Dominant wealth managers renew core market focus

As private banking comes of age and begins to show the maturity of a true industry, rather than just a niche financial occupation, UBS Wealth Management is emerging as an industry leader. It is one of the few global players to develop a successful cross-border business model, although Citi has had some success in this quest as to a lesser extent has Credit Suisse.

BNP Paribas Wealth Management is also making its mark as the closest we currently have to a pan-European powerhouse, with private banking operations in France, the UK, Benelux countries and a host of other markets including Poland, Spain, Italy and Ukraine.

The only other bank nipping at its heels with an expanding onshore presence in multiple markets is probably ABN Amro of the Netherlands, clearly one to watch for the future. 

Yet these pioneers will not have this space to themselves for too long, argues Stefan Jaecklin, Zurich-based head of wealth management for consultancy Oliver Wyman. He points to the trend of large private banking firms, including UBS, developing their “Eurobank” for onshore banking in different geographies.

“What is interesting is that the operations will remain centralised,” says Mr Jaecklin, with regulators prepared to accept activities in third countries. “If this model works, as it seems it will, this would give the large banks unprecedented scale economies in onshore banking.”

That said, we are still in the infancy of the client-led service model. While many banks are becoming more attentive to better understanding their clients’ needs, much of the talk has been no more than lip-service believes Gerard Aquilina, founder of AlexosAdvisors, and previously a senior leader with UBS, Barclays, HSBC and Merrill Lynch.

All are using buzz-phrases such as “client experience” and “trusted advisers”, rather than paying sincere attention to their clients’ needs. Although some progress is being made in moving from a product-centric to client-centric model, a battle for talent between institutions is not helping matters. “What used to be a business with long-standing relationships between client, family and one banker in the same institution, has turned into a revolving door of banker and their managers more intent on meeting net new money and revenue targets than establishing long-lasting, deep understanding of clients,” says Mr Aquilina.

Much more emphasis needs to be put on training and mentoring, including on-the-job courses for senior employees, with the increasing likelihood that many clients are now becoming as knowledgeable, or even more so than their bankers.

“There is a true paucity of good training for this industry,” he says. “All too often it is focused on the basics of stocks, bonds and mutual funds but not enough on behavioural finance and succession planning.”

Two parallel processes of internationalisation and retrenchment are also shaping the industry. While Liechtenstein’s LGT does not yet have the penetration of the household retail giants, the once boutique mountain-based bank, with a little royal backing, is bursting out of its principality with a coherent expansion strategy for specific European, Asian and Latin American markets.

Banks which are based in these developing regions of the world are also enjoying a lucrative spell in the private banking arena and clearly have their eyes fixed firmly on further glories. Institutions such as Brazil’s BTG Pactual, one of a growing number of Latin American banks to show an interest in European markets after the purchase of BSI, and Singapore’s DBS – which has acquired the Asian business of French house Société Générale – clearly have strategies which go well beyond their buoyant domestic markets.

Latin American banks are keen to establish presences in New York and Europe too. Indeed, similar trends are expected among the more successful Middle Eastern and Asian local banks. Dubai and Singapore, says PWM’s judging panel, are becoming the London, Geneva and New York for Middle Eastern, African and Asian wealth managers. Surely the entry of Chinese banks into European and Latin markets cannot be too far away.

But we are also seeing a fragmentation of markets as wealth managers build up not just local customer service expertise, but a track record in areas such as philanthropy, Islamic banking and socially responsible investing. “The dominant players will now focus more on core markets rather than having a flag in every city, as was the case in the past with banks like HSBC,” says Mr Aquilina.

There are essentially two types of institution emerging as leading players in this fast-changing landscape, says Julia Leong, Partner with PwC in Singapore: global banks targeting the super-rich and responsive regionally-active banks, experts in “plain vanilla” investment product provision, servicing an expanding but less mobile universe of high net worth individuals.

The business model of the latter is far more technology-influenced, she says. “Costs should be moderate and this is where technology comes into play, where clients can self-serve themselves, for example with the use of an advice engine that has in-built artificial intelligence capability,” says Ms Leong. “The banks that fit into this category are typically those who already have a large local retail presence but have transformed themselves to play in the mass affluent space.”

Singapore’s DBS, France’s BNP Paribas and Holland’s ABN Amro all qualify to play in this space. “A wealth management firm’s approach to digital client engagement will soon become the new differentiating factor in an industry where the financial products are increasingly commoditised,” argues Alois Pirker, research director for the Boston-based Aite Group.

This year’s awards submissions, he says, have showed that the most developed digital capabilities are currently offered by Asian banks – such as the main Korean and Singaporean players – and their counterparts in Latin America. “European and North American wealth management firms are well advised to study these approaches.”