Creating the perfect hook

Reputation counts for a lot in private banking. The old established, often Swiss, private banks can point to a long-standing tradition of looking after people’s wealth down the generations, but lately high-net-worth individuals with more recently acquired wealth have changed the face of private banking.

Private banking is now vastly more competitive than it once was, and with clients able to pick and choose among a large number of offerings, banks need to keep on their toes to win and keep them. How do they locate a potential client, cultivate them and finally hook them into buying fee-paying services? This question today is now more pertinent than ever.

Credit Suisse is one of a few grand old men of private banking, firmly rooted in the Swiss tradition of catering to the needs of the wealthy. According to Jeremy Marshall, CEO of UK business, brand is important when high-net-worth individuals are considering who to trust their money to. And Credit Suisse can point to a history of 150 years of looking after the assets of wealthy clients.

“Clients want a brand that they can trust,” he says. “For a person who has inherited $50m (?40m), or sold their company for $30m, when they draw up a mental shortlist of possible firms to speak to, then the brand is important – and especially how trustworthy and reliable the brand is. We say at end of the day if we do nothing else – hopefully we do a lot more – but we should at least give clients their capital back.”

Reliability, reputation and solidity is also something that is stressed by Michael Mount, London-based managing director, business development at HSBC Private Bank.

“One important point for a lot of high-net-worth individuals is the security and standing of the institution to which they entrust their assets. HSBC being one of the most strongly capitalised banks in the world is an important factor. We are undoubtedly a very safe place for people to place their assets.”

Such standing comes from years as a very visible presence on the world banking scene. Therefore, newcomers have a tough hurdle to negotiate when trying to break into the ranks of the established banks. This has been the case for French player SG Private Banking, which is something of a new boy among the private banking fraternity, having entered the arena in the late-1990s. Its focus is on the new wealth, particularly on entrepreneurs who are selling up, or managers realising their share options. An important tool for picking out likely new clients is its team dedicated to identifying, and sourcing those people who might want private banking services, either immediately or sometime in the not too distant future. Other parts of the Société Générale empire are a happy hunting ground for prospective private banking clients.

Seeking out innovation

“In France, there is a team dedicated to entrepreneurs who every day screen all those people working with the retail network and with our corporate investment banking arm and with other sources of information they have. Even if they are not yet in the process of selling their business, we explain they should discuss this with us at the time or even before, so we can structure a way to sell the business in the most efficient way,” says Jean-Michel Dy, global head of sales SG Private Banking.

Another source of clients for SG Private Banking is via its capability in providing other customised services. Clients who come to the group to structure the financing for a yacht, a jet or even a villa in the south of France, for instance, can then be won over to additional fee-paying services.

“To structure jet finance is quite complex, so in doing that you are in a position to demonstrate that you can serve a client on some personal part of his wealth,” says Mr Dy. “It has proved very efficient. When he is looking to buy his jet or his yacht or his villa close to St Tropez, he is in a position to discuss other opportunities which is completely different from when you see him at a business function. That’s why we have a specific partner for yacht and jet financing.”

With a bank, own-branded products are no longer enough to satisfy an ever more demanding clientele, especially as open architecture is the phrase on everyone’s lips. No bank wants to be seen to be pushing their own products if they are not appropriate, and private banking is certainly more than purely product selling. But open architecture is a phrase that means different things to different people.

“Many firms talk about open architecture but of the funds we offer in London, 70 per cent come from outside Credit Suisse,” says Mr Marshall. “Other firms talk about it but the proportion is often 90 per cent in-house.”

Jyske Bank in Copenhagen, Denmark, for the most part expects its own funds to match the demand of the majority of clients. “We know that the quality of mutual funds we offer are top grade as rated by Morningstar,” says Peter Laub, the bank’s head of marketing. “If clients want or if their situation dictates that Jyske Bank can’t offer funds that cover their needs we will take in other funds.”

‘We could be more pro-active with some segments of clients where product ideas are concerned, but hard selling is not appropriate. Clients want more input from us’ - Jean-Michel Dy, SG Private Banking

The cornerstone of good wealth management is diversification, according to Mr Marshall at Credit Suisse. “I would say 95 per cent of people are insufficiently diversified. If you take a middle-eastern client, they are exposed to the oil price, so their diversification might be, for example, to invest in an oil poor area like China, for example. For someone in the UK they might want to look to continental Europe rather than the US, because a lot of large UK companies have US operations. If you are invested in the FTSE you are invested in the US cycle anyway.”

