UniCredit vows holistic path will match client lifestyles

A “product push” approach coupled with “extreme” financial innovation characterised the majority of private banking activities in Italy until 2006-2007. But today the way clients assess private banks has radically changed, states Dario Prunotto, head of the private banking division of UniCredit in Italy, which manages €87bn in clients’ assets.

“There is a strong focus on reputation of the institution, and on its ability to offer ‘useful’ private banking that takes cares of clients’ real life needs. Key differentiating factors are accurate advice and impeccable banking service.”

Wealth advisory services, aimed at protecting family assets, such as those related to succession planning or trusts, have also gained traction. “Our approach to private banking is to understand client needs first and possibly their entire wealth before producing an asset allocation,” says Mr Prunotto. “We have invested a lot in wealth advisory services over the past three to four years, to differentiate ourselves and respond to pressing client needs in this space.”

The grand idea is to have a holistic approach to servicing clients, whether they ask for lending, or need to be accompanied to buy a property, or to an auction to buy artworks, or to be assisted on a philanthropy operation, he explains.

UniCredit Private Banking (UPB), the country’s largest wealth manager, has a team of 990 private bankers and customer-facing specialists. It has created ad-hoc wealth advisory teams, providing free of charge services to private banking clients.

In 2012, it also strengthened the group’s fiduciary company Cordusio Fiduciaria, through creation of its own family office company, Cordusio Sim. The firm, which today has €1.8bn assets under advisory, offers ultra-wealthy families fee-based services of data consolidation and strategic consultancy. Charging for consultancy has been an “interesting” exercise, says Mr Prunotto, as it has allowed the bank to understand what clients are willing to pay for, in view of possible regulatory changes.

Three years ago the bank launched a flat fee account portfolio, called Myglobe, which has gathered around €4bn. The portfolio charges an “all in one” annual fee on the clients’ assets under custody, and covers any transaction of securities and funds, along with investment advice and banking services. The private bank also manages €9bn discretionary portfolios (Gestioni Patrimoniali) and €10bn in insurance solutions.

“Fee-based advisory services represent the future of private banking,” believes Mr Prunotto, and they will highlight the real skills of private bankers. Today, at UPB, trading commissions represent less than 35 per cent of total revenues, down from 50 per cent before the crisis.“We are very careful not to exacerbate the percentage of fees relative to product selling, and that’s why trading has become less relevant as a component of the total fees we receive.”

Pricing and reward structures are becoming increasingly more flexible, with bankers’ salaries able to rise depending on both growth of assets and number of clients as well as professional qualifications, rather than on the profit margins of products sold, he claims.

A new system of incentives to encourage meritocracy aims to attract and retain talent. Indeed, competition is very strong, not just with other private banks but also with those institutions who use independent advisers (promotori), known for their entrepreneurial spirit and a hard-selling reputation. Concerns about remuneration have led some private bankers to join smaller or independent institutions in recent years.

UniCredit posted a record €14bn loss in 2013 as it set aside money for bad loans and wrote down goodwill from acquisitions. In March, CEO Federico Ghizzoni announced plans to cut 8,500 jobs in Europe, 6 per cent of the workforce, of which 5700 were in Italy, to improve profit as part of a five-year project to clean up the balance sheet, prior to the European Central Bank taking over supervision duties in November. Mr Prunotto says that last year, he lost only 20 staff from his 1,400 total.

Over the next five years, €100m will be invested to incentivise existing private bankers, improve communication, investment products and make new hires, with 30-40 new recruits expected to join during 2014.

Market developments

Thanks to high saving rates and wealth concentration, with 10 per cent of the population, around 600,000 families, holding 40 per cent of assets, the Italian private banking market, worth Ä900bn, has long been a battleground for foreign banks and different types of institutions catering to wealthy clients. Many operators have limited regional presence, limited to Lombardy, accounting for 25-30 per cent of wealth, Northern Italy and the area around Rome.

Maintaining a national network is vital to win serious market share, says Mr Prunotto, also referring to the importance of leveraging on group corporate banking, a significant source of referral for potential clients, because wealth is predominantly of entrepreneurial origin.

Unicredit Group has selected 1000 Italian medium-sized firms, believed to represent the country’s future economic backbone, with which it wants to develop a ‘house bank’ approach, with private banking an important component of this. “If the bank is asked to lend money for, say, 15 years to a company, for instance for an international expansion, then the governance of the family that guarantees the lifespan and solidity of the company becomes very important,” explains Mr Prunotto.

Bearing in mind an increasing reluctance by wealth-holding patriarchs to transfer control of family wealth in difficult market conditions – with a 22 and growing per cent of business owned by over 70s – Italy is entering a phase of wealth decumulation, with family firms or real estate no longer able to provide regular income.

“We have worked a lot on rather conservative investment solutions to meet client demand, and risk has only been reintroduced in portfolios over the past couple of years, with equity and some alternative investments,” he says. The risk appetite was partly driven by low interest rates. “The market rally has also contributed to the growth of managed assets, which continue to be the supporting pillar of our activity.”

These represent 62 per cent of total assets at UPB, which has adopted a guided architecture approach with regards to mutual funds, having selected, at European level, 10 external asset management companies as preferred partners, mainly large brands, plus the group’s own asset management arm Pioneer Investments.

Private banks in Italy are closely monitoring evolution of legislation regarding voluntary disclosure programmes, allowing taxpayers to come forward and clean up their fiscal position. Many clients wish to repatriate money held in foreign locations – currently estimated at €200bn - but may be discouraged by fear of conviction. “This is a good opportunity for clients and banks, and it can be a positive development for the country too, as this capital can be reintroduced in the investment cycle, favouring the economic growth of the country,” says Mr Prunotto.  

Putting faith in technology

One of the important developments in customer service is taking place in the technology space. “The ability to use technology is one of the elements of future competition in private banking, enabling an increase in interaction with the clients and a much more exclusive relationship with them,” says Mr Prunotto.

A recently-introduced service at UPB fosters remote advice, enabling portfolio transactions in a virtual space. Also, private bankers are provided with iPads and can use an app called i-Library to build multimedia presentations for clients.

Last year, UniCredit Group launched a specific app aimed at simplifying access for specific categories of users, such as elderly people. “Today, clients are much further ahead than us, we underestimate them,” says Mr Prunotto, recalling a recent visit to an 80 year-old client, comfortably using his iPad to manage his truck business.