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PRIVATE wealth management has been dealt a number of major setbacks in this latest financial crisis. The obvious one is that of the losses suffered by clients and the consequent surge of distrust. On a global scale, financial centres grapple with pressure from OECD for tax treaties that would erode banking secrecy laws, a major pillar of offshore banking. Yet another challenge is that global banks themselves are still shoring up their balance sheets. This 'hunker down' mode suggests that few are investing in fresh talent. Rather, most are still looking to reduce their operational overheads.
Asian banks boast stronger balance sheets, having taken on relatively less leverage in pre-crisis years and holding little in subprime mortgages on their books. But they have not been spared the issues of client disenchantment nor the potential challenge of information-sharing that the OECD is keen to enforce. A survey by PricewaterhouseCoopers earlier this year sheds light on the issues that are provoking some soul searching. One is that client attrition appears to be more acute in Asia than elsewhere. A fifth of the Asian banks surveyed have lost more than 25 per cent of their client assets, compared to the global average of 10 per cent of banks that reported asset attrition of more than 25 per cent. Yet more issues are highlighted in terms of customer service and relationship managers (RMs). For instance, some 20 per cent of RMs admit to not fully understanding clients' needs. Just 20 per cent of chief executives believe that their RMs are of high calibre, yet acquisition and talent retention have dropped to seventh in a list of priorities.
Certainly, it is not business as usual for wealth managers. Still smarting from recent losses, clients want transparency and simplicity and are happy to sit in fairly low yielding options as long as their capital is secure. This suggests lower margins in the near future for private accounts. Add to that a trend towards open architecture, giving clients the choice of any number of third-party products. This is a plus for clients, forcing any private bank to enforce an arms length approach to any product manufacturing capability that a related investment bank might have. This will exert further downward pressure on fees.
The way forward is truly back-to-basics but with a difference. Renewed emphasis on RM training is a must, but such training must be substantive and not just focused on market updates and products. The survey has found that the latter two items currently account for some 50 per cent of Asian banks' so-called training, raising the question of whether they were meant to further clients' interests or push the banks' products. There is a wealth of areas that most RMs profess ignorance on - estate and tax planning, for instance, and risk management. Most of all, there must be an overhaul of the management orientation towards short-term revenues and profits, in favour of rewarding long-term and steady returns with controlled risk. Only then can banks be on their way to restoring a measure of client confidence.
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