Asia’s universal banks have long hailed the “one-bank” approach, where the corporate and investment bank meets the private bank to serve clients’ crossover needs. The widespread practice — spurring growth and boosting revenue for the bank as a whole — begs the question whether universal banks’ wealth management arms could survive without the one-bank concept.
The raison d’être in Asia
“In Asia, the new wealth created by young entrepreneurs and new demand from the next-gen have made the one-bank model more relevant than ever before,” Arnaud Tellier, CEO Asia-Pacific, BNP Paribas Wealth Management, told Asian Private Banker.
Home to a highly entrepreneurial HNW client base, Asia has seen wealth creation outpace the growth of its economy. The booming IPO scene — especially in Hong Kong, where the equity market raised a total of HKD389.9 billion from 140 IPOs in 2020 alone — means that new wealth is constantly being created and waiting to be attended to by private banks.
The region is bracing for perhaps the largest wealth transfer in the next decades: approximately US$15 trillion of wealth is expected to shift hands across generations by 2050. And the needs of the next generation of HNWIs differ significantly from their parent’s generation, which makes it imperative for their wealth managers to adapt before they move money elsewhere.
With regards to their needs, both entrepreneurs and next-gen clients call on universal banks’ capabilities to bring private banking and investment banking services tightly together.
The entrepreneurs, with most of their wealth still sitting within the business in case of a liquidity event, have much greater financing needs to grow their businesses than merely the needs for traditional wealth management.
On the other hand, next-gen clients find less appeal in the brokerage-style investing of the previous generations. Tellier said these clients are in search of specific investment opportunities, such as direct investments. And the only way to deliver such opportunities is through the due diligence and deal-sourcing capabilities of a strong investment bank with a global network.
“I believe this is the only way for private banks to stay relevant in the longer term — if private banks cannot implement this model, either they need to be in a niche segment of the market, or they will soon find it exceedingly difficult to address the needs of this continuously evolving clientele,” Tellier argued.
More than cross-selling?
In the “old” sense of the word, the one-bank concept equated to cross-selling, where solutions from various parts of the bank are offered to the same client through referrals. To this day, it is still a common practice among universal banks globally and has been met with praise for its efficacy in driving net income for the bank.
However, banks must tread carefully as generous incentives on cross-selling risks inducing bankers to put the bank’s interests before those of clients, raising doubts on who the bank truly serves. In 2017, American lender Wells Fargo’s cross-selling misbehaviour sparked closer regulatory scrutiny.
More recently, the debate has been reignited on the heels of the fallout of the Greensill Capital saga at Credit Suisse’s asset management arm, which has spilt over to its private banking clients in the Middle East, who bought more than US$1 billion of the supply-chain funds.
BNP Paribas said its approach starts with the client’s point of view — first by profiling clients according to the various stages they are at on their wealth journey, both on a personal and entrepreneurial/professional level. It then targets the client with the corresponding services that match the needs of the particular client.
“We have a team within WM, which originates opportunities for the investment bank by understanding the client base, profiling the client, and knowing investment banking well,” Tellier said. “On the investment banking side, there are teams as well that identify potential business owners to be introduced to the private bank.”
At the same time, Tellier said the bank cross-trains its bankers on different sides of the business and hires private banking talents with diverse profiles, so that private bankers are equipped with the knowledge of how to serve corporate needs.
LH Koh, co-head global family office (GFO) APAC, UBS Global Wealth Management, told Asian Private Banker that the bank has “moved beyond a cross-referral approach” when serving clients on a cross-divisional basis.
“The GFO client advisors are able to engage with clients on multiple topics based on their deep understanding of client needs,” he explained. In addition, the bank has a team within WM that caters to the corporate finance needs of clients — “not only identifying and giving them access to the capital markets but also helping them with their strategic business decisions”.
“In a typical GFO relationship, the private banking unit has a close engagement with the business owner and his/her family members, and our global banking unit has touchpoints with the CEO/CFO of the family business.” Koh described the relationship as having a “multiple-touchpoint, well-coordinated structure” with the bank’s wealth management arm at its centre.
The Swiss bank has dedicated team members on both global banking and wealth management who act as bridges for collaboration, said Koh. They are the go-to contact points for the other teams when business opportunities arise.
For Morgan Stanley Private Wealth Management, a one-bank strategy has been in the making for some time. Since it established its strategic advisory solutions (SAS) unit over two years ago, the American bank has been “developing and enforcing structural changes with respect to the client referral process, business sourcing compliance and incentive alignment”.
Joy Kwek, head of strategic advisory solutions, Morgan Stanley PWM Asia shared with Asian Private Banker that the revamp brought about a more comprehensive offering that combines institutional and private clients of the bank’s premier franchise “in a way that reduces redundancy”.
This also opens up incremental revenue opportunities for the bank and increases its wallet share with each client, she added.
On the bankers’ part, a practicable one-bank model comes down to following KPIs and job descriptions clearly set forth, and being recognised on the revenue they generated through the collaboration model. The latter means the bank must cultivate a mindset for all segments of its business that they are, at the end of the day, in the service of one firm.
To this end, Kwek highlighted, a change in thinking lies at the heart of Morgan Stanley’s structural changes. “(It is) a shift from simple individual collaboration to a team approach, (which) ensures the primacy of client needs while deploying the resources of the entire bank to bring the best ideas forward.”
Tellier noted that the different parts of BNP Paribas’ business “work under the same entity and are bridged with one another”. Thus, “it is very easy for different businesses of the group to build trust, work together, and see value in synergistic collaboration,” he said.
Koh added the GFO client advisors are recognised on the basis of the revenue generated by the bank from the relationship, which is not limited to one business division.
The success of the one-bank model is closely linked to the messages from the top management and its leading by example, which goes to show whether the bank is merely paying lip service to the “one-bank” buzzword, or exhibiting an effort to cultivate a collaborative culture.
“It is necessary for the bank to (…) encourage colleagues to talk across business lines, and lead these behaviours from the top,” said Paul McSheaffrey, head of banking and capital markets, Hong Kong at KPMG. “Banks should not underestimate the cultural aspect in terms of how the one-bank model is organised,” he emphasised.
Echoing McSheaffrey’s observation, Tellier added: “Recognition on a personal level — the management being able to highlight and encourage collaborative behaviour — is critical. The top management needs to set the right tone.”
WM an “anchor point” for one-banking relationships
While in the past, it might be the case that HNWIs’ banking relationships began with the corporate or investment banking side, which then extended to private banking, the majority of banking relationships nowadays are initiated on the wealth management side, as a result of the rapid growth of personal wealth, Koh observed.
He believed that the trend will continue, and the wealth manager will increasingly be the entry point of a banking relationship, because “they are well-placed with direct access to the decision-maker of the business and with trust gained through the relationship”.
This would give wealth management a critical role to play in cementing the client relationship with the bank. McSheaffrey argued that the private bank can be the “anchor point” for the relationship on both the investment and private wealth side, by virtue of its personal nature.
“When the banker is helping the clients with things such as succession, philanthropy, setting up a family office, it creates a much stronger bond and a sticky relationship — one that is much more personal. This relationship is able to cross over into the investment banking side more easily than the other way round,” he said.
On the higher end of the wealth spectrum, clients tend towards more professional means of managing their wealth, which often culminates in a family office set-up. Serving such clients — who have needs pertinent to succession and wealth planning, and who trade more as an institutional investor — requires universal banks to bring the best of both worlds in an integrated manner more than ever.
“Banks that are able to offer a holistic service,” Koh admitted, “would be in a much better position to capture the largest and the most sophisticated clients.”