Written By: Susan Smithfield – Corporate Finance
The wealth-management sector has seen impressive growth worldwide over the past couple of years. In Asia and India, savings rates are high, and the richest are more and more numerous. In India, the bright outlook is based on a savings rate of more than 30 percent, coupled with the fact that the Indian economy is in an “investment” phase. In Europe and the United States, competition to win markets, including the Asian and Indian ones, has increased.
Recently a poll was conducted with the more than 300 senior industry practitioners in attendance at Hubbis’ seventh annual event for India’s private wealth-management community. Private banks will see the fastest growth in assets under management over the next five years in India, according to 27 percent of poll respondents. They will be followed by retail banks (21 percent); multi-family offices (18 percent); IFAs, or independent financial advisers (15 percent); and then NBFCs, or non-banking financial companies, and RIAs, or registered investment advisers (each at 9 percent).
Within this area, succession planning is the main wealth-solutions priority for promoters in India today, believe 43 percent of poll respondents. This trumps minimising tax and family governance, both at 20 percent, and also transferring assets to the next generation (17 percent). 94 percent of poll respondents said the concept of using professional advisers is becoming more accepted among business promoters. But investor education, adviser compensation, competency and various other aspects of the industry need scrutiny and improvement to capitalise on the industry’s potential.
No wonder that many worldwide private-bank clients are seeking for more and more complex advice in relation to wealth structuring and solutions to manage family and business assets, across generations.
What about the evolution of relationship-manager profiles?
Their responsibilities have been enlarged in many directions:
- worldwide interconnections of their clients, with international tax impacts;
- complexity of the products offered (exchange-traded funds, options, currencies);
- e-connections requested and used by their clients;
- heavier compliance constraints to be respected.
The times when the relationship manager could quietly receive his clients with paper reports consolidated by him have gone by. Reports are automatically given to clients, who will address only the technical and broader questions to their relationship managers. In the Indian poll, three-quarters of respondents said they expect technology to disrupt their businesses in the next five years—with a similar percentage predicting that robo-advisory will be successful in India over this timeframe.
The hiring for the best relationship managers is now looking like the football market.
In Asia, private banks are dealing increasingly brutally with newly hired relationship managers who fail to meet tough short-term performance targets. Many private banks in Singapore and Hong Kong expect their newly recruited relationship managers to achieve their targets within one year, even sometimes six months, after they join.
If the bank feels the newcomer is not on track to performing well, it does not hesitate to fire him. Relationship managers face a situation in which they have to build portfolios of assets under management in a few months if they want to generate targeted returns. Consequently, they have to come with their already existing lists of clients, taken from their previous employers. Transferring a relationship manager from one bank to the other means transferring his client portfolio. To ensure that clients follow their relationship manager to another bank, the relationship manager has to be a real star. If clients do not follow their relationship manager, it can lead to him searching for another job!
Why would clients follow their relationship managers? Not only because of their skills. Clients can be convinced if they think they will see more options across the investment spectrum, and also more guidance during times of market stress. That could play in favour of the big names among private banks. But hiring stars by smaller banks will cost a fortune. Consolidation in the industry should lead to fewer relationship managers due to increasing automation, and a reduced number of highly paid senior relationship managers.
When looking at the mature Swiss private-bank industry, transfers are becoming expensive.
Relationship managers are jumping from bank to bank more frequently than ever before—much like today’s footballers. For instance, at UBS, several departures in the Executives & Entrepreneurs (E&E) division have drawn attention. Credit Suisse, by contrast, has taken on numerous E&E bankers from UBS.
The numerous transfers could definitely be to the detriment of bank customers.
Customer transfers are decreasing. It is questionable whether such “transfers” will help banks grow as intended. The money that bankers are able to move to their new employers has diminished substantially over the past years. First, compliance criteria have diminished the ease of transferring client assets. Then client-retention rates are under the scrutiny of all private banks, and they have put measures in place to keep their best relationship managers, or convince clients to stay with them even if their relationship managers leave.
In Switzerland, in which 40 percent in client transfers was customary in the past, nowadays 10 percent is considered a success.
In Asia, the rate has also come down to about 25 to 30 percent of total book.
Human-resources management for private banks becomes tricky and quite brutal. Only a few senior stars seem to stay in a somewhat comfortable situation…until a new star appears.