During the last week, I spoke to 10 chief executives of wealth management firms and 10 private clients – to understand what clients should, and do, want from their relationship managers (RMs).
Date: June 4, 2010
The results of this and other ongoing discussions with market participants give a clear indication into what clients are currently getting and what they want.
And therefore what RMs need to do differently – and better – to live up to the task.
What clients should (and do) want now
They of course understand that the bank pays the RM’s wages, but clients need to feel confident that their RM is looking out for them.
Clients want to know what value the RM is adding to them. Even in relationships which have lasted several years, clients should want to continually re-assess what they get from them, and what can be improved.
Critical to this is an RM’s ability to understand and be able to articulate their own and their institution’s value proposition.
Clients want to know how their RM gets paid and measured by their employer. And that their RM is not just trying to meet sales targets and sell them product.
Clients therefore want to be able to understand what motivates their RM – and even why the RM is doing this job at all.
Clients want to know that their RM is being open and honest with them, and has integrity. For instance, even if an RM knows that his or her institution doesn’t offer a specific product or service that a client might want, or doesn’t have the expertise internally, clients say they want their RM to use this as the basis of a proactive conversation by acknowledging the bank’s handicap and trying to find solutions.
Clients can tell if RMs are being honest by the way they respond to difficult questions; the slightest hesitation, for example, is a key indicator of a lack of integrity.
Clients want to know how well equipped the RM is to actually give the advice they do on portfolios and wealth planning needs. Tied to this is the need to understand how the RM is able to get to understand the client – and then only give them advice and recommendations based on their unique investment and risk profiles.
Clients are put off by RMs who act defensively and don’t give them the required access to internal investment and product experts. Clients want to see a variety of individuals in the organisation to ensure they are getting the best advice.
Clients also want to know they are being fairly charged for the products and services they are buying.
They understand the reality of the need for the institution to make revenue, but the (lack of) transparency and (inadequate) disclosure from RMs needs to be rooted out.
In addition, clients want to know why they should be banking with the institution itself – not just the RM.
This means finding out about things such as the overall commitment to Asia and how long its management has worked there.
Falling short of expectations
In many cases, clients’ experiences have fallen short of these expectations and wishes.
Too frequently clients have negative encounters with their RMs – both in new and established relationships.
Plus, some of the things RMs seem to do, quite naturally in many cases, are big turn-offs for clients.
For example, when asked about how they differentiate themselves from other banks and other advisers, many RMs talk negatively about competitors. This shows a clear lack of understanding of their own institution’s value proposition.
If they do this, clients should end the meeting immediately and find another RM at a different bank.
Finding the best fit
Being cynical, the ideal client for many private banks is someone who is transaction oriented, short-term focused, and prepared to lose up to 50 percent of his or her portfolio.
That fits the profile of the typical individual who RMs are experienced in dealing with and, arguably, trained to service.
In many ways, however, clients are their own worst enemies.
It is clear to see that many of the reasons why most HNWIs in Asia have private banking accounts are largely irrational.
Whether they want to enjoy the associated feel-good factor and (perception of) prestige, get access to purportedly-innovative products and ideas, benefit from the expertise of advisers, or simply have a third-party to blame if investments go wrong – emotions tend to drive account-opening decisions.
In theory, following the losses suffered and other shortcomings exposed in the financial crisis, HNWIs should now better understand the consequences of taking a high performance-oriented approach to their portfolios. They should also be more educated about what’s required in managing their assets and what can go wrong.
Unfortunately, in practice, they need to be more rational about the types of questions they ask their RMs.
This requires them to first know what they are trying to achieve, and then how to distinguish institutions – based both on finding the right fit and on what their private bankers can and cannot do for them.
Once they determine their priorities for their wealth strategy, and identify what’s important to them in terms of the RM as well as the institution, they can – through asking the right questions of their RM – create a list of the most appropriate and relevant private banks.
Yet this doesn’t seem to be the way that the majority of clients approach their banking relationships.
To choose the right adviser and get the right service, HNWIs should be asking various specific questions of their RM.
These are focused on key areas which are important to determine whether it is the right private bank for the individual client.
For RMs, to ensure they are doing the best job for their clients, they should hope their clients are asking these questions. If this isn’t the case, RMs should encourage their clients to do so – even to the extent of printing out the list below and giving it to them.
