Furnishing the front office

During 2008-2009, private banks had to postpone their investments in front office systems because of cost cutting measures, but this year they have started to reinvest massively and quickly and are keen to implement and deploy this technology, according to Thibaut Jacquet-Lagrèze, marketing director at Odyssey Financial Technologies.

One of private banks’ main goals during the crisis was to increase the time private bankers spent with their clients. “The banks’ top priority was to retain clients as these had lost a lot of money, as the value of their assets had decreased and there was a lot of mistrust,” believes Mr Jacquet-Lagrèze.

“Private bankers’ time was spent with clients to explain how their investments were structured, the risk they were taking and what the underlying assets of their products were,” he explains.

A front office system which integrates portfolio management system with CRM (customer relationship management) capabilities, claims Odyssey, can provide the client with all necessary information about assets, including not just their market value but also their associated risk.

Platforms should also include an advisory tool, allowing the relationship manager to structure an interview, starting from understanding client needs and reviewing their asset allocation, says Mr Jacquet-Lagrèze. Futuristic systems can now also trigger proposals for new investments in case there is a need to change the risk level or change the strategy.

“With this kind of software, the relationship manager can log in into the front office system to show to the client the status of his investments, do some simulations of the investments or investment proposals,” he adds.

The type of technology now used by leading private banks allows instant recalculation of portfolio risk, based on real time market value of different assets, and realignment of client needs and preferences. Warning alerts are also triggered to the relationship manager if clients deviate from their original risk profiles and investments, reminding the private banker to re-shape the portfolio. Control of compliance functions can also be automated, so unsuitable products can be excluded.

“The idea is to have one tool to guide the private banker through the advisory process, because what private banks are lacking today is not the back office system but the front office system,” says Mr Jacquet-Lagrèze.

What differentiates the latest generation of front office systems from a standard CRM tool is their ability to provide a complete integration between the front office and the back office. These new platforms can generate automatically the orders and send them to the market to make the investment changes in clients’ portfolios.

“Private bankers are spending a lot of time on administrative tasks or tasks related to the back office. This kind of technology can reduce this time to nearly zero so they can really focus on their clients. Private banks can sustain their growth with the same number of people, because their productivity will increase, so they won’t need to hire more people to spend more time with their clients.”

Investing in technology

UniCredit Private Banking is heavily investing in technology to improve its advisory process. This is part of the implementation of its European service model, which aims to harmonise the advisory service, product development and investment strategies of national private banking entities in Central and Eastern Europe, gained through acquisitions in the past few years, with Germany, Austria, and Poland, being the core markets.

The bank has recently introduced to Italy Triple ‘A’ Plus, the front- and middle-office wealth management platform by Odyssey Financial Technologies. The platform, which has been employed in the private bank in Germany for the past few years, will be rolled over to Austria next year too.

“Triple A will be our integrated platform in Europe,” says Andrea Maffezzoni, CFO at UniCredit Private Banking. “Technology is an enabler for us. The core of our private banking service model is the advisory process. This is where we can build the competitive advantage by first understanding the clients’ needs and then secondly providing answers to fulfil such needs.”

In Italy, private bankers until now were supported by proprietary software. The implementation of this new platform will have two main advantages, he says.

“First of all, the platform is more advanced and more sophisticated than the previous software, it allows us to have a global view of the client portfolios and better reporting. Also, having the same platform in Europe will allow us to have economies of scale in the development of this platform which will help us provide better service to clients.”

Cross border improvements

For example, while implementing this platform in Italy, new functionalities were added. “Different countries sometimes have different needs and you can cross fertilise all the national experiences. Having the same platform is an advantage because you can roll over the same kind of improvements in all countries,” says Mr Maffezzoni.

This platform allows the bank to better leverage on its global investment strategy unit, which provides market views, asset allocation strategies and model portfolios. It also helps facilitate risk monitoring. “The risk monitoring of clients portfolios has become even more important after the financial crisis, because we have experienced a higher risk aversion, and higher attention towards risk versus return,” he says.

UniCredit increasingly uses a multi-media approach to communicate with clients, with emails used to provide market comment and allowing relationship managers to leverage on investment specialists or wealth advisers by using PC calls in the branches.

“As we have many clients and the number of specialists is limited – such as those who advise on asset protection, real estate or art – in order to enhance their usage, we are developing this way of communicating with them,” says Mr Maffezzoni. “This is a way to increase facing time and quality of advice.”

Although systems are continuously updated and optimised, regulatory and legal requirements about “knowing your client” are constantly on the increase, presenting an “ongoing battle” for private banks, explains Jean-Michel Dy, commercial director at Société Générale Private Banking.

Client advisers are significantly supported by local investment teams at the French bank, leveraging on six international centres of expertise which source and select products in key investment categories. Since the crisis, the bank’s focus has shifted from products to asset allocation, which has translated into a new dialogue and asset allocation methodology introduced early last year.

“Asset allocation has always been at the centre of our role as private bank, but I assume this has been forgotten during the time when clients were so keen to find new investment ideas and solutions, and the private bankers were just trying to do their best to respond to clients’ requests. We lost view of what the key role of the adviser should be,” says Mr Dy.

“We have now gone back to basics as the main theme of dialogue between the private banker and their clients is asset allocation.”

Once the private banker has identified the client’s current asset allocation, the new process allows the adviser to simulate probable market changes and evaluate their impact on a portfolio. But the client contact must not stop there.

