Private banks switch focus to super-rich

Wealth managers need to redefine either their product range or their target clients. Private banking is becoming a less profitable business, particularly if you happen to work for Credit Suisse. The inflow of new money from wealthy investors is the lowest for two years, with clients investing just SFr3.4bn (E2.3bn) in the third quarter. This led to a record loss for the private bank, blamed on “seasonal weakness, investor passivity and lower revenue from the sale of structured products”. Managed assets have also fallen 4.4 per cent, spurring Credit Suisse to launch a new fund of funds operation in order to boost fee income. But blaming poor performance on the changing of the season or the tides of the sea is far from convincing. Credit Suisse’s rival, UBS, has delivered higher than expected net inflows of over E10bn during the same quarter, driven by international business. This seems to have been triggered by a surge in assets coinciding with the end of the Italian tax amnesty. Yet pre-tax profits at UBS’s wealth management arm have still suffered. How will these private banking problems be addressed? The answer, at Credit Suisse, seems to be to limit new clients to those with over E1bn to invest, thus freezing the so-called mass-affluent out of Zurich’s vaults. This is reflected by research from Datamonitor, which found that the mass affluent is no longer such a large mass. With numbers of high net worth individuals now shrinking, leading to redundancies at investment groups such as Gerrard in London, wealth managers either need to cut costs or increase revenues. If they do not wish to follow Gerrard, the way forward is to design innovative new products which can provide genuine solutions as well as generate fee income. This means creating mutually beneficial partnerships, which go far beyond the simple distribution of mutual funds.