A wealth manager should be professional about this openness with clients – and strive to understand how they can best serve them. If an RM doesn’t welcome this level of transparency and engagement, maybe they have chosen the wrong career.
Experience and personal ambition
• Why are you an RM? What do you enjoy about your role?
• What drives and motivates you?
• What do you least enjoy about your role?
• How long have you been in the industry?
• How long have you worked here?
• Why do you work here?
• How many other private banks have you worked for?
• Which has been your favourite place to work, and why?
• Which has been your least favourite place to work, and why?
• What are your ambitions as an RM?
• What is your track record?
• In what ways are you qualified to advise me on my portfolio?
• What licences and qualifications do you hold? Which industry associations are you registered with?
Service and differentiation
• How do you differentiate yourself from other RMs at this bank?
• What about from RMs at competitors?
• What is the real value of what you can offer me?
• What is your approach to communicating with clients? How often will you contact me?
• How will I know whether you are being honest with me about my investments?
• In what ways can I tell that you be acting in my best interests, as opposed to those of yourself or the bank?
• What did you learn from the crisis? How have you changed the way you manage your relationships with clients?
Fees and remuneration
• How are you compensated?
• What are your financial objectives and targets?
• How does the bank measure your performance?
• Can you provide a written outline of the services you provide, and what fees you charge me?
• For products you earn commission on, what is the commission schedule?
• Who else will gain from my investments and our relationship in general – for example, affiliated brokers or insurance agents? How much will those parties earn from my business?
Suitability and risk assessment
• How many clients do you have with similar profiles to me? How are their portfolios constructed?
• What risk analysis will you do on my portfolio? How often will you do this?
• What other checks and balances do you have in place to monitor and assess my investments?
• On what basis do you make your investment recommendations and decisions? For example, take your worst investment – tell me how you made the investment, monitored it and the decisions you made along the way to stick with it or to get out?
• What product training do you do, and how frequently?
• What processes are in place to monitor the accuracy of your execution on my trades?
• What are your processes in conducting due diligence on the asset managers and other product manufacturers you recommend me to invest with?
• How will you evaluate my goals and risk tolerance on an ongoing basis?
• How are you monitored, supervised and assessed?
Investment process and expertise
• What is your investment process?
• How will you add value to my portfolio in this way?
• How is this different from what is done at other private banks?
• What is your process of asset allocation? What type of diversification would you recommend for me?
• Can you describe to me how I can be sure you will sell me an investment solution rather than just individual products?
• How do you make use of and add value to me through your colleagues on the investment and product side?
• What other experts and resources can I access at the firm? Can I meet these people, and have ongoing dialogue with them if needed?
• What is your view of the market and the ways in which various economic and other issues are likely to affect my investment opportunities?
• How important are mark-to-market implications of movements on my portfolio?
• What do you think are the most important factors I should be considering in helping me achieve my investment goals, including specific strategies, benchmarks and products?
• What advice can you give me on my cross-border investments and tax-related issues?
• What advice can I get for my family, and how I should be preparing for the future and succession?
• How is the pricing of individual products structured?
• Why is it structured in this way?
• Is this flexible? Is there room to negotiate?
• How does the bank price different products and services?
• Why does it do it in this way?
• What are the related downside risks for the various products in my current portfolio?
• If you were me, would you buy this product you are recommending?
• What are the risks of the individual product? What about the risks in relation to the structure of my portfolio now, as well as to my long-term wealth goals?
• Does the upside justify the downside risks?
• How much leverage is used to generate the returns in that product? Is this appropriate for my real risk appetite?
• How liquid is this product? How could I get my money out if want to in the future?
• Are other clients with a similar profile to me also buying this product? Why / why not?
• How can I protect my downside risks by better allocating my investments and structuring my longer term portfolio?
• What research and other sources of information can you provide me with so I can access as much information as possible to make my decisions?
• Are there any additional legal, regulatory or tax considerations?
• To what extent is the bank committed to Asia and growing its business here over the long term? What evidence is there of this?
• How long has the CEO and other senior management been in their current roles?
• What percent of the institution’s revenue from wealth management comes from Asia?
• How profitable is the institution in Asia?
• How does it make its money?
• Why should I bank with you? How is the institution different from the many others which exist in Asia?