Amid the many challenges private banks face as they chart their course in 2012, two ways they can look to differentiate themselves include professionalising the role of relationship managers on the one hand, and using technology as a way to enhance the client experience on the other.

Date: Jan 6, 2012

Tags: Strategy, Differentiation, Value proposition, Technology, Training

There are no quick or obvious solutions to the many hurdles confronting the industry in Asia, namely: continued high cost-income ratios, shrinking margins, tighter regulation which requires greater resources and time to explain products to bankers and clients, and short-term revenue targets and expectations. Further, these sit against a backdrop of choppy markets.

At the same time, many of the current private banking business models don’t seem to sufficiently provide what clients need – otherwise the banks would have a greater share of wallet. And it is difficult for the banks to be seen to be offering any more value if they react to the markets and to what clients ask for.

As a result, the industry needs to find ways to reduce its cost base, become more efficient when dealing with clients, and clearly shift from being transaction-oriented and self-directed to taking a more holistic approach.

Changing the attitudes and approaches of many RMs, therefore, combined with making better use of technology and automated processes – to address issues such as the cost of doing business, the spotlight on suitability, the need to increase efficiency, and the requirement to enhance client service – present opportunities for individual banks in 2012.

These were some of the views of chief executive officers, chief operating officers and other senior management at a closed-door gathering in Hong Kong late last year – hosted by Hubbis and Thomson Reuters.

Points of differentiation

With so many private banks vying for market share in Asia, senior management admit privately that most firms offer very similar products and execution. When it comes to individual bankers, there is a bell curve in every institution, with some outstanding performers and some underperformers.

Finding points of differentiation, therefore, comes down to a few key areas.

Client segmentation is, increasingly, one of them, said participants at the roundtable. This translates to identifying the different needs of individual clients and across different generations.

Putting this into practice, however, requires private banks to be very focused. For example, one option is for a bank to identify its strengths and then target only clients who want or need those types of products or service. It can then hire specific individuals to bring the relevant skills and knowledge to clients.

This recognises that it is difficult to fight certain trends, whether related to client behaviour or product preferences. So instead, and in a way which reflects the typical approach and mentality of Asian clients, banks might only offer certain products or services.

In the case of universal banks in particular, creating new segments might also reveal potential clients which were previously part of a retail client base and therefore not visible under previous thresholds.

Training and professionalisation of the industry

Standing out in a highly-competitive environment and dealing with multiple business challenges is also leading more and more senior management to take specific steps towards training their staff.

Given that some RMs in Asian private banking are perceived as having too much of a brokerage mindset and approach when dealing with clients, this is shifting the focus of senior management towards what can be done to make more bankers view the industry as a profession, rather than as just a career.

This ties into a concerns expressed at the roundtable about there being too few RMs who are experienced in handling discretionary portfolios. As a result, they don’t discuss these options with their clients, making it harder for them to develop more sustainable portfolios and revenue streams, and accentuating another dilemma for many banks – one where tough budgets and high revenue targets create a situation where RMs are pushed into encouraging their clients to trade as often as possible.

Some clients are increasingly looking to use single family offices or multi-family offices, or independent asset management firms, to overcome the concerns they have with their private bankers.

Professionalising the industry, therefore, would help increase trust between clients and RMs, said participants at the roundtable, and reduce the perception of private banking as a sales-intensive industry.

This partly involves training about proper asset allocation and how to advise clients according to their weightings in different products.

It is also about the concept of putting together teams to communicate with clients and meet their needs – not just leaving this up to an individual RM.

Ultimately, that gives a client more choice, and they will become aware of new products and services that the RM might not have shown to them or be knowledgeable about.

Further, regaining trust can also come from a larger number of RMs taking ownership for their clients’ gains and losses.

Technology solutions

Technology is a further differentiating factor for Asian private banking, agreed senior industry players.

This might be related to the ability to offer cheaper processing, which means banks can be more flexible in pricing and win business from competitors.

Or it might be related to have in place technology that can provide better and more tailored advice and services as a result of offering investment solutions more closely linked to a client's profile. It can also facilitate a more distinctive segmentation of clients.

More specifically, some senior management said they are increasingly looking to use technology as part of their banking platforms as a way to reduce the paperwork for RMs, and boost their efficiency and time available when dealing with clients, especially in terms of discussing products.

For example, when doing client profiling, it is possible to more easily keep track of the profile and therefore integrate the product team more in the day-to-day relationships with the client and the RM.

There is also a need to invest in various communication channels with clients, said several participants – whether this is online or via SMS or other means – to give banks a more formalised and consistent way of delivering information to their clients.