At the other end of the scale from the private banking giants, Jyske Bank distinguishes itself by offering private banking services to the lower end of the wealth scale.

“We take in private clients from ?30,000; that is fairly unique,” says Mr Laub. “Smaller clients are not always welcome in private banking. That is a major difference for us.”

Jyske also recognises that there are limits to what it can offer to the ultra-net-worth individuals and is honest about its limitations: “Up to ?2m is the group of people where we think we can do better than the other banks. When you come to really rich people, they have needs that we may not be able to cover. Advice on art dealing and similar things are beyond our competences,” adds Mr Laub.

Keeping clients happy

Once a client is on board, keeping them happy is a priority. Performance is the number one factor in retaining clients, according to Mr Marshall at Credit Suisse. “The client will tolerate lots of other issues if the underlying investment is well constructed. There may be lots of bells and whistles, but at the end of the day our job is to invest clients’ money in an appropriate and well-performing way.”

But also important is continuity of the link with the relationship manager. A constant complaint among clients is if they have a succession of relationship managers over a short space of time. It takes time to build up trust.

Lose a relationship manager to a rival and a bank runs the risk that the clients move with him, but this is now much less of a problem than it was some years ago. This is in part because of the range of products available has extended, according to Mr Marshall. With some products where the lifespan is long, assets are effectively locked up for periods of up to 10 years.

“All firms have become better at institutionalising relationships by offering a holistic product service – for instance on alternative investments like private equity and hedge funds, property services and ideas that are hard to replicate,” says Mr Marshall.

Judging customer satisfaction is not usually a question of handing out questionnaires and asking people to fill them in. High-net-worth individuals, by their nature, are time poor and questionnaires are a rather blunt instrument for judging customer satisfaction. But this approach does seem to have paid dividends for Jyske Bank, whose questionnaire, included every two years in its glossy magazine, has prompted a response of 10 per cent, much above the expected rate of under 5 per cent normally achieved by mailshots.

Retaining key staff

One of the comments that emerged from clients was the previously-mentioned too frequent changes of account manager. But Mr Laub contends that the rate of keeping account managers is not much different from other banks, with the average length of service at around eight years. At any rate, it is something which is hard to change.

“We see young account managers move on because it’s a career choice,” says Mr Laub. “If you are young and aspiring you will go for the next big opportunity.”

HSBC eschewed questionnaires to gauge satisfaction and instead opted to commission an external consultant a couple of years ago to sound out a large random sample of clients to find out how they really rated the service they were getting.

‘We know that the quality of mutual funds we offer are top grade as rated by Morningstar. If clients want or if their situation dictates that Jyske Bank can’t offer funds that cover their needs then we will take in other funds’ - Peter Laub, Jyske Bank

The result was to highlight some shortcomings, which the bank has gone on to put right.

“We are investing more in our investment capability as a result of the survey,” says Mr Mount. “We increased the strength and breadth of our investment management capability within the private bank in the UK very significantly. Our investment management team has quadrupled and we are investing in systems and product development capability to meet the demand that was apparent in the external customer survey.”

One of Credit Suisse’s methods of quality control is by so-called ‘mystery shopping’: “We test our own people by someone getting in touch pretending to be a client or

getting third parties to call up and say they are interested in our service. That is to maintain a constant check,” says Mr Marshall.

SG Private Banking has just instituted a more rigorous review of its services by commissioning an external firm to interview between 50 and 100 clients for each of its private banking entities. This replaces a previous feedback system of mailings, which produced a low response rate. The response has been even better than anticipated, according to Mr Dy. Some clients were willing to take around a couple of hours to take part. And the comments have also caused some surprise.

“Very often we find we could be more proactive with some segments of clients as far as product ideas are concerned, but we had been thinking it was not appropriate to do hard selling,” says Mr Dy. “Clients were asking for more input on our side.”

Often it can be the smaller, seemingly mundane aspects of service that can let down the whole operation. Mr Mount talks about “hygiene factors” like statements arriving on time, credit cards working in ATMs, telephones being answered straightaway.

“Those things make the difference, even if you achieve good or excellent investment performance if a lot of little things don’t work that can often get beneath clients’ skin and make them unhappy,” he says.