Against the backdrop of its universal banking model, Deutsche Bank’s private wealth business has made taking advantage of the pace and extent of wealth creation in Asia a clear priority.
Date: Mar 2011
Tags: Strategy, Differentiation, Value proposition, Business model, Segmentation, Hiring, Wealth planning, China, India, Indonesia
In particular, the firm has prioritised entrepreneurs as one of the key ways it can succeed over the long term in the region.
The best examples of the scale of the relevant opportunities lie in China, India and Indonesia – where, as the largest and fastest-growing economies in the region (as well as being the bank’s fastest-growing markets in Asia), there is a vast amount of first-generation wealth being created.
"This is where a private bank such as us, in terms of our global reach and diversification, can really service these clients’ needs as they emerge from their own countries and take on a more global role for their businesses,” said Ravi Raju, managing director and head of private wealth management at Deutsche Bank in Asia Pacific.
The aim, he explained, is to get the wealth management wallet-share of these customers at the earliest stage possible, through helping them with things like capital raising or mergers and acquisitions for their businesses.
"The most exciting portion of our growth [in terms of private wealth] is coming from these areas,” said Raju.
Global access
A key differentiator when servicing entrepreneurial clients comes from being able to bring them a one-bank concept via corporate and investment banking capabilities.
"This is where clients find us more relevant,” said Raju. “Entrepreneurs in China and Indonesia, for instance, want to take advantage of their core competencies and advantages – and see how to take this onto a global stage. So they look to us and other universal banks as the window to help them achieve this.”
But identifying potential clients means looking country-by-country and industry-by-industry, he explained.
For example, said Raju, in the natural resources sector in Indonesia, and more specifically the palm oil business, the firm is able to work with colleagues from across the group to bring such businesses in contact with interested customers, for instance in China, facilitated by having offices and onshore operations in both countries.
Clients in China also typically have cross-border and pan-Asian business ventures, said Raju. “They are continuously looking for investment opportunities beyond China’s borders.”
Or it might be in relation to the service industries in India. Given that Deutsche Bank is dealing with a lot of companies in other parts of the world which are looking to expand into growth markets, its bankers on the private, corporate and investment sides of the business are in a position through various local offices to make various introductions, provide access to financing and other things that entrepreneurs need to help them achieve their goals.
All this creates quicker and more direct in-roads for private wealth management, said Raju. “Private banking services will naturally flow from having a share-of-mind of the principals behind such businesses,” he explained. “And as customers start to have inter-generational wealth issues, we are there to help them plan for this in addition to managing their personal portfolios.”
Certainly in the entrepreneurial segment, clients look at the relevance of the institution to their own portfolio – both in terms of its returns as well as how it has been managed over time, he added.
"This is what clients really care about. It is not solely about relationships, but also about risk management, wealth planning, and preserving and passing on wealth.”
A team approach
According to Raju, being able to deliver such an offering requires the right people structured into the right delivery model. Which translates to a genuine team approach.
The diverse needs of entrepreneurs makes identifying what each individual customer wants a near-impossible task – and one which private banks find a big challenge. For instance, a relationship manager (RM) who has been in the industry only a few years lacks the skills and experience to do this; and it is impractical for people with 15 to 20 years to be doing such prospecting as the cost base would be excessive.
Ultimately, therefore, Raju said it needs to happen via a process-oriented and team-based approach.
In practice, he said Deutsche Bank’s private banking structure involves an experienced managing director running a team of six to seven RMs. Each of them then has access to specialists in wealth planning, investment advisory and corporate finance.
This, combined with a healthy and two-way relationship with the corporate and investment bank, creates an effective and successful private banking business, said Raju.
And when it comes to compensation, individual contributions don’t count. “What matters is the team compensation,” he said.
Such an approach requires a cultural change, acknowledged Raju, and people who join the bank have to adapt to this style of working.
"As a result, we only hire people from firms with alternative business models such as traditional brokerage if they are willing to make this change and move away from the production- and commission-driven system to work as a team player, and be compensated for doing so,” he said.
With enough senior people guiding more junior bankers, the theory is that they can train them properly over a five- to six-year period to be rounded private bankers.
"The aim is to institutionalise the client and the relationship so that any movement of people won’t matter,” said Raju.
"Increasingly,” he added, “I am finding that only around 20% of client assets actually leave along with an RM [under this model]. In the brokerage space, meanwhile, around 80% of client assets might move with a banker when they move firms.”
Balancing profitability with client relationships
Regardless of any bank’s strategy within Asian wealth management, however, critical to long-term success is being able to avoid living quarter-by-quarter and focusing only on short-term profitability.
In line with this, Raju said the senior executives at Deutsche Bank globally understand this position.
"Our leadership has said they want to grow and invest in the firm’s Asia franchise over the next five to 10 years,” he said. “This commitment is fundamental to enabling us to achieve success in our private wealth business.”
Senior management is focused on parameters such as net new assets, he explained, and in terms of client portfolios, the returns being generated given the specific market environment – rather revenues and bottom lines.
"While we clearly don’t want to operate at a loss, and we have to keep costs under control, the key investment decisions are taken for the longer term,” said Raju. “This intent changes the whole outlook we are able to have.”
