Private banks fear savvy clients could cast them adrift

After a relaxing summer sojourn on a rocky southern shore, many private bankers may find the European cities they are returning to a hard place to do business.

It is currently tough enough for portfolio managers to squeeze returns from equity and bond markets, amid client clamour for alternative alpha sources. But their long-suffering customers are increasingly calling the shots.

Much of the late summer at PWM headquarters has been spent perusing entries for our Global Private Banking Awards, to be presented in Geneva in November.

What is clearly emerging from this process, involving 15 judges, is that private clients are seizing hold of an agenda previously controlled by the banks in the increasingly competitive wealth management arena.

Not only are Europe’s wealthy sick of being phoned up by inexperienced advisers, forcing flavour-of-the-month products down their throats, but they are demanding access to advice through preferred channels.

This may mean face to face meetings for discussion of global trends, but also increased use of technology and mobile applications for buying and trading products.

Many banks are not, so far, getting this balance right. In Switzerland, London and Paris, a new virus is ravaging the private banking community. There is a fear of disintermediation sweeping through the elegant banking receptions on Geneva’s lakeside, the dockside concrete blocks of Canary Wharf and the windswept towers of La Défense.

Institutions who have since the 2008 crisis been moving ever closer to their edgy customers are now gripped by a nervous pain in the pits of their stomachs.

It is all very well to spend the lion’s share of development budgets on fast trading links and new apps. But by enabling customers to engage in asset allocation and portfolio management on their own terms, they could be cutting out the need for highly paid private bankers and the expensive city centre banks that house them.

That is the refrain running through the c-suites at the leading private banking players. Citi has conducted a root and branch review of the delivery of all services to private clients. Offices have been refurbished, with more of a “drop-in” feel so that passing customers can come in for a coffee without fear.

Even white-gloved Pictet, once a bastion of formality, is encouraging the new entrepreneurial, more casual spirit increasingly embraced by clients. Web interfaces are being enhanced, with banks realising there is little point in giving customers access to every data point unless the experience is straightforward and rewarding.

Yet some banks are stopping short of promoting full electronic trading of assets. This could be a short-sighted mistake. Plenty smaller rivals are not only promoting mobile trading of funds, but widening the menu to stocks, bonds and derivatives.

A second mistake is to use the new technology purely as a distribution chute for more product sales. The digital revolution should instead be a catalyst for a sea-change, where the interests of clients rather than those of the banks at last come first.

The banks that succeed in the future will be those that strive to make the customer’s experience an effortless and more enjoyable one. That way we will all be bathing in warmer waters, well away from the rocks.