The private banking head of Standard Chartered talks exclusively to this publication about trends in his industry and how his firm intends to develop its offerings.

This publication recently caught up with Michael Benz, who is the global head of private banking for Standard Chartered Private Bank. He’s had a busy period of months as the UK-listed parent bank, which earns the bulk of its revenue in regions such as Asia, faces up to continued change.

Please give a broad outline of this model of wealth management that you operate? What do you say sets it apart from other offerings?
You would recall in April this year that the bank reorganised its business. One aspect of that is the formation of three customer segment groups, which includes commercial and private banking clients, supported by five product groups: financial Markets, corporate finance, transaction banking, wealth products and retail products. More recently, we also implemented a new front office structure that is aligned with the wider bank’s eight regions, with the NRI and UHNW segments running laterally across markets. We recognise that the needs of our clients are very specific to their residence, ethnicity and regions of business, and this new structure will enable us to serve them more effectively and efficiently.

Three differentiating areas make us uniquely positioned to capture the growing wealth of entrepreneurs/business owners across our footprint:

-- As our clients are typically entrepreneurs/business owners, our DNA in lending gives us a more holistic and accurate view of their financial needs and obligations, which places us in a better position to understand and meet their private wealth ambitions;  

-- Our geographical footprint across Asia, Africa and the Middle coincides with some of the world’s fastest growing wealth pools. With the expected rise of south-south trade considerably boosting entrepreneurial activities we can expect private wealth in the emerging markets to continue to grow;  

-- Lastly, the personal and business wealth needs of entrepreneurial clients are often inextricably linked, with the strongest connectivity to a bank stemming from their business needs. We are cognisant of this and have a deep understanding of our clients’ overall financial requirement.

What do the sort of clients you have typically want? Can you give an idea of their requirements and how you serve them?
Our research on HNW business owners in Asia, Africa and the Middle East confirmed our observation that they are very focused on growing their businesses and put their business priorities ahead of personal wealth goals. However, despite ambitious growth strategies for their business, they display a high level of pragmatism in their approach to financing their business, and have a strong preference for bank-sourced finance.

To that end, functioning as part of a wider universal bank is central to our strategy in order to ensure a continuum of services across incorporated and personal wealth needs. Overall, our bank has a strong balance sheet and the appetite to use it appropriately to support our clients.

For entrepreneurs, the need for trust and estate planning increases at the later part of the business life-cycle, as business owners look at listing their business or passing on control to their next generation. Interestingly though, our research revealed that many business owners do not have formal succession plans, with almost half the respondents lacking formal plans to transfer their wealth to the next generation, keeping a significant percentage of them awake at night. They require and value the importance of having a proper trust and estate planning structure in place to provide for the orderly succession of their shareholders to the intended beneficiaries.

To this end, we have a well-established trust and fiduciary business following our acquisition of American Express Private Bank More recently, we have set up a new trust company in Singapore to complement our Guernsey Trust Company. We also have seminars, workshops and courses for the second generation to equip them with the requisite tools and financial know-how to structure wealth plans and make the right investment decisions to meet their financial goals and objectives.

Entrepreneurs of matured business often also find their personal fortunes overly tied to the volatility of their business, and it is at this stage when they are more inclined to consider the segregation of their personal wealth from business endeavours. We find that at this stage, their goal is to protect the future well-being of the family, rather than assuming excessive risk for achieving aggressive capital growth.

In these instances, we articulate the high correlations between risks and returns and the importance of accepting lower returns from mature assets to preserve some of their wealth in our discussions with clients. We also explain and manage their return expectations for these entrepreneurs who are used to double digits returns in capitals, which is something not possible in liquid financial markets.

What would you say is the most noticeable trend in how your business has changed or adapted in the past decade?

While private banking is relatively small in the scheme of the broader bank, this segment will become an increasingly important source of growth. Our reorganisation which raised the profile of our private banking business is testament to this renewed focus.

Our commercial clients, largely made up of family-owned businesses, are a perfect fit for private banking, but we have yet to tap its fullest potential. We believe that the private banking wallet of our existing commercial client base is about four times the size of our current private banking business – so we are leveraging this opportunity by making introductions, doing joint meetings and demonstrating to clients how we can support then in their business and private wealth needs.

How has your business model been affected by the financial crisis?
According to PwC Global Private Banking & Wealth Management Report 2013, product suitability has become one of the top two risks faced by private banks. From banks and RMs to clients, all parties have all been impacted by more stringent suitability disclosure rules due to the change in investment suitability.

At a client level, the process of client onboarding has been enhanced to ensure that the investment questionnaire (IQ) used to assess a client’s risk profile is reviewed regularly by both the RM and client. Even the IQ document itself has been improved to allow us a better understanding of our clients’ investment needs, experience and risk appetite. The advisory process has also been enhanced to ensure that RMs advise accordingly based on their clients’ level of knowledge and experience; and provide the necessary education where required.

From an internal perspective, we have also invested significantly in our operations to ensure that we have both global and country teams managing our investment suitability procedures, processes and systems. A framework has also been built to report on suitability on a regular basis to ensure that the management is fully aware of frontline behaviour. In addition, we have made investments to enhance our suitability process, both in training our client-facing teams to ensure that they are aware of and understand suitability and the necessary disclosure requirements, as well as improving our systems to ensure our RMs’ conduct and document suitability for every advised trade.

