having good asset allocation ideas is not enough, you also need to have the ability to move the investor’s strategic asset allocation. This means that you need to have his trust and this comes down to having a good relationship. All this leads to performance,” he said. Populating the portfolio with the best products becomes a secondary issue, more of a technical nature than a strategic one, speakers said at the debate. And the selection process needs to be carried out with the greatest attention. Italian private banks are opening up to third-party products. Mr Molesini is using third-party funds in both advisory and discretionary portfolios. In the latter case, in addition to big names, some small niche houses are also included. Since the acquisition by the French group, the private banking arm at BNL-BNP Paribas has benefited from the third-party fund selection activity carried out by BNP Paribas Investment partners company FundQuest, said Roberto Fredella, head of private banking. Third party funds are increasingly included in the GPFs, more than in the BNL private banking past. Looking at growth opportunities, Mr Fredella at BNL-BNP Paribas talked about their decision to integrate private banking, which still remains an autonomous division, with the retail network, following in the footsteps of the French model, which has lead to growth rates of 10-15 per cent per year in Banque privée. When the typical communication barriers between the retail and private banking are overcome, scenarios of remarkable development for the private banking will open up, he said. Michele Ungaro, deputy general director at UniCredit Private Banking emphasised that the real challenge is to do well and to let people know, as 30 per cent of the potential private banking clients do not even know what private banking is, according to internal research. Indeed it is necessary to provide good services across the whole range, from the basic current account to property consultancy. “To do this it is necessary a very careful and complicated segmentation which cannot be based on wealth. First because you never know what the assets of the clients are. Second, the rich do not think and act in the same way.” The growth of multimanagement, high minimum entry levels for alternative products such as hedge funds and the need for efficient risk management are driving private clients to reduce the number of private banks they use, said Mr Molesini, mentioning that an average Intesa Sanpaolo private client uses 2.5 banks today, down from three banks four years ago. Today’s market conditions represent a big opportunity for the sector, said Franco Dentella, deputy general director at Banca Aletti, the private bank of Banco Popolare. “This negative period is a unique opportunity to move market shares in our sector,” said Mr Dentella. “Because when markets go well, everybody is good. It is when the markets are going badly that we start to see a bit of selection.”