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Scorpio Partnership's Sebastian Dovey

Stephen Harris

22 February 2007

Sebastian Dovey, managing partner of Scorpio Partnership talks to WealthBriefing about luxury and the new private banking paradigm. “Should private banking be seen as a luxury or as a necessity and should luxury be a descriptor of wealth management business strategy?” asks Sebastian Dovey, managing partner of Scorpio Partnership, when WealthBriefing recently caught up with the consultancy guru before an EMEA round trip on various client assignments. “Most private banks reject the idea that they are a luxury service,” he said. From a historical perspective he can see no reasoning behind their hesitancy, particularly amongst the existing clients. But the issue to Mr Dovey, is to determine new ways and new answers to tap the HNW markets currently not covered by the world’s private banks. The idea of luxury has been at the forefront of Mr Dovey’s thinking for a while. And as part of this process, Scorpio has recently been hired by a large international bank to look at the luxury aspect of its offering. “If a bank defines itself on the basis of luxury, there is a strong case the client will pay a premium to attain the high end solution. They will see that the service is away from the mainstream, that access is not open and that it is in some way special.” Indeed, maintaining the distinction between private banking and mainstream banking is one of the key battlegrounds of the next decade for the industry, according to Mr Dovey. "The market is at a critical point in defining its future roles and values. Many in senior management recognize this, but have not yet come to terms that to fully grasp the opportunity there will need to be some radical changes in the way they do business," he said. Mr Dovey’s convinced that many private banks are not very good at thinking laterally, especially when it comes to the requirements of clients, the future acquisition techniques and the approaches of other industries in earning revenue from the HNW client base. One area of attention for Mr Dovey’s team is, for instance, customer loyalty programmes, while another is education. “We do over 700 HNW, Ultra-HNW and family office fact-to-face interviews annually now for various projects around the globe and it is fascinating to see that the wealth management consumer is very active, brand conscious, information hungry and incredibly loyal in spite of what some financial institutions are doing,” Scorpio’s managing partner’s assertion is that in other premium industries organisations tend to make a name through branding and advertising – and they look very hard at what makes luxury work to have an impact in the HNW segment. This is harnessed through access to the brand – perhaps by limited editions and the like. Taking an example from the world of high fashion, Gucci and Prada are now global retail brands but with a highly defined luxury element. Crucially, Mr Dovey comments, the luxury element is guarded with utmost vigour, as the better this is preserved the more financial benefits trickle down to sales across the business. Central to Mr Dovey’s current thinking is that if there really is a luxury side to asset management, then this should be articulated. “Clients see private banking as only asset management. Initially they are told that there is much more to come but private banks are not really interested in the whole wealth package,” he said. “We often try to compare private banking with the upmarket hotel and travel trade to see what these industries do to win business and retain business. They are incredibly effective at doing this. In fact, private banking is a long way behind in terms of willingness to address the ultra high net worths’ needs and do not take note of these competitive issues enough. “I am not suggesting the tired dog walking issue again. I am suggesting that these hotels, for instance, are able to get the richest clients in the world to spend in excess of $3,000 per night. How do they reach these people, how do they retain their custom, how do they get other custom from it? At the core of the answer is they get very close to the client and the client directly links the service to value and cost.” Increasingly private banking is all about service; everyone WealthBriefing speaks to goes to great lengths to emphasise this aspect of their business. But as Mr Dovey points out, high service levels are very difficult to sustain and very difficult to police, but it is essential to the future of the industry. Unfortunately, the current positioning of the industry is at times directly opposed to this approach. “And, more to the point, most private bankers didn’t join the industry to become service providers – they thought they joined to be money managers. If you bring up the idea of advice, the majority think this will be the hour-long chat annually before signing new investment forms,” he said. There is a real issue for management here. Mr Dovey said: “Senior people in private banks genuinely do want to make it happen but often they are not entirely sure what it is that they want to happen. From my experience I really believe that they should spend more time on defining what they want the outcome to be. I think that the outcome should be a much greater focus on providing a luxury service. I am not suggesting that the banks will imitate the hotel industry, for example. No, the banks need to define what luxury is in their world and then ensure that the clients understand this and recognize the value.” And there’s no point making this paradigm change unless it is made apparent to customers, he emphasised. Product and performance has been played as much as possible. To a large extent this is yesterday’s news. Customers now need to be convinced by service and the reinforcement of full-service personal banking. "It may well be that luxury in wealth management is access to a person. Some already think that this is the case. That is fine for some banks, but inevitably that poses issues around scaleability." In the context, part of the new face of private banking and integral to the luxury offering is the move to be advice-driven, says Mr Dovey. For this to be a successful transition, he thinks that the whole business model must change. “What advice is it the clients want?” he asks. “It’s simple, to find this out, private bankers need to talk to more people in a research mindset and redefine their approach. All too often it is apparent that at the moment banks base their proposition on guesswork and making assumptions about what it is everyone else wants. The irony is that clients are incredibly committed to the idea of contributing to changing the approach of the industry. We hear it every day in our assignments.” “If a private bank wants to look different from its competitors they must put resources into collecting and interpreting information on clients over time. Moreover, they need to do this consistently, not once. The feedback from clients is unique, precious and defining for the business.” The outcome of the feedback process is to drive the future business model and secure early adopters. "It builds the credentials. This is particularly relevant for institutions attempting to develop an advice-led solution. Many banks think they know their clients but any quick assessment shows that they know very little. Advice is, however, predicated knowing a lot. We have spent a lot of time developing ways in which banks can change their approach to position themselves more credibly as advisors.” Indeed, advice and private banking should be intertwined but most global research shows that the financial institutions have neglected the advice-led route for a long time, such that private banks are often the last advisory port of call for a client, according to Mr Dovey. “Significantly, however, qualitative feedback we are getting from clients all over the globe indicates that the clients are seeking the private banks to become better advisors. They are just not convinced the current cadre of bankers and their business models are going to support it. But they constantly ask if there is a firm that does offer financial advice which they can approach. Some are moving with their wallets and setting up family offices, for instance. It’s our view that one of the private banks will realize the potential of the new paradigm and clean up.”