Do you think "pure-play" wealth managers can thrive in Asia or do you argue that the integrated model is still the main game in town?
While I see critical mass playing an increasingly important role, especially in the face of rising cost pressures and compressed margins, there are also limitations to the “bigger is better” belief. There are advantages to being small, including being nimble and adaptable to changes to achieve faster growth.

The top five private banks in Asia account for some $812 billion in AuM, which is just a small percentage of the entire investable wealth pool in the region, estimated by Capgemini and RBC to be at $14.2 trillion. What this means is that regardless of the model, there is sufficient room to accommodate a variety of players as the private banking pie in Asia continues to grow.

Are there geographic variations in where you business model has most traction (Singapore, HK, Indonesia, India, Malaysia, etc)?
Our ’One Bank‘ business model works well across our AAME footprint, where a high proportion of wealth is generated by business owners/entrepreneurs. We are thus able to first address their business needs, before seamlessly transitioning into personal wealth advice.

We see this especially in markets like China, Hong Kong, India and Singapore where we have more than 100 years of heritage, and have been able to be there for our clients at each stage of their wealth cycle – from borrowing for business growth, providing M&A advisory, partnering on personal wealth strategies and eventually preparing for transfer and succession.

There has been some M&A in the wealth sector but never the "wave of consolidation" that some commentators have kept predicting. Why is that?
We not only expect more consolidation to come, but also for new players to enter the market. The strategic fit of private banking as a business segment into the overall organisation will be more important than ever – with the exception of those with a pure-play model of course. In the case of the latter, the importance of critical mass will further increase significantly.

Technology is a big issue in wealth management and private banking today. Lots of talk about mobile devices, etc. What is the StanChart broad philosophy on tech? Does it replace the human element or add to it? What are the risks, challenges?

Besides the threat of disintermediation, another perspective to which technology is challenging the industry is the rising competition from non-financial services to capture more of the banking value chain. We are already seeing the emergence of technology giants – China’s Alibaba for example – paving the way for wealth management via the online platform.

While undoubtedly a game changer in the private banking industry, technology must not be seen as an end all be all. It should be used as an enabler to enhance the overall client experience and complement existing channels of communication to allow great flexibility in the advisory process, and not a complete replacement.

There are a lot of cliches about the wealth of Asia, etc, but not all banks have had an easy time of it. What are the main opportunities/risks in the region for a bank such as yours?
Asia’s private banking market is extremely diverse, with onshore and offshore characteristics as well as special attributes of large onshore markets like China. The rise of onshore wealth, driven by in-country GDP growth, means that additional pools of wealth generated can be targeted with more attractive economies and a lower level of competition than in traditional offshore models.

Another distinct feature is its entrepreneur segment that is primarily in the wealth creation mode, with a generational change that is underway. We see this as a highly attractive opportunity for private banks – in terms of educating and advising on the need for wealth preservation, planning and transfer.

We have already discussed technology as a rising challenge for the industry in the earlier question. The shortage of experienced talent in Asia to match growing clients’ demand and expectations is another. Private banking is still very much a high touch, capacity business, and the war for talent today is very much focused on quality and expertise, which is challenging given that the industry is in its growth stages in Asia.

Lastly, the volume and pace of regulatory change continues to be an area that private banks have to grapple with given increased regional regulatory asymmetry.

What is your view on whether there remains a shortage of talent? Do you think investment bankers can make good private bankers? What is your talent management policy?
The shortage of talent remains a critical factor in contributing to the success of private banking, especially in Asia. We see today that the competition for talent is not merely a numbers game; rather it is increasingly focused on quality and competency.

Successful RMs need to bring real value to their clients and this effectively means to act as a CIO for their clients by proposing the right investments. This is particularly true for entrepreneurs who are typically used to high returns from investments in their business, which directly impacts their demands on their private bankers to deliver the same, robust performance. Again, this reiterates the importance of understanding their tendency to link their business and private wealth.

As part of a universal bank, we are at an advantage in being able to recruit from within our own ranks. For example, we have the option of promoting our most experienced priority bankers to the private bank. When it comes to the training and development of our existing RMs, we have a structured learning and development programme in place. Powered 2 Perform is a year-long programme which consists of two components: product knowledge, and the softer skill sets of becoming a high performing RM. This is complemented by workplace learning through improving/professionalising coaching and people management capabilities of line managers/team leaders.

Peter Sands said he wanted private banking to play a bigger role in driving results? Are there any specific targets? What, in the bank's view, does success look like?
We believe that our private banking business has good momentum to become an increasingly important source of growth for the Bank. In particular, our sharpened focus on the segment with the reorganisation, in addition to the potential of the synergies with our Commercial clients that we are already ramping up efforts to tap on, places us in a good position to capture the significant scale of private banking opportunity across our footprint.

While I’m unable to provide any specific targets for the Private Banking business, what I can say is that for us, success is becoming the main private bank for business owners and entrepreneurs across Asia, Africa and the Middle East.