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New Research Report

Best Practice in Banking the Affluent

This report uses 25 in-depth exclusive interviews with banks, consultants and other experts to present the definitive account of one of the biggest challenges facing retail and private banking. This report includes an insight into:

Understanding the needs and aspirations of those who are between mass market and high net worth; Creating a great client experience through the branch network; A thorough assessment of best practice in this area including branding, distribution channels, profitability, segmentation, service level strategy and systems; The key role of the client manager and how to attract and retain financial advisory talent; Using Mergers and Acquisitions as a tool to bank this segment; The future for this rapidly evolving sector.

By Steven I Davis

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Best Practice in Banking the Affluent

For a retail bank, the affluent segment of its client base ­ defined in this report as those with liquid or investable assets between $100,000 and $1 million equivalent ­ is an attractive strategic resource. They are considerably more profitable than mass market relationships, have the potential to move on to higher net worth status, require no additional marketing effort and will be the beneficiary of the anticipated global increase in wealth ­ in particular in dynamic markets such as Asia-Pacific. As many retail banks examine their opportunities to increase earnings in a highly competitive market, they represent one of the few natural growth businesses.

Within wealth management, the affluent segment is one of the most ill-defined and difficult to manage, yet essential in a bank's overall wealth management strategy. Today's affluent customer ­ and retail banks are usually well endowed with this resource ­ is tomorrow's lucrative high net worth client. Increasingly the affluent client itself is becoming a more important contributor to profit among successful practitioners. markets by the latter, not the traditional commercial banker. `best of the best' available in the market. What strategies might a retail bank adopt to address these problems? One is to acquire IFAs or brokers to obtain their advisers and client relationships. The results of this strategy have been mixed, as premiums over book value have often been substantial and there has been post-acquisition attrition of both advisers and their clients.

The Struggle to Retain Talent

In the struggle for affluent wealth, retail banks suffer from a number of disadvantages. First, the competition for the best relationship managers will intensify as the global rush into wealth management continues, and the banks are not well placed in this competition. The quality of relationship managers and advisers is a critical differentiator in the performance of individual providers. Why are banks likely to lose some of their best advisers to their competitors? The bureaucratic constraints of a large, structured banking organisation compares poorly to the relatively flexible structures of a brokerage or IFA organisation. The matrix structure of many banks' affluent business, which complicates the adviser's task, is a case in point. Perhaps more important is the IFAs' and brokers' ability to remunerate in direct relationship to results. Thus, an experienced adviser who believes he can perform in terms of customer satisfaction and new business success is understandably attracted to these employers ­ or to setting up his own firm ­ rather than a retail bank, which has in the past at least rarely been willing or able to match the IFA/broker benchmarks. In response, the retail banks will train more advisers, use teams to minimise the potential client loss when advisers depart and `de-skill' the role by separating advice from administration. Another disadvantage of a retail bank is the issue of brand and its related measure, investment performance. In a wealth management environment which is characterised by growing customer sophistication and knowledge, investment performance will increasingly be the critical decision-making criterion.

Case Studies include: Banco Bilbao Vizcaya Argentaria Banco Santander Central Hispano Citigroup Deutsche Bank/DWS Halifax HSBC HypoVereinsbank KBC Nordea Royal Bank of Scotland SE Banken Société Générale Standard Chartered Bank Svenska Handelsbanken Swedbank UBS UniCredit Wachovia

Worldwide Prospects

The macroeconomic outlook for the affluent businesses of retail banks is excellent. Strong global growth in wealth will provide virtually automatic expansion of the assets of affluent bank customers across the globe. While saving for retirement may be replaced by spending as today's retirees leave their jobs, the banks are admirably positioned as the prime depository of so much of this wealth. Growth rates will obviously differ from market to market, with outstanding prospects in the buoyant Asia-Pacific region. Retail banks are ideally positioned to benefit from economic growth in the relative absence (for the time being) of rival providers such as brokers and independent financial advisers. Recent surveys indicate that retail banks have been losing market share of the overall wealth market and it is difficult to see this trend being reversed in the near future on a global scale. There would seem to be a correlation between wealth expansion and client sophistication and the rise of the banks' chief rivals in the battle for this wealth ­ brokers and independent financial advisers (IFAs), as well as dedicated private banks and fund managers. The question `Who would I trust to help me manage my wealth?' is answered in the US and many European and other developed

Using this Report

This report analyzes how banks actually manage, and frequently mis-manage, the affluent segment. Using the results of 25 off-the-record, in-depth interviews with leading retail banks, consultants, researchers and other informed sources it provides `the flesh on the bones' to the many published studies which assess the market as a whole.

