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EXCLUSIVE INTERVIEW: Wealth Focus Pays Off For A Nordic Bank; Scope Includes Asia

Sandra Kilhof

13 December 2013

An earlier version of this article has appeared in WealthBriefing, sister news service to WealthBriefingAsia. Part of the business focus for the firm is Singapore, as well as other parts of the Asia-Pacific region, as described below. We hope WBA readers find this article useful. 

, one of the biggest banks in the Nordics is building up steam as the firm continues to grow its wealth management division. While many Scandinavian banks, particularly those headquartered in Denmark, have suffered since the banking crisis of ’08, Nordea has managed to turn out profits - particularly in recent years. 

What’s the key to this success? Cost-cutting and a strong focus on revenue generating services, says the firm’s executive vice president and head of wealth management, Gunn Waersted, who is a relative rarity in a still male-dominated profession. In an exclusive recent interview with WealthBriefing, Waersted reveals how the bank cracked the revenue code post-crisis and what lies in store for the growing wealth management division. This was a relatively rare example of an interview by such an English-language publication and such a Scandinavian bank. 

Nordea’s wealth management division includes a package of offerings classed under wealth management services, as well as private banking, asset management and life and pensions. The unit has a record total of €228 billion ($311 billion) of assets under management, a growth of 11 per cent year-on-year to the end of September this year.

Waersted has been in charge of this unit at since 2007, having served in various group management positions. Under her leadership, the number of customers has grown steadily - especially within private banking. So far, the firm’s third quarter results revealed a year-to-date growth of 8 per cent in assets under management, equalling a strong 18 per cent on top line and 44 per cent on profit.

Now, Nordea Wealth Management will be expanding its employee numbers, as the firm slowly looks at expanding Waersted’s profitable unit.

“Of course I can’t go into detail, but with the growth we’re seeing and working hard to achieve in the future, we will have to expand our employee base. You will not see a proportional increase in profits and employee numbers, but we’ve been working with efficiency for so long that you will see employee number increases going forward,” said Waersted.

According to Waersted, the strong results for this division are driven by the firm’s focus on revenue-generating business.

“A key driver for Nordea’s focus on wealth management is regulation. At the moment, there’s a lot of focus on capital build-up. So from a bank perspective, it is of course very interesting to have an area that provides growth and does not consume any capital. So it’s in the interest of the group to focus more on wealth management,” said Waersted.

Focus on wealth

In this respect, competing Nordic firms have started to pivot from retail to private banking in their efforts to increase profits. One example is Danish banking giant Danske Bank, which has endured a client exodus since launching its shift in strategy in the autumn of 2012. (That strategy, however, appears to have paid off judging by its share price performance.) Similarly, for Nordea, the equity bar is set high and as such, wealth management will have to bring in the bucks, said Waersted.

“We have stated a clear target for a 15 per cent return on equity for 2015, so of course, growth in the wealth management area is important,” she explained.

Financial results aside, Waersted’s business area has also seen an impressive growth in clients since 2011. This essentially comes down to a well-functioning elevation model, which sends complicated clients from retail to private banking - within the Nordea group.

“In this model, we see that the customers have higher satisfaction, higher returns on their portfolios and from an earnings perspective, the group also earns more. We also saw that the income increase for the customers moved from retail to private banking was 160 per cent,” said Waersted.

As opposed to boutique wealth managers, the group is able to offer a full product range. This means that client issues such as changes in taxation can be dealt with across the life and insurance business and then later, the wealth management unit, if, for example, that works better for the client and the group.

“I think we’ve been quite good at developing wrapped products across the different units that meet customer demands,” said Waersted, “the model wouldn’t work if we didn’t add value to the product. That’s what we’ve been able to demonstrate, that there is value add in the combination of the products we offer and the advice we provide”.

Meeting all clients at a low cost

To this end, the benefits of being a large banking group versus an independent manager, seem to be endless. However, the business model does provide challenges too. As a major financial services provider, Nordea services all types of clients - even in a heavily regulated environment. With recent new rules such as the UK Retail Distribution Review making it more costly to service lower-end clients, this publication asked Waersted how Nordea was managing to uphold a profit.

“The benefit, but also the challenge of being a major banking group is that we have to cover all types of clients. The way we work with this is to have one investment process to cover all segments. So the products might be wrapped differently, priced differently and advised differently, but underneath you have this one investment process. This is of course key, because this also furthers efficiency - which is pretty much the name of the game nowadays,” Waersted said.

In this respect, Waersted considers the base process key in order to provide customers with different products, while maintaining an underlying profit. More importantly, one single process saves money. Cost-cutting has been a big topic in the industry but more importantly for Nordea, it has been essential to cut expenses while the Nordic economies recovered and as regulators imposed higher demands on firm equity.

“We have had flat costs for 12 consecutive quarters in the group and we have stated that we also want flat costs for 2014. Obviously that is a big challenge, which we have tackled by looking at efficiency and particularly, applying value-chain thinking. It’s about the production, advice, concept-building, customer-facing - the whole value chain. We have increased investments in IT in order to increase efficiency, as well as outsourcing work to India rather than Nordic consultancies. The main challenge is cost cutting on processes, because we also have to make investments as our private banking grows,” said Waersted.

This move has helped foster the aforementioned growth in Waersted’s business unit - despite a challenging market. Yet, Waersted insists that some areas of the business are untouchable when it comes to slashing costs.

“We will not cut down on expenditures when it comes to our customers - customers need personal advice and they want personal advice. That’s where online comes in - we can meet customer demands via the internet, as long we do not cut out the personal advice. That is key.”

Beyond the Nordics

And when it comes to customers, Nordea is of course sticking to its loyal followers in the Nordics, as it sets the goal to become the leading Nordic wealth manager not only in the overall market, but in all the individual Nordic countries too, Waersted said.

“From a customer angle, the demographics in the Nordics are still working with us - people are living longer and they are saving longer. Its still an accumulation model rather than a de-accumulation model, as there is a growing awareness amongst people that if you want to maintain a certain lifestyle, then you really need to save up,” added Waersted.

Aside from the home-court advantage in the Nordics, Nordea’s wealth management arm has logged significant international growth. Some 20 per cent of its assets under management arise outside the Nordics, partly from its Luxembourg-based international private banking unit, but also through global fund distribution. More importantly, Nordea recently opened a new regional office in Singapore - and according to Waersted, Nordea may expand its wealth management business further.

“Singapore will be a key focus, but we will not rule out that we will open offices in other markets,” she said.

“We see a general globalisation in the Nordics, so when we picked Singapore for a new office it’s because we’re seeing a lot of Nordic companies and a big Nordic community in Singapore and Asia. This doesn’t mean that we’re there to expand into Asia, but we’re there to focus on the Nordic population in Asia. Of course, we have also seen the major growth in wealth in Asia, so that also makes it interesting for us to be in that market.”

Growth & the search for talent

Waersted said Nordea’s wealth management unit has a three-pronged approach, including development of next-generation value products, increasing efficiency in order to maintain profit growth, and most importantly, to continue to grow from its current business momentum.

Achieving this won’t be easy, said Waersted, who pointed to two key enablers: the ability to attract the right people and competencies and having a strong and credible brand in five years' time.

“We generally benefit from being the biggest and strongest brand in the Nordics, but there is a fight for the right people. The labour market is not tough at the moment, but getting the right competencies is. Of course, we are not the only ones seeing wealth management as a good area for growth, so it’s something we need to constantly focus on,” she explained.