The Pressure Rises

James Edsberg


Gulland Padfield

Today’s successful private bank needs a shockingly clear sense of purpose, says James Edsberg. Those that put a profound understanding of their client at the heart of their strategy, outperform others.
Private banks face an unprecedented convergence of pressures from three directions. Management teams must respond to each by creating the organisational culture and capability to align their business around the clients they can best serve.
Relationship pressure: The profile of the wealth management client has evolved profoundly over the last decade. All analyses suggest that client needs and expectations will continue to change in almost all segments. But, from inside banks, the evidence of higher turnover of client-advisor relationships suggests that institutions aren’t keeping up. Clients are more ‘multi-banked’ than ever. They’re reducing the proportion of assets they’re willing to commit to a single provider. In a flat and uncertain market the sector is experiencing more client defections arising from poor client service than from weak portfolio performance. Today’s clients are more closely scrutinising ‘value’ as they become savvier, better informed and expect loyalty to be rewarded.
Competitor pressure: Many leading players have yet to take the systemic leap towards a client centric business model. The task of identifying where to build loyalty and deepen client relationships has started but, in many of the best brands, it’s far from complete.
Competitive pressure comes from several areas. First, after years of poor analysis and experimentation, banks are improving their approach to workable segmentation. You can’t be client centric unless you’ve identified which clients you should serve. Better CRM analysis and market studies are helping.
Second, the war for talent is intense – nowhere more so than in Asia. Third, after years of neglect and client and RM frustrations, firms are investing in their technology infrastructure and reporting platforms. Fourth, several are also focusing on better pricing discipline by RMs – in some, showing improved margins by 5 – 12bps over six months.
Management pressure: Senior management is under renewed pressure to make tough decisions. The single greatest challenge is how to balance the costs of delivering high levels of client service with efficiency and scalability. To some, a strategy of client centricity directly conflicts with the needs of the business to be scalable. It needn’t.
The answers to where, how and why to shape the business model lie in a deeper understanding of your chosen segments. The need to adapt operating models to meet new and changing regulation compounds this scalability challenge. In a recent study, CEOs estimated regulation has consumed 10-20% of turnover in their businesses.
How should Private Banks transform their performance and profitability through a client-centric approach to strategy? Our research over 12 years among management teams of leading wealth management firms suggests that they value an over-arching framework to deliver profound client focus. We suggest six areas which, when aligned to its clients and markets, will drive transformation:
• strategy
• structure & operations
• client relationships
• services & products
• people & rewards
• brand & communications.
We have developed an on-line diagnostic enabling executives to plan, prioritise and analyse these six drivers of client-centric profitability in real time for their own institutions and compare their progress against an anonymised benchmark of comparable firms. It comprises 12 questions, takes five minutes to complete and is publicly available at
The results from our Client Centric Index give a fascinating snapshot of how the industry globally is responding to these pressures. It identifies three critical initiatives which Private Banks should focus among others:
Close the ‘insight gap’: There’s a lack of high-quality market and client analysis inside Private Banks. Their data tends to focus on which clients buy what products. The fact that satisfied clients switch demonstrates the need for a fresh approach to understanding client relationships. The right kind of research:
• identifies client’s current and future needs
• uncovers what drives client loyalty
• identifies clients at risk of defecting
• highlights opportunities to deepen relationships.
Define client segmentation: Increasing share of wallet comes from targeting the right client segments for your business strategy. Comprehensive client insight will help build more accurate segments that go beyond arbitrary geo-demographic categories and traditional wealth band segmentation. More can be done to take account of other drivers of client decisions, including behaviours, evolving, risk appetite and profitability.
Simplify product offerings: The boom times saw sustained product proliferation for banks with too much trial and error. This ‘guesswork binge’ has left banks with 100s sometimes 1000s of product lines many with a tiny number of costly-to-serve clients in each.
A more client focused approach to product development is needed to ensure greater profitability. Research shows there’s a positive correlation between the proportion of new product ideas rejected and overall profitability of a business. The successful institutions are shaping products specifically for each target client segments – and trialing concepts in the market pre-launch and reducing speed to market.
The term ‘client-centric’ is now familiar in the strategy lexicon, says Gurpreet Garcha. But some misconceptions can lead a bank down a dead end:
Myth 1 Client focus means paying attention to every client. It doesn’t. It means focusing on the right clients for you and your business. ‘By trying to do everything for everyone,’ says one leading global bank executive, ‘we realized we weren’t doing anything for anyone.’ Before better client focus comes better client segmentation.
Myth 2 Client focus is synonymous with client service. For too long, delivering client focus was seen as the exclusive responsibility of the CMO and the RMs. But until it touches all parts of the organisation, the alignment clients require – and the scalability executives want to achieve – will take longer and be less effective.
Myth 3 All elements of the client’s service experience are the same. They’re not. The trick is to know which elements of service you should focus on and which truly drive loyalty in different segments and markets.

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