Marcel Kreis of Credit Suisse explores effective approaches to client segmentation, fee structures and other components of successful private banking to create the right business model for Asia.
Date: Sept 2010
Tags: Business model, Training, Education, Differentiation, Client segmentation, Fees, Fee-for-service, UHNW, Cost
Profitability
Given how innovative the finance industry can be, as long as investors invest, there is an opportunity to provide win-win solutions, according to Marcel Kreis in an interview.
However, without doubt, investment in training and educating relationship managers (RMs) along with all banking professionals has become critical, he said, explaining that although the industry learnt its lessons from 2008, there will likely be more to learn as economies and markets go through further cycles.
Yet Kreis said he doesn’t expect to see an industry shake-out; although some institutions have shed their private banking businesses, competition is increasing overall. Not only are established players hiring again, there are also a lot of newcomers in the industry, he explained. Chinese banks, for example, have set up private banking businesses in Hong Kong and are vying for talent. Plus, there are other new players who are determined to make a name for themselves.
Standing out in Asia
According to Kreis, it isn’t possible to be everything to everybody. As a result, segmentation will play an increasingly important role.
So looking at some of the bank’s smaller relationships, for instance clients who might have up to US$3 million, some trading-related activities might not be appropriate, he said. Depending on the investment and client suitability, for example, it might make more sense to not offer FX trading as a direct, daily activity. Instead, maybe a fee for service is more appropriate, depending on how investment opportunities are bundled.
For example, asked Kreis, should the bank offer these clients portfolio management services? Or access to investments in funds only, as opposed to direct investments in equities or bonds? If it becomes clear that clients like such a proposition then it is possible to introduce a fee-for-service approach, he said.
However, as long as there is a preponderance of clients who are transaction-focused, it is difficult to charge a fee for service, said Kreis. Clients often feel they know more than the adviser when dealing in things like Asian equities, so don’t see the value in paying a fee for the intellectual input they get.
Fee-based advice
In general, Kreis said he would prefer to be able to charge a fee for advice.
However, when talking about ultra high net worth (UHNW) clients and individual solutions which are often tailored to their business needs, he said the fee composition is very individualistic and depends on the services that the bank is able to provide. And also on what the client expects from the bank.
In the international private banking sector overall, however, and certainly in Asia, there is a great reluctance to pay a fee for service, added Kreis.
By contrast, in a domestic private banking market which is mature and sophisticated, such as Australia, fees for service are commonly accepted, and are based on the types of activities clients want to undertake as well as the advice they are looking for.
Segmenting clients correctly
According to Kreis, the firm uses its one-bank offering to provide investment banking services in conjunction with traditional wealth management to service UHNW clients as a distinct segment. Almost all solutions for such clients are tailored, and often require cooperation between product specialists, investment bankers, legal and compliance staff, and tax structurers. That forces such segmentation, he explained, since such services are not applicable to clients who are more passive investors.
Other than UHNW clients, Credit Suisse looks at the amount of assets a client holds with the bank, as well as their overall amount of investible assets, said Kreis. There is also a needs-based segmentation, he added, which becomes more important as the bank looks at clients’ risk profiles and suitabilities.
Sustainable business models in Asia
To develop sustainable business models in Asia, Kreis said better automation and more effective processes are critical to help to streamline the organisation and take costs out, but without damaging the business.
According to Kreis, newcomers to the industry in Asia face a tough challenge given that the cost of doing business has gone up substantially.
