Alan Shields explains how private banks can build ‘share of wallet’ by gaining the confidence of clients.
Diversification is an important factor in wealth management and private banks are well placed to help their clients diversify their assets. Yet many clients prefer instead to diversify their banking relationships and sources of investment advice.
In order to grow, a private bank may use two methods. One method is to seek to grow its client base, attracting clients from either the large proportion of high-net-worth (HNW) individuals who remain unbanked, or from the client bases of other private banks. The other method is to increase the bank’s share of existing clients’ wallets. These methods are not mutually exclusive – indeed, a private bank would ideally be seeking to implement both of these methods effectively – but each method has strengths in different areas. Growth in client base can be effective when financial outlooks are positive; but in more turbulent times, a focus on increasing share of wallet may be more beneficial.
Through the GFC, some private banks were able to generate growth by increasing share of wallet. Though financial outlooks are more positive at the time of writing, the world is not yet out of the woods, and recent events – such as the uncertainty in the oil markets due to unrest in the Middle East – show the value of planning for volatile times. Over the past few months we have been analysing our private client surveys to understand what it is that makes an individual place some or all of their financial affairs in the hands of one private bank or wealth manager.
The findings are surprising. The proportions of clients who hold little (0-10 per cent), some (11-50 per cent) and most or all (51-100 per cent) of their investible assets with their primary private bank are roughly equivalent across the private banking market. These segments may be considered “Minor Clients”, “Diversifiers” and “Loyal Clients” respectively.
Clearly it is important for private banks to understand what it is that characterises each group in order to move clients from Minor Clients to Diversifiers and in turn to Loyal Clients. What this research has enabled us to do is to draw up something of a profile of a private bank’s most loyal clients.
• A private bank’s Loyal Clients are its younger clients. The accumulation of wealth and experience seems to lead older clients to undertake a greater level of diversification. There is also a preference for diversification among clients with large amounts of superannuation, which may indicate a greater sophistication.
• These Loyal Clients are skewed towards NSW and are more likely to be time-poor due to professional activities. Loyal Clients also are more likely than average to have growth-centred investment goals and are less likely than average to have preservation-centred goals. Loyal Clients are consequently more willing to move their wealth into riskier assets in order to make potentially greater returns.
• Loyal Clients are far more likely than Minor Clients and Diversifiers to list their relationship with their private bank as their main financial relationship. Similarly, Loyal Clients are significantly more likely than Minor Clients and Diversifiers to receive investment advice through their private bank as well as their transactional banking and debt. Further, 21 per cent of Diversifiers and 13 per cent of Minor Clients do not trust their private bank’s investment expertise.
These factors are all interesting, but in some cases are difficult to action from a business perspective. We need to look beyond the demographics to the drivers of behaviour.
One clear thing that emerges from the findings that is definitely actionable is that as a client’s satisfaction with a private bank increases, the bank’s share of the client’s wallet increases. In addition, the extent to which proactivity is linked to satisfaction differs greatly. Loyal Clients value proactivity more so than most. Minor Clients and Diversifiers are more likely to proactively seek out a private bank themselves – and the greatest difference in satisfaction between Minor Clients and Loyal Clients exists in the extent to which they believe that their private banks proactively anticipate their needs.
The fact is that as a client’s satisfaction increases, their primary private bank’s share of wallet increases. Loyal Clients trust their adviser and they trust the institution that their adviser represents. In many ways, earning that trust and demonstrating proactivity are the ultimate challenges for private banks, not increasing share of wallet.
Alan Shields is a director of Retail Financial Intelligence – www.rfintelligence.com.au