“We dedicate a lot of resources to the after sales service, as selecting the right products is important but even more important is being able to monitor them, maintain and ensure secondary markets for those products, and provide the right advice to the banker and the client,” claims Mr Dy. It is the bank’s aim to increase opportunities for contact and dialogue between advisers and client.

For any product, each centre of expertise gives a buy, sell or hold rating and sends ‘take profits’ or ‘take loss’ alerts to private bankers. “We want to have this information available for the adviser on a ‘quasi real time’ basis, and then it is the duty of the private banker to alert his clients and discuss it,” says Mr Dy.

At HSBC private bank, a Russian word, Troika, is used internally to address a three-pronged approach, with the client in the middle and the relationship manager always supported by an investment adviser and wealth planner, explains Daniel Ellis, head of private banking investments at the group.

In the initial meeting, where the investment adviser determines the client’s risk profile with the help of a strategic asset allocation questionnaire, the presence of the tax and financial planning advisers is very important, because they can consider any succession planning, income planning, cash flow analysis, multi-jurisdictional issues, cash management and retirement planning, he says.

The house investment view from the global investment committee, comprising various asset class sub-units, is further adapted by local investment committees to form the basis of strategic asset allocation for clients.

“The advantage of having a local investment strategy team is that they are available for clients to talk to on a daily basis, and they would accompany our bankers to meetings if the banker wanted a professional investment person to explain the bank’s view of the world,” says Mr Ellis.

One recent development has been the introduction of an emerging market sub-committee which will provide emerging market views across all asset classes. “We are very keen on promoting an emerging market focus,” he says.

In the most recent investment quarterly the bank takes the view that emerging market currencies are likely to outperform high indebted industrialised countries (HIIC). “At the same time we can recommend ways of implementing that view,” says Mr Ellis.

Improving contact

The generation of new investment ideas or products provide opportunity to be in contact with the private banker and the client. “If we have a very new or tactical view we would like to express, we would support or speak to the relationship manager and they can contact the client or equally we would meet the client or call the client together with the product specialist, to discuss ideas and why we think they are interesting, and the best way to implement that view,” explains Mr Ellis.

“We also need up to date pricing to know exactly the portfolio performance, and a lot of system development has been done to enable online trading. This enables us to quickly gain access to pricing for various products and execute that in live time with competitive bid offer pricing,” he says.

The ways the bank communicates with clients are numerous. “We haven’t developed an iPad app, maybe that will be the next one” ventures Mr Ellis. “As a private bank we like to speak to the client as often as possible, but if this is not possible, we use all forms of available media.”

This includes regular email updates on market views and a video linked to the bank’s internet service allowing clients to watch the chief investment officer’s quarterly outlook.

Unsung heroes

But often the unsung heroes of a successful wealth management operation are not private bankers themselves, but their hard-working helpers. “The relationship managers’ assistants support the relationship managers from a holistic perspective for the client,” says Simon Clark, director, Lloyds TSB Private Banking in the UK.

These are office based staff, and they are the ones who tend to take 70 per cent of the client contact calls on a daily basis, while relationship managers are the single points of contact and spend much of their time seeing clients and facilitate introductions to other area of speciality.

While at the low end clients’ portfolios are reviewed every six months, relationship managers on a twice daily basis receive up-to-the-minute market information from the investment team. “Early in the morning, when they arrive at their desk they will have investment news, any relevant information of what has happened in the financial press overnight, which they can send to clients or provides an opportunity for discussion,” says Mr Clark.

A Friday summary is used to inform clients about what they can expect in the following week. For example, the US monthly budget may have an impact on those investors with dollar exposure. Investment teams and subject matter experts throughout the network make direct contact with clients by phone or travel to 37 regional offices on a quarterly basis to deliver in-house seminars to both advisers and clients.

Licensed consultants are tasked with providing financial advice and strategic tax planning for customers, but client portfolios are managed by group company Scottish Widows Investment Partnership, predominantly through a diversified ‘manager of managers’ approach.

Private bankers report to the client on a monthly basis, discussing portfolio composition and performance and they are responsible for monitoring the portfolio and analysing wealth events within the client’s life, such as inheritance of money or acquisition of property.

Transforming the role of the banker

There is so much red tape in private banking that relationship managers always complain about not having enough time to really look after clients and their needs, says Stefan Schwitter, head of investment services at LGT Bank in Liechtenstein.

“We took this issue very seriously and over the last few years we redesigned the entire value chain,” he says. The idea is to have private bankers spending most of their time with clients, rather than hunting for information, which is “pushed along the value chain” to the relationship manager, says Mr Schwitter.

A “mundane” aspect of this process is that all relevant information is placed on the intranet to make it easy for private bankers to source it. Unlike 20 years ago, the private banker is no longer an investment manager and can hand over all investment related tasks to specialised staff, says Mr Schwitter.

Comprehensive teams support private bankers in all aspects of investments, financial planning and core banking services. Detailed questionnaires provide a structured approach to understanding clients’ needs but they are not enough.

“Swiss private banking tends to be discreet, but by not asking questions it is very difficult to find out what the true underlying client requirements are,” believes Mr Schwitter.

“If you ask the right questions and come across as genuinely interested in the comprehensive view of the client financial situation, then the client reacts very positively. But that has been a transformation that took some time,” he says.

Investment advisers, portfolio managers and analysts are trained to service the client together with the private banker as they do joint meetings and joint pitches to clients.

“Over the last couple of years, every relationship manager and every support staff member underwent the same kind of training on how they should talk to the client,” says Mr Schwitter.