Lick of paint not enough to save private banks

Heads of private banks are becoming more convinced about some key tenets on which they must base their future plans. Firstly, they must transform digitally to look less like the oak-panelled private members clubs which used to service traditional inherited money. The new generation of investors is simply not interested in the services provided and mentality prevalent throughout much of the old-school private banking sphere.

Secondly, they have to move away from selling the type of high fee structured products which led their clients to distrust them. And thirdly they need to develop expertise in the ESG (environmental, social and governance) and impact investing realms, which connect so intricately with the desires and lifestyles of the millennial generation.

But none of this will come easily. Those banks who think they can achieve the appearance of a total sea-change with a mere wash-and-brush-up – comprising some new coats of paint in the client suites and a few million spent on advertising a ‘rebrand’ – have some hard, commercial lessons ahead.

Consultants Helen Westropp and John Clark at Coley Porter Bell have been involved in many rebranding projects, including banks and financial services companies, as well as retail franchises. They say that lessons from the pharmaceutical sphere – where they saw very few drug manufacturers differentiating themselves from a “sea of sameness” – resonate across the wealth management world.

There is no doubt that change is happening, as standing still is not an option. The problem, says Mr Clark, is that banks are changing from the bottom up, rather than the top down. They are using technology or legislation as a pretext to reinvent themselves, but most end up still looking the same. 

A client project recently carried out by the agency, in which they compared the ‘values’ described in the marketing literature of the world’s leading financial services providers, saw barely any difference between their approaches. “About 70 per cent of them were exactly the same, talking about empowerment, security and performance,” recalls Mr Clark.

Few players are actually defining what they stand for and then communicating their vision to the potential audience. This space, is currently “there for the taking”.

But the banks cannot just define themselves in relation to their peer group. They have to compete now with fintechs, social media firms and payment services, plus family offices.

Asset managers are all still regularly calling PWM or approaching us at conferences, desperate to highlight their latest product launch, which they want their private bankers to hawk to clients, old-style, to meet quarterly sales targets, to which bonuses are linked. 

By going down this route, they may further alienate clients, who are already blaming their bankers for huge losses incurred before the last crisis. Clients will once again turn on their bankers if they are left without a chair when the music stops at the end of this bull market.

Many banks are still desperate to show that their asset allocation techniques and cash management are better than the competition, whereas much of this type of work is highly commoditised.

Social conscience

The biggest demand among private clients is currently for ESG products and impact investments, which offer a double dividend of financial and social returns. 

According to research from OppenheimerFunds, conducted with Campden Wealth in 2017, 70 per cent of ultra high net worth millennials want to align their investments with their social values. This trend is particularly prevalent among women clients.

Yet only a handful are providing this vital and popular service. Indeed, in the Middle East the distrust of banks has become so intense that many family offices are barely on speaking terms with the banking fraternity.

“The traditional private banking club of 20 years ago is all about the assets which business owners are leaving to their grandchildren,” says Mr Clark. 

But the next generation is no longer interested in this concept, he believes. Their passion is for their own generation and society as a whole, not just the fortunes of their own family.

“Private banks do not understand this external focus of doing good,” says Mr Clark. “They are still obsessed by passing on assets to the next generation.” Those Swiss banks who see themselves primarily as cross-generational guardians of wealth, rather than facilitators of improving society through transfer of wealth and impact investing, are missing the point, he claims.

Whether or not you agree with everything Mr Clark says – and it all comes from feedback from his clients and the broader market – one thing is clear. To ignore the desires of the next generation of wealthy clients when it comes to investing in innovative, socially responsible projects in developing countries, is tantamount to turning your back on opportunity.

Globally, many talented bankers continue to leave the big warehouses and start their own shops, particularly in Asia, where the recruitment crisis intensifies. Smaller boutiques talk about the bewildered, institutionalised bankers who turn up at their doors, looking for a brighter future. The first thing they expect is a morning briefing of which products to sell and the investment ideas of the day, handed down, factory style, from New York or Zurich.

While private clients continue to like stories and investment themes, this product-push approach is now short-lived. Banks are already suffering in some regions, like the Middle East, where there is a clear inter-generational conflict brewing. The younger family scions have lost interest in the good old-fashioned stock-bond combinations which were once the bastion of family portfolios. The new generation would rather talk about private equity and direct investments into hospitals, smart cities, vast projects to enhance eyesight of disadvantaged people and research into cures for cancer. 

The only players really looking at these projects in a serious fashion, apart from a small handful of private banks, are the family offices. When it comes to the private banking marketplace, the landscape will look very different in five years than it does today. The advice from Coley Porter Bell is clear: private banks must differentiate, or die.