Managing Wealthy Customers:
When Change is the only Constant
An Oracle White Paper
September 2008
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Managing Wealthy Customers:
When Change is the only Constant
The challenge of skyrocketing growth
Worldwide, the number of wealthy individuals is growing at an unforeseen rate.
We are simultaneously living in a time of significant generational transition and
enormous new wealth creation. Approximately US$3 trillion will move from one
generation to the next in the next few years.
Much of the new wealth is coming from the dynamic economies of Asia. As of 2005,
there were more than 2.4 million Asians with assets of at least US$1 million, up
over 7% from 2004. China, alone, has more than 300,000 millionaires. However,
the number of millionaires in India is growing three times faster than in China,
according to the 2005 World Wealth Report. Assets under management (AuM) in
India stood at US$307 billion in 2005 and have been growing at about 15% a year.
As a consequence, we are seeing global shifts in the relative regional concentration
of wealth. Many private bankers concede that in less than a decade, Asia‑Pacific
will have overtaken the European market. The private banking industry is being
challenged by these huge demographic shifts, not only in where the wealthy are
domiciled, but in the geographical dispersion (i.e., cross border) of investments and
the unprecedented amounts of wealth that individuals have generated. The rule of
thumb is that the wealthier an investor is the more the investor’s assets tend to be
spread worldwide.
Clients insist on change
At the same time, many wealthy individuals have recognized that the best
professional services, the best advice on investment opportunities, access to the
most attractive hedge funds, and the best trust services are not found at any one
institution.
The wealth management market is being forced into new directions by increased
demand for greater portfolio performance and by more financial transparency
in offshore centers. Private banking has become a more competitive and open
marketplace.
As one banker recently remarked, “Clients have become more sophisticated and a
whole lot wealthier. What they want is not to place money blindly, but advice on
how to pick the right fund manager or hedge fund.”
Access to hot alternative investments
The large private banks have had to address this basic issue, which is whether to
manufacture investment products to sell or to provide independent advice. Should
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they devote energies to creating new alternative investments, seek access to these
products from other suppliers, or develop new fund options? To respond to the needs
of their current and future client base, it is critical that they make the right strategic
decisions. There are a number of alternative investment options that beckon, and
they include becoming a provider of:
• Single manager hedge funds;
• Fund of hedge funds;
• Private equity;
• Real estate; and
• Credit structures.
Structured notes, for example, have become popular with HNWs (High net
worth individuals with US$1 million in assets). These complex derivatives pay a
guaranteed minimum return like bonds or they pay above the minimum, depending
upon the performance of other asset classes, such as stock‑market indexes or
commodities.
Growth in managed accounts
There has also been astonishing growth in managed accounts in terms of AuM
Many global banks saw these accounts double between 1998 and 2001. Even
more astronomical growth has occurred over the last five years. They have a very
profitable segment for private banks whose relationship managers have the requisite
skills and technology.
System and information requirements, such as varied access privileges for family
offices, lawyers, accountants or other administrators had to be differentiated. Some
target segment needs were more esoteric, such as being able to get an asset snapshot
in any chosen currency denomination. Having an easy‑to‑read report on and
offline became critical to managing these accounts. These reports have become the
foundation for building dependable relationships between banks and their clients.
More wealth, new segments, different objectives
Three years ago, the target market at Citi’s private bank were individuals with over
US$5 million in net worth and over US$3 million in investable assets. Today, the
Table 1: Presentation of comprehensive services
Presentation of Comprehensive Investment Management Capabilities
and Services to Clients
Delivered via Single Sales & Service Organizations for Each Channel
Proprietary Channels
Non‑Proprietary Channels
Separate
Mutual
Variable
401K
College
UIT
Account
Funds
Annuity
Savings
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focus is on attracting upper‑tier HNW targets with substantially larger portfolios.
Young Asian millionaires are aggressive, and their numbers are growing. According
to one private banker, Asians are more “hands‑on” in their investment division
than European clients, and they are less willing to wait for returns to be realized.
