Preface

Can an industry steeped in tradition adapt to an ever-faster changing business environment? The numerous challenges facing private banking, which are elaborated upon here, have arisen over many years. But the urgency with which these must be confronted has taken on a whole new meaning since the financial turmoil that made itself felt in all areas of financial services. This made the timing of this book especially meaningful.

I started to write this book in early 2008, on the eve of a period that would raise fundamental questions about the future of a business that has survived, literally, centuries. Today private banking is being shaken to its core by global events. These include volatile financial markets and the new wealth being created in developing regions of the world, offering not only tremendous opportunities but also potential risk factors to consider. Meanwhile, partly as a result of past crises, banks worldwide now face the challenges imposed by new regulatory regimes. These factors have contributed to a sense of urgency driving changes within our industry. Not only has the pace of change accelerated but the scope of potential issues banks face today is also enormously broad. This is affecting how the business adapts: Should a private bank act with uncertainty or wait for the dust to settle and risk losing out on key opportunities that accompany these changes? A period of rapid growth was followed by widespread setbacks, giving rise to a desire to make the business more sustainable and answerable to the considerations that influence the health and vitality of any industry. This, truly, is one of the most interesting periods our industry has faced. In that spirit, I decided to finish the book.

For perhaps the first time ever, each private bank is being forced to examine a business model that has survived for decades, in some cases, for over 100 or 200 years. What has transpired in just a short span over the past 30 years or so is now challenging that long-established model. Global economics and upheavals in financial markets, new clients coming onto the scene, and stricter regulatory requirements all are contributing to a radically changing environment. When I began in the business in 1993, every private banker decided autonomously on the services and solutions offered to his or her clients. Private bankers dealt with issues as they arose, dispensing investment ideas, legal guidance, and often also personal advice to clients more or less on an ad hoc basis. There was no uniformity, and thus no guarantee of any quality standard or minimum level of service—the banker was the bank.

Changes in the past years have radically altered the familiar, sometimes cosy world of Swiss private banking. Players are facing a variety of challenges. Today the business demands a high level of expertise in many different areas of competence along with professionalism that must exceed already significant expectations that clients rightly have. Given the growing complexity and inter-linkages among markets, the increased sophistication of investors and products, as well as the imperative to abide by regulations of different regions, a client advisor today must rely on a number of specialists. The all-in-one advisor of decades ago has been supplanted by someone backed by teams of professionals in areas ranging from local investment market and estate planning expertise to country-specific legal and compliance knowhow, to name just a few. Private banks must seek to remain viable for the future by refocusing or perhaps by expanding into new markets, either on their own or through acquisitions and partnerships. As the opportunities arise, so do the risks, given that an extended set of local rules and regulations must be applied and closely followed when private banks expand into foreign markets. After the financial crisis, regulators intensified their efforts to reduce the threat of a large financial institution failing. These rules should improve the safety and soundness of the system and help to restore trust in it. It is up to the banking industry to deal with this new environment and to comply.

Almost four years have passed since the collapse of Lehman Brothers in September 2008, and a number of open questions remain that must be addressed, such as how to further regulate systemically important institutions where a failure could undermine the stability of the entire financial system. Adding to the complexity, private banks in Switzerland must adhere to ever more stringent requirements governing foreign domiciled clients. Banking secrecy has been, and will continue to be the subject of much public debate, both inside the country and abroad.

While it should not be abused, privacy has played an important role in protecting clients’ assets in the past and will continue to be valued in the future. There will still be assets held offshore, but the motivation for this will not be tax avoidance. Clients will want to maintain diversification of jurisdiction. This business will remain interesting for banks but time will tell in what form, and in which markets, successful players will operate in the wake of changing regulations. Adapting and upholding a variety of new and more complex country-specific regulations clearly increases the cost pressures that banks face, requiring them to find ways to provide cost-efficient service. Nevertheless, the only way forward is through meeting the requirements and anticipating how these will develop to ensure that the correct internal controls are in place and clients are well informed about compliance requirements. Private banks should serve as role models for their industry. No less is expected of them by their clients, their staff, and regulators. Growth must be based on factors that take into account the latest developments.

