‘Tech and talent’ tonic key to banks’ slimline future

Ten years on from the Global Financial Crisis and PWM’s inaugural Global Private Banking Awards, the ability of wealth management firms to recruit top talent can still make the difference between success and also-ran status.

There is a belief among some banking bosses that an old hand can “look into the eyes” of potential recruits and determine whether they share the private banking “soul”, mentality and inspiration needed to make profitable business. 

There is a school of thought that the elusive combination of product, investment and people skills, combined with knowledge of institutional capabilities cannot be learned, but is somehow innate to career private bankers. But many do not agree. Helen Westropp, managing partner at branding consultancy Coley Porter Bell, and a PWM awards judge, identifies two battles which private banks are now fighting. Firstly, they need to demonstrate their expertise and vision to clients and the wider world. But more importantly, they must engage more fully with employees, moving far beyond weekly product and investment meetings. 

Deeper, more intensive discussions with relationship managers (RMs) about ethos and approach to clients and society will be crucial to the future success of private banks. We are no longer talking about control, which was the key concern 10 years ago, when Swiss banks blamed problems on rogue advisers going ‘off-piste’ to push products not on head office recommended lists.

Clearly, both training and the actual quality and efficiency of the front office as a living entity must be improved. Today’s mission must be more of a tripartite understanding between bank, adviser and client.

Falling short

Most private banks fall far short of this Holy Grail. Their RMs are typically overpaid for the ‘incremental revenue’ they generate, calculates Ray Soudah, founder of strategic banking consultancy MilleniumAssociates. He predicts a 50 per cent decline in staff costs through a combination of renegotiated salary packages and new technology over the next five years.

‘Overbanking’ in European wealth management is a major issue. The consolidation that started in the aftermath of the 2008 crisis is likely to continue apace. This will be boosted by increased regulatory burdens and associated costs, proving a drag on profitability. 

“Management teams of private banks and wealth managers are preparing significant cost-cutting measures to create more robust businesses,” says Mr Soudah. Despite current, profitable economic conditions, Mr Soudah expects a future bear market to have serious negative impact.

This is not just opinion, but a reflection of structural changes in the wealth industry’s dynamic. It is becoming more and more difficult for RMs to interact directly with private clients, especially in Europe and the Middle East, where the wealthiest have established quasi-family offices with several layers of gatekeepers, restricting access.

For this reason, many banks set up their own global family office divisions, to take back this intermediary role, event if few are likely to succeed in this apparently client-friendly reincarnation. For most banks, these new divisions are typically led by investment bankers, used as another channel through which to push capital markets-led products and services.

No easy task

This is no simple issue for banks to negotiate. It goes to the heart of the difference and conflict between private and investment banking. On the surface, private banking is about long-term relationship management, spanning several generations, whereas investment banking favours deal-making, based on fees and transactions. But taking a deeper look, ultra-rich entrepreneurs nearly always prioritise growing or selling their business, for which they need investment banking facilities, over gaining 2 to 5 per cent extra return on their investment portfolios, believes family adviser Gerard Aquilina.

Former investment bankers do not always make the best private bankers, he believes. That said, it is vital to have embedded in a private bank experienced professionals with corporate finance and other investment banking skills “to provide the credibility needed to bridge the two sides of the institution and to provide a more technically skilled approach to servicing the mega rich”.

How banks combine these disciplines has been a crucial criterion for our judges, as they assess the success of each firm’s  wealth management ecosystem. 

Winning combination

People are incredibly important and always will be, with the quality of RMs remaining a major differentiator. But if we look at the truly successful private banks of the last 10 years in the post-crisis era – UBS, Citi, BNP Paribas, Northern Trust and DBS among them – the matching of technology to personal service has been key to their leading positions. 

“These firms are paying much more attention to the quality of digital engagement, in order to allow their clients the utmost convenience when interacting with them,” suggests Alois Pirker, head of research at Boston’s Aite Group. This will lead to a greater degree of self-service, more process flexibility and the ability of RMs to serve more clients.

In Asia, private banks like Credit Suisse and DBS may still be in expansion mode. They are still fighting for talent and have ambitious hiring targets, according to Simeon Fowler, boss of Asian headhunters Fowler Fox. 

But others seem to be have reached the peak, if not passed it, in terms of adviser numbers and jurisdictions in which they are active. Ultimately, this shifting client engagement model will enable RMs to dedicate more time to financial planning and less to account servicing. 

The resulting model will almost inevitably be a leaner one. As wealth managers actually improve the quality of their service, it is difficult to imagine that numbers of advisers will remain as high as in the ‘golden age’ of private banking, soon to enter its twilight.