Swiss Private Banking: has anything changed ?

In March 2015, I started my series of posts on Wealth Management. What has changed since then? Not much if I trust a banker from a major Swiss Wealth Manager with whom I had lunch last week. It seems that defensive plans about Cost reduction and Risk mitigation are still higher on the agenda. Brain time is lacking to think about anything else. A fresh look at my 18-months-old post might give some hints as it conveys the idea that client-centric mindset will be key to see light at the end of the tunnel and make the journey more mobilizing, and effective, for employees as well as clients. You may work on costs and risks, you have to, but you’d rather make sure the people who lead these projects work ultimately for clients’ satisfaction and not just regulators’.

Environment
Tax dispute puts pressure on asset retention in offshore centers, pricing execution and costs to develop new services and/or to restructure. Adapting to regulation is costly, time consuming and it prevents from thinking about anything else. If it was not enough, Swiss players are threatened by strong Swiss franc coupled with debit interests who all together hurt their profitability and limit their maneuvering space.

Financials
Capital requirement to cope with risk is sky rocketing while cost/income ratio of some players approaches not-for-profit NGOs (average has increased to 80 basis points). As a consequence, return on equity is expected to drop. Financial markets helped to generate revenues from AuM growth and transactions. But just a slight slow-down could really endanger many players because of costs incurred to quickly adapt.

Clients
Client trust is lowered, either because of declining players’ reputation, conflicts of interests with product business, or volatile markets. Consequently, clients double think before investing into financial markets.

Technology
Banks and wealth managers are struck by disruptive technology at a time where their cost/income ratio is not at best to invest. Initiatives such as Watson project from IBM may well bring a revolution to Asset management and Advisory. FinTech may change the way clients interact with their banker and the price they are willing to pay for value, especially in the commoditized transaction and custody fields.
Service design and Design thinking put clients at the very beginning of new developments and private bankers should embrace this approach. Fortunately, technology also brings opportunities such as better understanding of clients, multiple contacts points, data driven lead generation thanks to Big Data, as well as process streamlining and mass personalization.
In the world of trust and personal interactions by essence, some private banks like UBS and CS already developed such a technology infrastructure that it is even part of their commercial pitch! In addition, they understand that technology should be customized to markets’ and clients’ needs: infrastructure is built globally, application is developed locally; wise. Adapting is costly and time consuming. But this is not the worst effect. The worst is what happens for clients, complexity which is created for them and for the bankers, both being transformed into administrative agents.
Unfortunately, current regulation trend works against what should be private bankers’ DNA : trustful advice...Because regulators do not trust banks and want to avoid product misselling, they want to make sure Advisory will not be used against clients’ interests. By enforcing the suitability concept, regulators transformed what used to be, and should become again, the unique selling proposition (USP) of a private bank, trustful advice, into a standardized offering.
Is there another route for private banking than total commitment to clients’ needs? An interesting approach is observable in the US to create an Advisory code of conduct (updated note: DOL act on fiduciary duty passed a couple of weeks ago).

Efficiency
Well balanced cost cutting (meaning that it should start by understanding costs at client, product and service level, and finish by protecting future growth), streamlining to reduce complexity, outsourcing,winding down, consolidation and exchange of markets, post-merger integration, revenue assurance and enhancement, pricing model definition and execution, raising the bar in sales culture and effectiveness, bridging the gap between technology trends, clients expectations, existing infrastructure and end-users knowledge, agile capabilities, talent attraction and training, compensation, are certainly the most important initiatives private banks could take to re-focus and develop their business.

Business model
Finally, these trends force to recall the real question. What is the mission as a bank in general and as a private banker in particular, where to compete, for which clients, against which competitors, is it affordable to be truly integrated and global or is it more profitable to focus on niches (geographies, services, clients segments), is there a viable in-between position, do we have the volume for that, how to price, how to organize and source, can we afford the cost, how to differentiate?
Because anyone can ne w access financial markets at the click of a button for 15 cents as opposed to 1.5%, because financial technology can be better at portfolio management and monitoring than human beings, because trustful advice becomes again the one and only unique selling proposition, because product push and client centricity are not compatible, because regulators will not allow this combination anyway, we may well see disintermediation as we have witnessed in travel industry.
Regulators in US and Europe already paved the way with clearly segregated license models. Where do we go from there? There is no single answer, as one should customize to banks situations and legacy. However, a change in mindset is critical. It would certainly help to think about what a banker is supposed to do and what private bankers were doing one or two hundred years ago (before enjoyable returns granted by banking secrecy and gate keeper position towards financial markets – all of them being no longer valuable).
Most important of all, asking clients will bring the answer. Put clients’ interests first. Really. Traditional differentiators are product and service innovation, operational excellence or client relationships. In services industries, they are nearly mutually exclusive or at least strictly prioritized. In wealth management, one cannot be average on these three dimensions anymore. Investments to raise the bar everywhere would be huge.

Dal profilo Linkedin di Jean-Charles Neau

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