Asia’s wealthy tend to be younger and have made their money through their own
entrepreneurial efforts.
Old European HNW individuals are more focused on stable returns. According
to a recent World Wealth Report, in contrast “North American HNWs measure
performance differently. They often benchmark against indices, notably the S&P
500 and NASDAQ; they actively track investment returns against the latest
performance measures. European HNWs take a more medium‑term perspective by
measuring performance against a range of returns, such as the interest base rate and
local market indices.”
These differences mean that relationships require much more adaptability.
Managing expectations and introducing the right configuration of services at
the right time is critical to success. Online access to an “exclusive website” is an
Table 2: The complexity of private banking services, objectives and providers
Provision of Services
Challenges
Investment Management
Providing an integrated
approach to manage client
* Corporate and
investments and capital
Investment Bank
markets trading.
* Alternative
Investments, Trust
Dept.
* Corporate and
Creating an integrated
Investment Bank
capability to reduce risk
within portfolios that are
* Retail Bank
comprised of investments
* Life & Annuity area
from across the world.
Managing client liquidity * Corporate and
Investment Bank
with short‑term facilities
and banking.
* Retail Bank
Providing tailored lending * Corporate and
Investment Bank
for long‑term liquidity or
investment capital.
* Retail Bank
* Corporate and
Building priority access
Investment Bank
to investment banking
and other institutional
* Alternative
capabilities.
Investments
Risk Management
Liquidity & Banking
Structured Lending
Issuer Capital Formation
Multiple Providers
Within a Global Bank
* Asset Management
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example of a solution that has come of age. Six years ago many private banking
clients were not prepared to go online. They had grown accustomed to high‑touch
personal services and had little interest in checking their trades online. Relationship
mangers were equally resistant and skeptical.
Today, the personalization and functionality of private bank websites is much
improved. Utilization has increased substantially. It has become commonplace for
clients to visit these sites many times throughout the day, to get messages from their
relationship managers, or to check on a transaction. The degree of customization has
also grown with clients given the freedom to customize market information and to
do research. However, security and privacy remain key issues, and in constant need
of upgrade. The degree of information integration between multiple bank divisions
and third parties also remains a challenge. The diagram below provides a bird’s‑eye
view of a common mix of products offered through in‑house channels and those that
are often provided through non‑proprietary channels.
The table below provides a much more comprehensive look at these challenges. It
breaks out the various client services and providers to a typical private bank, within
a global financial institution.
Creating an optimum customer experience
Private banks have taken a variety of approaches to escalating client needs. Some
have increased the services of family offices within the bank; others have broadened
the coordination responsibilities of relationship managers. Most have strengthened
the underlying technology they use.
Table 3: Global private banks’ regional strengths in terms of aum in 2004
Strength Strength Strength Strength Strength Strength
in Asia* in the
in North in Latin in the
in
Caribbean
Europe America America Middle
East
UBS
***
***
**
*
**
*
Morgan Stanley **
***
*
*
*
*
Credit Suisse
***
**
*
*
**
*
JPMorgan Chase **
***
**
*
*
**
Goldman Sachs **
***
**
*
**
**
Deutsche Bank ***
**
*
*
*
*
Citi
**
***
**
**
**
***
Merrill Lynch
*
***
*
**
*
*
HSBC
**
*
*
**
***
**
PNP Paribas
**
**
**
**
**
**
*The largest global private banks in Asia are UBS, Credit Suisse, HSBC, Goldman
Sachs and Citi, but there are many more. No one bank has a dominant share. Citi
manages about US$70 billion Asian private‑banking assets and it is one of the top
three players in Asia, but it only controls 3%‑4% of the market.
Leading Global
Private Banks
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Private banks monitor customer experiences regularly to determine the consistency
of customer experiences. Dollars have flown into improving relationship
managers through education and training, effective teamwork, better performance
management and communication. Like mainstream consumer bank divisions,
private banks are constantly striving for congruence across their delivery of services
– i.e. that there is alignment of the message, the brand, the design, the branch, call
centers, online banking and monthly statements.
