Standard Chartered’s private banking chief has bemoaned the lack of product choice in the industry, claiming the sector has suffered from commoditisation.
As the debate over the merits of universal banks versus pure-play private banks rages on, the StanChart chief has played up the cross-selling benefits of the one-stop-shop model.
And the head of private bank Julius Baer has weighed into the debate, stressing the advantage of his firm’s sole focus on wealth management.
Hong Kong-based Michael Benz, global head of private banking clients at StanChart, told AsianInvestor that the private banking product platform had become so commoditised that there was little differentiation of products among private banks.
“The product suite is more or less the same on any platform, including pricing of the products. I don’t think there is a big differentiation among private banks in today’s world,” noted Benz.
“What differentiates the platform is the degree of automation, which is important for the bank to achieve economies of scale. But this is not visible to clients. I believe the differentiation today lies more in the other capabilities which the bank is able to put on the table for the client.”
Benz, who was hired last year from pure-play private bank Julius Baer, has started implementing StanChart's private banking business strategy, which is essentially to tap entrepreneur clients of its commercial banking unit and convert them into private banking clients, and vice versa.
“Some of the other private banks cannot offer capabilities other than investment management; they have no commercial bank,” Benz said. “There are very few of them that can offer other banking services other than private banking.”
StanChart has undergone an organisational restructuring which has seen its commercial bank, private bank and wealth management units group together and report to group head Anna Marrs.
The bank conducts internal training for commercial bank and private bank staff to let both sides understand each unit’s capabilities for cross-selling purposes. A client referral scheme has also been introduced, which includes monetary incentives.
StanChart’s private banking target client is the entrepreneur. The bank believes that entrepreneurs in Asia do not typically focus on how to grow private wealth; they focus on how to grow the company, with private wealth more a by-product of their business growth. And having existing relationships via commercial banking can be an advantage in private banking.
“We’ve seen successful cases where we offered some select clients co-investment possibilities with our principal finance team, or we’ve done interesting leveraged finance transactions with some of these business owners,” Benz said. “We want the high-end entrepreneur clients to access these investments.”
“If you lend money, you really want to understand the counterparty, that’s a great advantage. You have such a deep understanding of your client which you will not easily get if you don’t have previous lending relationships already.”
However, the head of Swiss private bank Julius Baer disagreed. Global CEO Boris Collardi told AsianInvestor: “I think that is a question of philosophy. If I was in a group with investment, corporate and commercial banks, I would also tell you that it makes sense to have it. But if it was so important then Julius Baer would not exist in Asia.”
Collardi said Julius Baer has been Asia’s fastest-growing wealth management company over the last ten years. “And that’s without an investment bank, corporate, commercial bank or any special fireworks or divine intervention. That is just one thing we focused on: managing wealth,” he added.
While he admitted that investment and commercial banking had some relationships, he said these were transaction businesses.
“I think sophisticated high-net-worth individuals know the difference between what a private bank is and a bank that finances the company and does M&A transactions,” Collardi said. “That is a different type of rapport that they would have.
“I am not saying it is a bad thing to have, otherwise they wouldn’t exist. It is good to have but that is not mission critical to be successful."
Collardi said the market had become so efficient that one did not even need to have an investment or corporate bank: “If tomorrow I need one of our clients to have five investment banks come in for a pitch, I just call them and they will show up.
“Frankly they may give clients a better service than if they were a captive of that in-house investment bank of that specific firm. It’s a different perspective.”
Benz said StanChart had already been reaping the rewards from the implementation of the new strategy. Private banking now takes 20% of its new assets through internal referral of clients. StanChart has also increased investment penetration of wealth management products among its private banking clients. Investment penetration has increased from 51% to 56%.
StanChart's private banking global AUM was $61 billion at the end of 2014, while that of Julius Baer totalled $290.7 billion. StanChart has a relatively small private bank, having sold out of the wealth management industry and then only re-entered in 2007 with the acquisition of American Express's banking arm, as reported.