zeb consulting directly interviewed nearly 100 private banking customers from around Europe. Both their life situation and goals were major points of discussion, as well as the expectations of their bank and advisor. Overall customers were willing to speak openly about their needs and grateful for the interest shown.
“There is a major discrepancy in private banking between how banks see themselves and how customers do. In fact most banks see themselves as supporting their customers holistically and understanding their whole life situation. Customers, however, report that their banks are mainly involved in securities business – and particularly, that they only act upon request.”
Being taken care of vs. receiving investment advice
The bottom line of these discussions was that emotional factors drive customer satisfaction and are considerably more important than simple investment advice and performance. In fact time relief is prioritised highest by customers. The complex topic of inheritance is also highly ranked. Aside from the 15 different needs, we identified five “needs clusters” and assigned individual customer quotes to each.
The holistic paradox
It is clear to see that these diverse customer requirements have little to do with investment advice or stock performance. Our interviews show that private banking customers expect a lot more from their bank and that they often have not been presented with other issues by their relationship managers (RMs). We have observed a willingness to pay for valuable advice – but to take advantage of it, banks must also offer advice that goes beyond securities.
What will make it more difficult for banks to change tack is the paradoxical situation that 13 out of 14 participating institutions interviewed by zeb consulting view the advice that they offer as holistic. This contradicts the view of customers, who resoundingly reported that 8 out of 10 banks are primarily active in securities business.
In order to offer a truly holistic service and advisory approach, it is important to come up with new ideas. Many private banking customers are entrepreneurs and accordingly have specific requirements that should be considered in the banks’ services for customers. For instance the securities business of an addressable family business wallet might only cover approximately 20% of the total business potential. In order to realise the full potential, they should establish effective cooperation models in relevant areas of the bank.
The RM needs to develop into a “caregiver” and carry out regular needs analyses with their customers, including the different stages of their lives and the sometimes complex ecosystem of wealthy customers. Rather than pushing products, RMs should play the role of an “optimiser”. Their role evolves from a securities specialist to a trusted advisor and an orchestrator of customer relationships. In return the bank must provide advisors with the respective support models as well as a comprehensive and competitive range of services.
The willingness to pay is often misunderstood in private banking
According to our customer interviews, 9 out of 10 customers exhibit a high willingness to pay as long as the bank meets their main needs. With a value-added offering, a holistic customer management and a wider range of consulting services, banks can exploit the price potential. This makes pricing the biggest lever for improving the earnings situation with profit margin increases of up to 10 basis points.
For most customers the price is not that important. They are happy to pay an appropriate price for high-value advisory services.
Arnd Hesseler, Executive manager Luxembourg (zeb consulting)
“For most customers the price is not that important. They are happy to pay an appropriate price for high-value advisory services. This also includes addressing the customer in an appropriate way according to their life situation, rather than ‘only’ appearing as a securities specialist.”
Private banks need to think about pricing in order to return their earnings to healthy levels. Nearly 70% of banks use some form of simplistic unit pricing. Additionally RMs often offer preferential terms in first meetings, even though the customer may not have asked for them or need them.
Banks can address the frequently observed lack of consideration of the customer’s willingness to pay by establishing individual price models based on different customer characteristics (i.e. AuM, length of customer relationship, level of customer satisfaction or stage of life). Staff training sessions for targeted sales and price negotiation as well as individual coaching sessions can be complementary measures to further improve margins.
How do customers see the relationship management in the future?
Interviews with customers clearly show that traditional private banking with a relationship-based business model will remain important despite advances in digital transformation. The customer advisor will be assigned an important mediating role, as they represent a bridge between the analogue and the digital worlds, giving the customer the choice to use their preferred channel. Additionally, increasing automation and the use of data analytics will give the RM the opportunity to offer their customers individually tailored and value-added solutions.
zeb consulting is a strategy and management consulting firm specialising in the financial services sector. With more than 1,000 employees in 18 offices, zeb consulting is one of the leading consulting firms for banks and other financial institutions in Europe.
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