Customer frustration points to weakest link

Private banking survey shows that many clients are unhappy with the quality of service they receive, particularly those aspects of service that can be outsourced. Roxane McMeeken reports.

European private banks are in deep trouble with their clients – and not just because we are experiencing a tricky financial market. Back and middle office systems are letting banks down, leading to customer disappointment in standards of service. This is the conclusion of a recent survey of private banking clients and advisers in Germany, Switzerland and the UK, conducted by the information company Reuters and global management consultants Booz Allen Hamilton. Their research revealed that against the background of a collapse in markets, wealthy individuals are becoming increasingly disenchanted with their private banks. But circumstances have conspired so that this development has been masked by bull markets and then blamed wrongly on the current bear market. Performance complaints aside, “plenty of clients receive excellent service from their private banks. However, many clients are unhappy with the service they receive”, says Steve Lipper, global director of Reuters Private Client Services business. A major customer frustration was found to stem from banks’ “failure to get the basics right”. Key areas highlighted as in need of improvement were all in the domain of the middle and back office:

• Access to a competent and reliable point of access
• 100 per cent correct transactions
• Easy to understand reporting
• More effective data capture to avoid constant repetition of fundamental information such as contact details. Basic problems Mr Lipper stresses that these basics are going wrong above all in the UK. Other problems were that clients in the sample countries feel their banker does not understand their investment needs. They feel the bank does not tailor its advice, and fails to implement a sufficiently open product architecture. Particularly in Germany, investors feel they have been pushed into buying generic, in-house products, rather than best of breed. Reuters and Booz Allen also found that clients felt their advisers were too reactive. They want a “trusted adviser” who is able to provide a stream of investment ideas unprompted. The clients surveyed find fault with their bank’s point of access for several reasons. They claim phone calls were not being returned within a given time period, based on a subjective evaluation of “urgency” which is usually interpreted as the same day or at the limit 48 hours. Mr Lipper says call centres were particularly unpopular. “Many wealthy clients resent being shifted off to call centres. This leads us to question whether they have any role to play at all in private banking.” An investor quoted in the survey states: “My family have been important clients at that bank for over 200 years, yet now, when I call them I get to a call centre where no-one knows who I am or what I want, they have no authority to do anything and everything seems impossible.” Correct transactions German, Swiss and British investors also complain of a lack of accuracy in transaction processing, claiming that money was going missing and was not always recoverable. Reuters and Booz Allen found that this was due to poor back office processes, system errors, message transmission faults or just poor discipline among bank staff. According to the research, customers also want clearer reporting, which includes the level of detail required by the particular client and which arrives in a format that is user-friendly to read and store. “Banks do not appreciate enough that they provide a fairly intangible service and that this means clients want as many tangible elements as possible”, Mr Lipper explains. “They want to hold a report in their hands which has been written according to their level of knowledge – many of these clients are not financially trained.” A frequent customer gripe was that they were being asked for the same information time and again every time they contacted their private bank. One client quoted in the Reuters-Booz Allen report says: “I know it’s not a big thing, but after three years, and despite telling them countless times, they still can’t spell my name right. You wonder what other, much more serious things they are getting wrong.” The result of all this, according to Mr Lipper, is that “wealthy people are starting to question whether private banking is worth the effort, many people we spoke to were close to the last straw”. Others, he says, will not actually leave their bank, but rather will simply not recommend the institution to their friends and family. Mr Lipper is keen to point out that other clients surveyed were very satisfied with their private banks. These were customers of both large houses and smaller players. He added that for the banks that get their service offering right, there is huge opportunity to pick up new clients. Making it better So how can private banks perfect these elements of the back and middle office? Mr Lipper says that at many banks inadequate service stems from the use of legacy systems, which are unwieldy, difficult and time-consuming to use. In the case of the private wealth departments of universal banks, the problem is often that retail systems are being used to serve high net worth clients. Such systems are not capable of handling the complexity and tailored service required by private clients. Reporting flexibility is limited, with little potential for personalisation. A further issue is that “over the last few years discretionary spending on back and middle office systems has dropped, so non mission critical spending has been cut”, explains Mr Lipper. The solution to these problems, he says, does not lie in tweaking existing systems. “If they are serious about private banking, these institutions will have to seriously invest in the middle and back office. They can either build their own systems in-house or outsource to service providers – either partly or fully.” Mr Lipper adds that reporting in particular needs to be overhauled at many private banks. Information on investment performance and portfolio allocation needs to be taken out of the back office and put onto a middle office database, he argues. “The middle office can then respond to queries by producing customised reports. They can talk to customers about risk, using personalised analytics and graphs. “Reports should then be delivered in a clear format and on quality stationery.” A final key enhancement should be the implementation of a system that monitors clients’ portfolios and alerts the relationship manager when something relevant happens within it. This enables the private banker to be more proactive in serving the customer by contacting them with ideas rather than waiting to be called.

Survey methodology Reuters and Booz Allen Hamilton sampled 27 banks across the three countries. Their survey included a full range of banks from privately held partnerships to the private banking divisions of large investment banks. Both private bank staff and customers were interviewed. Private client interviewees were selected based on private banking relationships with institutions in one of the target markets. The cut-off threshold was set at E500,000. The median wealth of interviewees was E4.7m. About 15 per cent of the sample was female and the interview sample was balanced across the three countries. The age of the interviewees ranged from mid-20s to late 70s.

‘Many wealthy clients resent being shifted off to call centres’
Steve Lipper, Reuters