Even facing a wide range of challenges, however, the private banking industry is surrounded by plenty of opportunities. In terms of global wealth, the potential remains truly enormous, and there is still significant room for growth. Economic growth in many regions of the world has added a new dimension to the business. For example, a rising class of young entrepreneurs in emerging markets will favour private banks able to deliver to a high standard. Thus, the surge in demand for competent wealth managers in regions beyond Western Europe, especially in Asia, is opening up new territory for those private banks able to offer expertise and know-how. Singapore, for example, is already today a financial hub rivalling those in Western Europe, including Switzerland. Meanwhile, a number of financial firms, after the damage to reputation and balance sheets suffered in the financial crisis and amid regulatory pressure, are reexamining their business models. For strong firms, this creates unique opportunities to expand their business and reposition themselves in those markets.

Private banks will have to look at all of the forces and trends that shape the industry and identify the opportunities as they arise along with the challenges. They can never afford to lose sight of the fact that their business depends first and foremost on maintaining high standards of quality and personalised, superior client service. For a business that should always place the client at the centre, the question becomes, how can private banks continue to ensure that each and every individual in different places in the world gets the level of personal attention, delivered with the consistent high quality of service that he or she requires and has come to expect? In many ways, growing sophistication has transformed the way private banks operate. No single advisor could hope to fulfil all the needs of each and every client. This trend has led to a mass customisation, if you will. There is no room any more for the advisor who may lack the expertise, the information, and the people skills that the job today demands. The focus remains on clients, and the aim is still to provide the best individualised service. But how this is achieved has raised the bar in terms of the knowledge and expertise demanded of relationship managers. No matter how much the industry changes, clients are and will remain the most important element. They are to be viewed always as individuals, making decisions that can profoundly affect their lives and the well-being of those people who depend on them.

With these aforementioned opportunities and challenges in mind, this book aims to provide an overview of the elements that play a critical role in our business, illustrating how they may be aligned to serve a single objective: to strive for excellence in private banking, keeping the client at the centre of focus for all activities. This book seeks to highlight the current patterns and trends providing direction from the perspective of a private bank and based on the experience I have gathered over the past 19 years. Through my academic involvement as a member of the Advisory Board at the Singapore Management University (SMU), I have realised that very little literature was available on private banking. I hope that this publication will appeal also to the next generation of people interested in our métier, a factor of outmost importance given the relative scarcity of available talent in the private banking industry today.

The book is arranged schematically, with the first chapters providing an overview of the main elements that should be considered by a private bank, which will then each be explored in greater detail during the subsequent chapters. Although written from the viewpoint of Swiss private banking, this book also looks at the issues from a global perspective. My aim is to offer insight into the bigger picture of a business that is still in the midst of change to share a vision of the future of the industry and the potential directions that may be taken with regard to best practices and strategies. Yet it is important to note that any book can offer only ideas. It should not be construed as a reference guide full of ready-made solutions or a guaranty to success. It is therefore important to highlight that this book, though providing a practical framework, should not be construed as a strict how-to manual for running a private bank. There are many ways to go about formulating strategies and adapting to change. This book should be treated as a collection of ideas and suggestions; it represents just one attempt to answer the most pressing questions regarding what makes a private bank successful. It clearly does not offer all the answers, and in the end, the well-reasoned and sound opinions of each individual reader must decide what solutions are most suitable and practical, based on the particular situation.

To come back to my original question: Can an industry with such a long tradition adjust to an environment where change is taking place at an ever-increasing pace, affecting nearly all aspects of the business? Those institutions that will succeed must meet numerous challenges, taking into account modern practices and ideas, while continuing to respect established traditions. Private banking needs a courageous new vision, but it also needs to continue to develop the basic expertise, competence, and capabilities necessary to work well and efficiently.

There are many ways to approach this. I have tried to touch on a few that might resonate especially with readers in or associated with the industry. It always requires work to realise a vision, but it is possible. This is the message of this book. Despite the many questions the business faces, the outlook for private banking gives every reason to be optimistic. The way ahead won’t always be easy. Yet the opportunities are vast. Private banking has a great future ahead of it.