Private banks use a variety of service models. Some keep the relationship manager
in control at all times by rarely putting the HNW client in contact with anyone
in the bank besides the relationship manager or the financial advisor (who serves
as the main point of contact for all client transactions). In this model, the bank’s
relationship manager determines the level and type of service the client receives, and
acts as a quality control agent monitoring other employees’ interactions with clients.
Other banks have implemented service models that put clients in contact with
multiple service touch points. These banks, are as a consequence more dependent
on their service quality systems and underlying technologies to track client contact,
to enforce uniform, institutional service standards and to create teamwork across
product and service areas. Some leading firms have introduced systems that make
sure that service levels are in sync with client lifecycles. Oftentimes they provide a
higher level of service to new HNW customers. Other banks have designed systems
that determine service according to client assets.
To provide branded customer experiences, private banks have implemented systems
of measurement to determine how well the customer experience is being delivered.
Sometimes, a private banking representative will directly contact the client (through
a “warm call”) to assess the client’s level of satisfaction. Many private banks provide
incentives to employees for both retaining clients and also acquiring new clients.
Most private banks also use open‑ended surveys to determine satisfaction, and to act
as a feedback mechanism for improving service delivery. Private banks often gauge
the satisfaction of their clients by whether they attend bank‑sponsored conferences
and provide referrals.
Each bank’s footprint creates unique opportunities for
the relationship manager
Although UBS, Morgan Stanley, Credit Suisse, JPMorgan Chase, and HSBC are
all referred to as global private banks, they have varying strengths across the globe
Table 4: Global private banks with a broad range of vip and family‑practice services
Global Private Banks
UBS
Morgan Stanley
Deutsche Bank
Citi
JPMorgan Chase
Family Practice
**
***
***
**
***
VIP Services
***
**
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Table 5: Drivers of satisfaction
Drivers of Client Satisfaction:
• Appropriate operations support
• Fund performance
• Wholesaler responsiveness
• Reputation
• Inbound telephone sales support
• Problem resolution
• Marketing materials
• Investment updates
• Product range
and varying numbers of relationship managers. There are tremendous differences
in each bank’s understanding of the needs of particular regions and their peoples.
Some banks been in Asia for generations, while others have come in and pulled
out after penetration of the market proved too difficult and then returned again
when the wealth in the region beckoned. Historically, private banking services
began in Europe with an emphasis on wealth preservation. However, as the tables
below suggest, some banks have put generations of effort into developing particular
regional markets and deploying relationship managers to cultivate the well‑to‑do in
select countries.
Future technology needs: improved data management
capabilities
Whatever the bank, however, they are all constantly striving to integrate accurate
up‑to‑the minute information coming from multiple sources. Some of the broader
ongoing data and technology challenges include providing:
• Consolidated reporting for clients;
• A total view of client relationships for bankers;
• Better data for management, and to product managers; and
• An easy way for clients to gain access to new products.
The drivers of client satisfaction
Industry surveys reveal that client satisfaction is driven by a complexity of factors,
many of which are technology‑driven.
Cultivating profitable relationships
When all is said and done the current and future goal of private banks is to create
deep relationships that lead to greater revenues per client across a broader product
set. All of this requires a disciplined investment process and consistent performance.
It is dependent on a bank’s ability to leverage their brand and distribution systems
to accelerate growth. Now and in the future, real profitability will come from
expanding their top‑tier client ratios (i.e., serving more of the ultra HNWs and
getting more of their assets to manage).
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Managing Wealthy Customers: When Change is the only Constant
September 2008
Author: Randi Purchia
Oracle Corporation
World Headquarters
500 Oracle Parkway
Redwood Shores, CA 94065
U.S.A.
Worldwide Inquiries:
Phone: +1.650.506.7000
Fax: +1.650.506.7200
oracle.com
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