A peek under the bonnet of leading private banks

As we gather in the fast rising city-state of Singapore to salute the world’s top private banks in the annual PWM awards ceremony, there are several questions demanding our attention. The ‘changing of the guard’ has favoured those institutions which have done their homework and invested accordingly. It has penalised those who opted to ‘wait and see’, failing to respond to revamped regulatory frameworks, prevailing economic conditions and customer needs.

So what are the hallmarks of a successful private bank in today’s challenging business climate? And what should wealth managers be doing to raise their game, in Asia’s competitive marketplace in particular?

The key success factor, according to Christian Edelmann, head of the Asia practice at global consultancy Oliver Wyman, is the education and integration of relationship managers (RMs). Those banks, which enjoyed success in Asia, have concentrated on bringing in teams of top talent. But attracting the talent is only the first step, and not the ‘be-all-and end-all’ as most institutions seem to think.

“It takes three to five years to make an RM really profitable,” says Mr Edelmann. “Most banks simply don’t understand this.”

They do not support the newly recruited private banker with adequate systems, cultural integration or education about investment strategies and products. After a day’s initiation, say recruitment consultants, most bankers are out on their own, on the road, tasked to bring in clients, with very little support.

In order to succeed, private banks need to draw up a 100-day plan to integrate new teams, giving them access to key investment staff, face-time with the CEO and the opportunity for a “deep drill-down on the products side,” believes Mr Edelmann.

Currently, all of the emphasis is on recruitment, rather than what happens from the day after the contract is signed.

DISINTEGRATED MODEL

Many – though not all – successful private banking organisations claim to subscribe to an integrated model, with wealth management supported by strong asset management and investment banking capabilities. Both UBS and Credit Suisse have long worked along these lines, as have Deutsche Bank and HSBC.

But integration on paper does not necessarily work in practice and not all of these banks have equivalence in the markets they work in. In many cases, says Mr Edelmann, fee-sharing arrangements are far from clear, with private bankers quite rightly fearing that investment bankers will steal their client relationships for themselves. Instead of pooling their resources for the greater good, many bankers within the global organisations are competing among themselves.

Indeed, Mr Edelmann points to examples where private bankers do not even have access to their own investment bank’s research on equity and fixed income.

“The big Swiss banks are somewhat better at doing this than the others,” he comments, with UBS, which runs SFr180bn (€159bn) of client assets in Asia, the most successful performer, reflecting its superiority in the Asian region for the 2012 awards.

“UBS has a huge scale advantage. But Credit Suisse has also taken a team from its investment bank and installed them in the private bank. This has worked successfully in the Swiss market and can be leveraged in Asia,” says Mr Edelmann.

He also points to those global banks, which aim to make a dent in Asia, but with 70 per cent of their underlying investments in US or Switzerland, rather than regional markets. “Asian clients will not buy into this story. They need access to Asian brands and Asian investments,” he says.

Asian clients also look to split their investments across a greater number of banks than their European counterparts. Every bank aiming for a slice of this action must have its own niche or speciality. “An Asian client may typically choose JP Morgan or UBS for their global allocation and DBS for their Asian investments,” says Mr Edelmann.

The real sweet spot for Asian private banks is currently in the $1m to $5m customer range, which Singaporean banks such as DBS are successfully concentrating on and preparing to roll out a proven domestic model on a regional basis.

The ideal recipe for Asian success, believes Mr Edelmann, involves significant investment in technology and innovation, rather than the emphasis on heritage and tradition common to many European-headquartered players, with efficient access to both onshore and offshore booking centres for an increasingly mobile population.

Chinese banks are also expected to strike up more co-operation deals with European banks, along the lines of Bank of China’s venture with Julius Baer. “If you have a market like China in front of you,” believes Mr Edelmann, “you might argue: ‘why bother with the rest of the world?’”

It is easier, he says, to forego direct control of banking in Europe, which is why Bank of China has closed its Swiss operation, and entered that market through a co-operation agreement.

In Europe, Mr Edelmann’s counterpart in Switzerland, Stefan Jaecklin, is in no doubt that Swiss banks need to re-invent their model in an age when their business is under attack from foreign politicians and tax authorities. The ‘offshore model’ driven by significant flows of non-declared assets, will soon be a thing of the past.

“In the classic offshore model, clients don’t interact very much with their RMs. In the new transparent model, there will be more interaction, which will put emphasis on what private banks can actually create for their clients,” says Mr Jaecklin.

This means moving away from pushing products towards adopting a risk management-based approach and also facilitating access to illiquid assets, which investors would not otherwise be able to tap.

“Big houses no longer need to be producers of these things, but providers of access to markets in a much wider sense than they have done so far,” says Mr Jaecklin.