Mergers and Acquisitions

In a world of open architecture, the broker and independent adviser can justly maintain that they can offer the

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Summary of Contents

Executive Summary

Chapter 1. Introduction Chapter 2. What drives the affluent segment? Growing personal wealth ­ Demography drives greater concern for retirement provision ­ Increasing customer sophistication and demand for performance ­ The relative attractiveness of wealth management products in a mature, increasingly-competitive banking market ­ The shift from defined benefit to defined contribution in pension plans ­ Regulatory efforts to protect the retail client Chapter 3. Placing the affluent segment in the wealth management context Chapter 4. The client and his needs ­ Customer needs ­ Client profile: the issue of segmentation ­ The issue of service level Chapter 5. Products for the affluent market ­ Traditional retail banking products ­ Investment and advisory products ­ Unsuccessful online business models for the affluent segment ­ Tailoring the product offering Chapter 6. Organisational structure ­ Predominance of the retail function ­ Sharing of the client relationship ­ Other structures ­ Physical relationship between affluent and mass-market networks Chapter 7. Profitability ­ What drives the profitability of an affluent client business? ­ Definition of affluent segment ­ Product mix ­ Client mix and profile ­ National market ­ Level of service ­ Business model ­ Market volatility ­ What does the available profit data indicate? ­ Market surveys ­ Case study results ­ Issues to be addressed Chapter 8. Profile of key geographic regions ­ The US ­ The EU ­ Asia-Pacific ­ China ­ India

Best Practice in Banking the Affluent

­ Affluent banking strategy ­ Evaluation of affluent strategy ­ UniCredit: The challenges of a multinational affluent strategy ­ Business profile ­ Affluent banking strategy ­ Evaluation of affluent strategy ­ Wachovia: Building an affluent business outside the retail network ­ Business profile ­ Affluent business strategy ­ Evaluation of affluent strategy ­ An affluent survey in European banking ­ Segmentation ­ Service level ­ Relationship between product and distribution function ­ Who sells to and advises the client? ­ Compensation ­ Pricing ­ Conclusions Chapter 11. Findings and conclusions ­ Strategy ­ KBC ­ Swedbank ­ UBS ­ Bank of America ­ Citigroup ­ Structure ­ Segmentation ­ The customer experience: Adapting the service level to client needs and circumstances ­ Professional skills ­ Distribution channels ­ Systems ­ Profitability ­ Leverage a wealth management/asset management brand ­ Move beyond elementary segmentation on the basis of assets under management ­ Align human resources with client potential ­ Effectiveness of the individual relationship manager ­ Existing wealth management infrastructure ­ Online processing, communication and diagnostics Chapter 12. Outlook ­ The issue of competition ­ The issue of profitability ­ Further evolution of the affluent model? ­ Appendix: List of interviewees ­ Bibliography

Chapter 9. Competitors in the affluent market ­ Private banks ­ Life insurers ­ Stockbrokers ­ Fund managers ­ Independent financial advisers ­ Summary Chapter 10. Case studies of success ­ ABN Amro: Rolling out a preferred banking concept across a global network ­ Business profile ­ Affluent banking strategy ­ Evaluation of affluent strategy ­ Bank of America: A restructured affluent strategy yields outstanding profitability ­ Business profile ­ Affluent banking strategy ­ Evaluation of affluent strategy ­ Citigroup: Global success with the Citigold model ­ Business profile ­ Affluent banking strategy ­ Evaluation of affluent strategy ­ KBC: A successful priority offering embedded in the retail function ­ Business profile ­ Affluent banking strategy ­ Evaluation of affluent strategy ­ Nordea: Building an affluent business based on strong segmentation and winning share of wallet ­ Business profile ­ Affluent banking strategy ­ Evaluation of affluent strategy ­ Standard Chartered Bank: Success in winning affluent business in the key Asia-Pacific region ­ Business profile ­ Affluent banking strategy ­ Evaluation of affluent strategy ­ Swedbank: Success in building up a retail-based affluent business ­ Business profile ­ Affluent banking strategy ­ Evaluation of affluent strategy ­ UBS: The affluent client as a key link between the mass-market and high net worth segments ­ Business profile

Who should read this report?


Banking Management Consulting Academics Providers of Information Systems.

Job Title

Head of Retail, Head of Wealth, Head of Affluent Banking. Partners and Executives with responsibility for retail banking or wealth management. Professor of Banking. Head of Banking or Wealth Management Practice.

What are they looking for?

Best practice in addressing these issues in peer banks. Insight into client needs. Insight into a rapidly growing sector. Insight into client needs.

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Best Practice in Banking the Affluent

About the Author

Steven I Davis has spent his career in the banking and financial sector as a senior executive, strategy consultant, author, analyst and teacher. Since establishing Davis Banking International Consultants (DIBC) in 1980, he has managed several hundred strategy assignments for commercial and investment banks, global fund managers, insurers and other financial institutions.

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