KBC’s model paves the way to Czech mates

Christiaan Sterckx, the youthful head of product development at KBC Asset Management in Brussels has largely been responsible for the Belgian bank’s huge penetration of the Central European retail funds market. From a standing start in 2000, he reports that the region now accounts for 6 per cent or ?8.5bn of the bank’s ?142bn under management. “In terms of new sales, Central Europe provides the most important contribution, representing one third of the money we get,” says Mr Sterckx. “It is disproportionately big in comparison with the rest of it.” A money market fund was the first product which KBC launched in the Czech Republic six years ago. “This was a very short-term perspective fund for conservative investors,” says Mr Sterckx, who has since helped develop a popular bond fund and structured product range with his group’s subsidiary in Prague. Further initiatives The Czech launch was followed by initiatives in Poland, Hungary, Slovakia and Slovenia. The asset manager has people on the ground in Prague, Budapest and Warsaw, in addition to its physical operations in Brussels, Luxembourg and Dublin, plus representative offices in New York and Shanghai. The Central European manoeuvres have all followed the parent bank’s own activities in the region. In fact KBC Asset Management supports the banking branch network by supplying investment products for internal consumption, to help implement the group’s overall business model. But there is also co-operation with several external banking networks. In the Czech Republic, for instance, products are sourced for the Postal Savings Bank and CMSS, an independent network closely resembling a UK building society, according to Mr Sterckx. “Our market share in the Czech Republic is close to 27 per cent. We don’t see any other serious competitors,” he says. “Even if other banks have a capacity in structured products, we don’t see them copying that kind of success.” The pace of penetration of the market, believes Mr Sterckx, is all down to the hard work which has gone into tailoring asset management products for distribution through the banks’ branches to retail customers. “This is our group strategy,” he says. “Many people think it might be easy to service an internal client, but our experience is that it is not necessarily that easy.” Most fund groups moving into Central Europe, have taken a different, somewhat less focused approach, believes Mr Sterckx, and have not achieved the same success. They have put their faith in an open architecture model, which means developing one or two near perfect, blockbuster products, and then trying to offload them onto the shelves of as many banks as possible. “The open architecture model is a choice we have not made so far, but it might [eventually] make sense for other entities. They try and sell to distribution networks open to a product offer from any firm in the world,” he says. “But it is not obvious how to get decent volumes from this strategy. With us, it’s blood, sweat and tears. We have copied our domestic model into Central Europe, and this has taken hard work.” After achieving a leading position in Belgium – where KBC Asset Management has more than 50 per cent of the retail structured products market, and a third of the retail funds market – the bank’s management decided to go much further afield, rather than attacking opportunities just across the border. The bank now has 11 million clients, mainly in Belgium and the Central European countries. “KBC as a group chose to move into Central Europe, so that was a priority for us. The question you have to ask is: ‘Are you going to use your efforts to break into an already well-developed market, such as France, or go into a less mature territory, such as Central Europe?’ You can’t do everything at once, unless you have unlimited capacity.” Close relationship In fact the values espoused by Mr Sterckx very much go against the grain of the ethos of bigger groups, which now claim to have distinct profit centres for asset management and banking, with no real mutual dependency. “The essence of our business model is rather a close relationship between distribution networks and the asset management business,” he says. This does not mean that the asset management arm has followed central orders from the bank, however. They simply decided it was the most efficient strategic choice. “As an asset manager, we don’t play around with a lot of ideas, but we could have made other choices apart from Central Europe and in fact we will in the future,” says Mr Sterckx. “But with the close relationship we have with the distribution network, there is a strong belief that we can capitalise on that relationship.” This relationship stems from strong links between the bank and its dedicated funds house in the Belgian market, where Mr Sterckx’s 10-strong product development team services networks dedicated to retail, private and corporate banking. The insurance company is also integrated into the branch network. A range of products for distribution are typically put together for the coming month. “Normally, each and every one is profitable in itself. They are available throughout the networks which we service,” says Mr Sterckx. “But there is not necessarily a focus on one or two products with high targets, but a range of products for the networks we serve.” While the majority of products are mutual funds investing in cash, equities, sectors and themes such as Bric economies, it is structured products, which are in the ascendancy. The group launched capital guaranteed funds in 1993, by 1997 they accounted for 20 per cent of retail products, and today they make up more than 40 per cent of KBC’s ?63bn retail product range, supervised by Mr Sterckx. The product innovation ideas all come from his team. “We touch base with our network and give them a broad range of ideas,” he says. “Then we tour the country, asking sales people what they think about the proposals we have made. The feedback is very valuable to us. We can use our arguments, and they return to us to fine-tune a product, develop a product, or launch a completely new product, which can respond to real market developments.” The one key stipulation is that any internal, or external sales network, knows that the product has been developed by KBC, so that the brand of the Belgian bank is recognised by customers and intermediaries. Mr Sterckx’s team also takes care of all training needs of the branch networks. A structured product is never a standalone offering, says Mr Sterckx. “It’s a series of 10 products, and next month, there may be five or six more. The central philosophy is servicing clients on a portfolio basis continuously, with products, which fit their needs. In the KBC network, there is at least one adviser in every branch, somebody in place able to talk to a client on his level and on his terms.” Mr Sterckx also stresses the importance of technology to support bank staff in their sales effort. “You need a decent front office system such as Sophis for trading products. We also use our own system to keep track of documentation. If there is a date in the prospectus, which does not correspond with a date on the term sheet, then we are faced with a big problem. This is even more of an issue when you have 25 products on offer every month.”

Christiaan Sterckx: ‘with us, it’s blood, sweat and tears’