In the Press
19 April 2010
An Untapped Appetite for Advice
Professional Planner
April-May 2010
Alan Shields
One of the many benefits of a private banking relationship is the convenience it affords individuals by allowing their finances and investments to be managed in a single relationship. In recent times, Australian private banks have sought to promote themselves as providing this holistic approach, offering a suite of services ranging from everyday banking products to investment advice, estate planning and philanthropy.
The challenge for private banks is to build awareness and trust with their HNW clients and to consolidate their relationships, particularly as the wealth management landscape is populated with so many advisory players vying for position.
Indeed this challenge becomes very clear when we examine APBC research, which shows that just 13% of existing private banking clients consider their main financial relationship to be with their private bank. By comparison, 42% of private banking clients consider their financial planner/advisor to be their main financial contact and a further 19% nominate an accountant. One could take a pessimistic approach and consider that these statistics do not look good for the private banks. However, there are always two sides to every statistic and so arguably there is also an opportunity to win this advisory relationship.
Realising the opportunity will be highly dependent on the private banks’ abilities to identify the clients most open to receiving advice from their private bank. We see three distinct groups of clients:
- Private bank clients that obtain advice from their private bank – Engaged Clients
- Private bank clients that obtain advice from an alternate source – Independent Diversifiers
- Private bank clients that obtain no professional advice at all – Self-directed Clients
Of these groups the Engaged Clients and the Independent Diversifiers represent the biggest areas of opportunity. The Engaged Clients are those most open to almost all further advisory services, while the Independent Diversifiers are open to engaging with their private banks for certain advisory services.
In fact, when the APBC asked private bank clients how likely they would be to avail themselves of certain advisory services from their private bank, more than 20% of the Engaged Clients were open to almost all services. More than 20% of the Independent Diversifiers were open to portfolio management, institutional investments and insurance, while the only service that appealed to more than 20% of the Self-directed Clients was some form of portfolio management.
There are several important steps that the private banks need to take to reach the clients that don’t currently use them as an investment advisor. The first step is clearly to profile clients and determine the appetite for further service. Self-directed Clients are unlikely to change the way they have always conducted their investments and so it is worth a private bank knowing where to pick its battles.
The next step is to make clients aware of what is on offer and demonstrate that there is value in obtaining this advice from a private bank. APBC research shows that by far the most valuable type of advice is retirement planning, yet the majority of existing clients obtain this type of advice from an institution other than their private bank. In large part this is because 20% of private banking clients have not been offered any financial advice by their private bank and 18% are simply unaware that their private bank offers advice.
As well as making clients aware of their capabilities, private banks need to promote and elevate the profile of the industry. The Australian wealth management and investment landscape is fiercely competitive, and HNW investors have a broad choice when seeking any professional advice. Becoming a credible source of advice is going to be critical if the private banks want to achieve their goals of becoming truly holistic financial service providers.
Greater public awareness and appreciation of private banks as a service-orientated and trustworthy source of advice would provide a fillip to the industry. A good first step for private banks would be to engage existing clients and to understand if there are any gaps in financial or investment needs. Greater engagement would lead to needs being met and to happier clients. These happier clients will in turn spread positive word of mouth, and positive word of mouth and referrals have been proven to be more effective than traditional marketing efforts in driving acquisition.