Stepping Into The Great Wide Open

The idea that sales drive all the business lines of a universal bank, private wealth management included, is not uncommon, and it is something that larger institutions that have private wealth management businesses are constantly striving to redress. The problem is partly due to having just too many products, Hutton says. More products need more expertise and a greater number of advisors, but more than that, they are also expensive to produce, which means there is greater pressure upon bankers and advisors at larger institutions to sell them. Indeed, the greatest challenge to a larger bank is striking the right balance of products, Hutton says.

Many universal banks in the wealth management business have recognized this and are trying to get people to view them as being less focused on making sales, and more as concerned parties providing the kind of objective, personalized advice that private banking clients want. Credit Suisse, for instance, which offers a service called Preferred Advisors to its US private banking clientele, places a great deal of emphasis upon personalized interaction with clients, and selects advisors that can offer just that kind of customized service.

To its advantage, the wealth management business in the US is small, says Peter Aliprantis, managing director and head of the Preferred Advisors program; it operates with only 284 advisors that have been hired from boutique firms rather than large wirehouses–something clients like a great deal.

In addition, about 80% of the $7 billion in assets under management in the Credit Suisse Preferred Advisors program are invested with outside managers, Aliprantis says, thereby upholding the bank's commitment to having a truly objective, open architecture platform.

"We think of ourselves as consultants more than anything else, and we always place the clients' best interests first," Aliprantis says. "A lot of clients have come to us because they have not been able to receive the special services they want from other, larger institutions. We have the advantage of being smaller and more boutique-like, so we can provide the more personal kind of service that private clients are looking for."

In addition to providing personalized attention to clients, a bank like Credit Suisse has the means to provide clients with access to the kinds of superior investment products that they expect. But it also has the capacity to produce top-notch investment products itself, and if they meet a client's requirements, then an advisor can certainly propose them, Aliprantis says.

"We're not going to stop a client from buying a Credit Suisse product if it is outstanding, and if we're doing what's right for a client, " he says. " We're not out to sell our stuff, but if our products fit the bill, then we can certainly suggest them."

By definition, the business model of a universal bank is such that it cannot just offer third-party investment solutions on account of its size and scale, agrees Michael Strobaek, global head of investment solutions in global wealth management at UBS in New York. "Our clients have the right to ask us for third-party products and they will ask us for them, but we can also produce in-house products, and not for the sole goal of selling them," Strobaek says. "Our business is really to produce and select both top quality products and portfolio solutions for our clients, and if we are asked to seek third party managers, we will, but we also have superior in-house offerings."

At the end of the day though, the way in which a private wealth management business functions on an open architecture platform depends a great deal upon clients themselves and what they want, and until now, only a minority appear to have demanded full freedom of choice, Partridge says. Most clients, he says, still expect a bank to use its in-house capabilities for a major part of their assets.

Of course, clients do still value their freedom to choose, and so open architecture will continue to expand, driven by clients and by banks that see themselves as conduits to the broadest possible product range. But this evolution is likely to be limited, and this is evidenced by the experience of the top end of the wealth market, Partridge says.

"At the top tier of the wealth market, clients with family offices frequently use objective, specialist consultants and family office professionals to select managers and funds," he says. "They take an open architecture approach, but what is most surprising is that only a minority of ultra-high-net-worth families have set up their own family office, or make use of multi-family offices. Instead, most still maintain private banking relationships with a number of banks and asset managers."

But even if the use of open architecture is still limited, it is clear that more and more high-net-worth clients have been expressing the desire to have their money managed on such a platform, UBS's Roussin says, and if firms do not offer this in some way, shape or form, then clients will easily up and leave to go somewhere else.

"We have to do what clients want, because clients are the guiding light in this business," Credit Suisse's Aliprantis agrees.

It is up to banks, therefore, to ensure that they are as well equipped as possible to meet their clients' needs in terms of successfully combining sound, personalized advice with product excellence. This in turn will broaden their client base through customer satisfaction and recommendation, because at the end of the day, there is no better salesperson than a happy client.

Savita Iyer is a freelance journalist who has long covered different aspects of the global financial services industry. She is based in Mysore, India and can be reached at [email protected].