This articled originally appeared on LinkedIn: “Are you really a relevant Private Banker?” written by Aseem Arora.
Just a few years back, if you were good at schmoozing the ultra-rich, inviting them to your bank’s “cultural” fun events, drowning them in fine wines and impressing them with your bank’s smart “portfolio allocation” tools along with tips on stock picking and leveraged fixed income portfolios, you could become a successful Private Banker. Not anymore!
Because, earlier the clients were first generation wealth builders who wanted to take every investment decision personally and highly valued their relationships with the bankers. They used to love being seen with their bankers and would feel proud being acknowledged by them in public. Yes, portfolio returns were important even then but not so much as now.
Fast forward to the current decade and the wealth management market has had a seismic shift in Asia. The reason is not only the cataclysmic “GFC” (Global Financial Crisis) but a number of underlying trends. These are:
- Wealth has been transferring at a very fast pace from the first generation to the second generation. While the first generation valued relationships, the current generation, which is usually western educated, was born into the wealth created by the “Dad” and hence does not have the pain & attachment to it like the “Dad”. They look at the wealth more dispassionately and professionally, so give importance to the value a banker brings to the table, investment returns he can generate consistently and not so much to the relationship. Call them more “business-like”!
- A private banking client of today has information on fingertips, i.e., various financial information websites, mobile apps etc. so the private banker does not have the information arbitrage that he used to have earlier. Result – just having information for taking an investment decision is not important anymore. You really need to back up your advice with the investment thesis and that requires you to work much harder and get savvier yourself before you talk to your client.
- Most of the financial products have become commoditized and every private bank sings the same tune of “open architecture”. So how is one bank or private banker better than the other? Today, the bigger allocation of client’s wealth goes to that private banker who provides a “smart solution” and NOT a “smart product”. This means that simply being just a private banker will not get you the big money. You will need to really upgrade your skills and become a private banker, a quasi-corporate banker and a wealth structurer, all rolled into one, so you can provide the client financial solutions for his business, personal or family needs and he then sees value in your relationship to be worth the big money that he can entrust to you.
- Today’s private banking clients are more demanding and much more aggressive than their parents ever were. They are not fighting for a few more basis points in extra returns, they are actually looking for 2 to 3 times more returns than their parents were used to. Such high returns, which although come through investments which are riskier in nature, are only possible through private equity, venture capital, off market deals & certain bespoke solutions which may not be possible for every private bank to provide, especially the stand alone private banks which are not part of universal banks. If you are a private banker with such a private bank, then it’s even more important that you think like an enterprising entrepreneur who would be willing to provide solutions to his clients through third party product/solution providers if these are not available in house. If you want to have the biggest share of your client’s wallet then you need to make every effort to try and provide him with what he wants and NOT what you have!
If you want to remain a relevant private banker for your clients and be a successful one at that, you need to make the shift quickly as above. If not, given the low margins, high costs, superfast technological and regulatory changes faced by private banks, you may be looking to become irrelevant sooner than you think!