The shocking dawn of a new banking era – Power returns to the people

PwC predicts a new era of nouveau classic banking for private banks and wealth managers. Wealth managers must focus on technology, their processes and their people if they are to be successful in a world of increasing political, fiscal and regulatory pres

Private banks and wealth managers have seen their profits plummet in the wake of unprecedented financial turmoil, investment scandals and decline in world wealth, according to a new report published by PricewaterhouseCoopers (PwC).

After several years of accelerating growth, the economic crisis has brought wealth management’s expansion projects to a screeching halt. The results of this survey show that placing clients at the centre of the business model, providing objective advice and possessing a strong, trustworthy brand is vital for the success of the business.

The PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009 identifies significant changes affecting wealth managers, how they are responding with changes in their business and what senior private bankers and wealth managers see happening in the industry in the future as well as the qualitative impacts of the financial crisis over the first quarter 2009. The report draws on insight from a survey of nearly 240 private banks and wealth managers and is the latest instalment in a global survey that started in 1993.

Clients have raised the bar and are now demanding more from their wealth managers, including peace of mind. More than half (53%) of high net worth clients surveyed say that their primary source of financial advice is now their own research capabilities and independent knowledge, an indication of their scepticism about the quality of the advice they actually have been getting.

Johannes Grosskopf, partner at PricewaterhouseCoopers’s Financial Services Practice, said:

"Transparency is the new gold standard of wealth management. How clients are kept informed around not just performance of their assets but also the integrity, financial health and processing status from their wealth managers, underlying service providers and counterparties will be brand differentiating.”

Grosskopf added, “The world of the wealth manager has become far more challenging as the world experiences one of the most devastating economic slumps, coupled with a number of investment frauds. Not only are clients expecting more from the people who manage their money, they are also looking for some type of assurance and are starting to ask more difficult questions. Additionally, governments and regulators are increasing the pressure on wealth managers in a variety of ways,”

The survey highlights that wealth managers identify the three most common areas of weakness for CRMs as an inability to adapt to change, lack of client relationship skills and poor appreciation of risk.

Although CRMs realise they have shortcomings, identifying client relationship skills and taxation as the two areas where they would most like to receive additional training, the same view was expressed in our 2007 survey. This is a real threat in such a client-driven market and wealth managers must review and action renewed training programmes. Furthermore, only 20% of CEOs consider their CRMs of high calibre in meeting the needs of clients yet, acquisition and retention of talent has fallen from being CEOs’ number two priority in 2007 to seventh today, a concerning fall.

Six of the key highlights include:

1. Performance in crises – what to do now?

The economic crises brought wealth management’s expansion projects to a screeching halt. Placing clients at the centre of the business model, providing objective advice and possessing a strong brand are now pivotal to success. Taking care of the clients provides its own rewards.

2. Client Service – disciplined segmentation lifts quality

Servicing strategies must define and address specific clients segments, with differentiated offerings designed to support clients’ needs throughout all the stages of their lives. Disciplined segmentation will help tackle current client services challenges and allow services to be offered to specific clients in a more cost-effective manner.

3. Products and services – Delivering ‘Nouveau Classic’ banking

Wealth managers are seeking to redefine trusted advisor status. In the wake of escalated investment frauds, transparent product offerings and robust suitability and due diligence processes, are critical to drive customer value and protect the reputation of wealth managers.

4. The people agenda – a new strategy required

If quality services is poised to be the main differentiator then Customer Relations Managers (CRM) need to develop stronger advisory skills, as well as expanding their business knowledge in areas such as tax and risk. As government and regulators drive change in reward structures, long-term compensation and development packages must encourage client-centric behaviour and CRM loyalty.

5. Operations and technology – Delivering client value and technology

Chief Operations Officers (COO) must make changes to their operating models to reduce costs, while simultaneously investing to support business growth. With two-thirds of the CEO identifying and continuing to be a part of their growth strategy, there will certainly be significant challenges around the integration of operations.

6. Risk management – protecting the clients promise

Robust risk management is the guardian of every risk manager’s reputation. Risk management must come of age, especially in this new era. Its application must be holistic and driven by clients’ expectations.

Grosskopf concludes, “Going forward, wealth managers will face increased challenges around how they manage the cost and efficiency of different service delivery options. Clients of wealth managers are already sharing their frustrations. They tell us in the survey that they would “like to receive statements more regularly and ideally online. These choices are based on cost and the quality delivered to clients at all levels of the wealth pyramid. Clearly one size does not fit all."

Additional interesting findings

Some of the interesting findings in the PwC survey reveal that family offices and multi-family offices are more difficult to define. While at macro level they are at the very top of the wealth pyramid, they are often not included in routine analysis when viewed at individual levels.

Entrepreneurs account for a rising proportion of clients. They tend to be the most sophisticated and demanding clients, whereas inheritors are often more conservative and focus on advice about transferring wealth between generations.

More than 90% of wealth managers surveyed have seen their CRMs increase interactions with clients and for 69% of organisations, the frequency of advice to clients has increased. 49% are providing clients with additional insights on market trends and product performance, while 13% have reduced fees.