Private banking: Survey highlights insufficient client focus at European private banks

To identify how the private banking industry is performing in the current climate, independent information and networking platform MyPrivateBanking.com selected 20 of the largest and most important European private banks for a survey on three distinct criteria:

• the quality of their customer interface
• their investment proposal
• the total cost of asset management

The 2009 survey, titled "Insufficient Client Focus", marked the banks out of 100 points and found a wide range of offerings. The average score was 52, reflecting the fact that most of the banks had substantial weaknesses in one or more of the three evaluation areas, with the top bank getting 79 points and the worst just 26. 

"We had no particular expectations in advance of the survey, but we were quite surprised by the variance of the results," Steffen Binder, co-founder and MD of MyPrivateBanking.com, told Campden FB.

"We found a group of banks who used a very structured and objective approach to determine the client needs and developed a customised proposal based on this evaluation, but other banks did not inquire at all and came up with proposals containing mainly in-house products."

The survey was carried out by analysts posing as potential clients, the common characteristics of which were: a married entrepreneur with one child who resided in Switzerland and had €1.5 million to invest with a private bank.

The authors highlighted three main weaknesses. First, many do not listen to their client – a quarter did not ask any questions at all, preferring to listen to themselves speak. Second, despite asking for a long-term outlook and a medium-high risk tolerance, more than half the private banks recommended an extremely bearish strategy.

Finally, roughly one-third had significant hidden costs in the investment proposal despite offering low, flat fees.

Overall the top five private banks came out as:

1. Nordea
2. Sal Oppenheim
3. UBS
4. Deutsche Bank
5. BNP Paribas

Scandinavia-based Nordea was applauded for its consistent all-round performance in the three evaluation categories. Sal Oppenheim, headquartered in Luxembourg and a "traditional" private bank, performed strongly in the area of costs, particularly because it uses few managed products and has no in-house products to push.

The asset allocation proposed by banking giant UBS was judged a particularly good fit, while its customer interface was also praised for its professionalism.

Customer interface:

1. UBS
2. Nordea
3. Barclays

Client contact is a facet of private banking that is particularly important. Not only do clients expect a higher quality of product, they also expect to have a deeper, more professional relationship with the people who manage their money. And in a time-poor world, this contact begins from the moment a client picks up the phone or clicks onto a website.

The survey looked at a range of factors including: ease of contact, response time, presentation of proposal and the structure, range and depth of inquiry by the bank's advisor.

UBS came out on top because its advisor was, according to the authors, "professional from the outset", gave a "very comprehensive and thorough inquiry" plus a "detailed explanation of the investment process".

Seventy percent of respondents replied to an online request for an appointment within 24 hours, although two banks could not be reached online at all. Just one advisor did prior research on the potential client, which is astonishing given the amount of data available on the internet alone.

A quarter of advisors showed a distinct lack of interest in finding out specific information about the potential client, while three quarters gave so much information within their proposals that it was difficult to search for the essential details. The winners distinguished themselves by a clear structure and a precise asset allocation.

Asset allocation:

1. Deutsche Bank
2. UniCredit
3. Nordea

Unsurprisingly, asset allocation was the most important part of the overall evaluation. The survey ranked banks on their proposal, how well it met the potential client's needs, diversification of assets within each asset class and the number of in-house products proposed.

Deutsche Bank and UniCredit came equal first place scoring maximum points. Both scored equally well on all of the evaluation points. DB was praised for the simplicity and straightforwardness of its proposed portfolio while UniCredit scored well for not including any in-house products in its portfolio.

Overall, the authors believe diversification appears to have become standard practice while ETFs and index products have gained as in-house product pushing has declined. The survey was carried out during a period of economic volatility but asset allocation strategies still varied wildly: with regards to equities, for example, the difference went from little over zero percent to 95%.

A quarter were not willing to spell out their proposal in great detail and the consequent vagueness meant, in some cases, wealth managers had to be called in person to get specific written details. Thirty percent of banks also proposed in-house products for more than 40% of the portfolio, while a few recommended very exotic products of questionable value.

Costs:

1. Sal Oppenheim
2. Lombard Odier
3. UBP

If anyone remains unclear about the impact of wealth management fees, consider this: according to the authors of the survey official fees charged by private banks – mostly in the range of 1-2% - will eat into your return by 30-40% after just 10 years.

One of the biggest bugbears of investors is the number of fees hidden by providers. The major test of the private banks in this survey was therefore to see how transparent they were when it came to revealing the total wealth management costs – including management, custodian, transaction and ticket fees - that a potential client would have to pay.

The number one bank in this area was Sal Oppenheim, which offered a below average flat fee of 1% for a balanced portfolio and a share of 3% managed funds. The average fee across the 20 banks was 1.25% and over half signalled a willingness to reduce their list price. 

However, only one bank included a full description of all the managed funds it offered. Of the seven banks offering the lowest flat fee, six had an above average share of managed funds in their suggested portfolio for which further fees are charged. Equally, the majority of funds surveyed could easily have been substituted by ETFs. Clearly, it pays to dig behind the headline numbers.

In conclusion, MyPrivateBanking.com recommends that clients:

• evaluate the bank from the first minute with regard to how your requests are handled and whether your needs are incorporated into a proposal
• take your time ask questions about anything that is unclear and challenge the advisor to give an answer that you are satisfied with
• do not go for a second meeting until you have a written proposal on your desk
• thoroughly analyse the portfolio to ensure it matches your needs
• avoid market timing and pro-cyclical behaviour. Stick to your strategy and ensure your banker sticks to it as well
• ensure your bank offers an open product platform with the broadest possible range of products that includes index products
• check the investment process by being aware of timelines and tell your banker when your own circumstances have changed
• choose the right management model for your needs
• request transparency on all fees and costs. It is a buyers market so always negotiate
• insist on cost-effective products at the expense of managed products.