Crisis on several fronts for RMs

Source Business Times: August 5, 2009

Client trust and confidence waning as over half say they count on themselves for financial advice now. Client attrition is another fallout, reports GENEVIEVE CU A GLOBAL survey has found that only one-fifth of chief executives of wealth management firms believe that their relationship managers (RMs) are of 'high calibre', with more than a quarter saying their RMs are of only average ability.

Despite this, training hours globally were reduced last year compared to 2007. In Asia, training hours increased but the emphasis was on market updates and products.

The cut in training, says PricewaterhouseCoopers (PwC), is understandable when budgets are under pressure. 'However, the quality of RMs has never been more important. If quality of advice is to be the real differentiator, wealth managers need to improve their RMs' skills - and quickly.'

This is one of several significant findings of a study by PwC earlier this year. The study, A New Era: Redefining the Way to Deliver Trusted Advice, points to a crisis on several fronts for wealth managers.The obvious one is that of client trust and confidence as over half of clients say their main source of financial advice is now their own research and knowledge. The survey polled nearly 240 private banks and wealth managers in 40 countries between December 2008 and March 2009. Asia Pacific accounts for about 16 per cent of respondents.

The cut in training, says PricewaterhouseCoopers (PwC), is understandable when budgets are under pressure. 'However, the quality of RMs has never been more important. If quality of advice is to be the real differentiator, wealth managers need to improve their RMs' skills - and quickly.'

Client attrition is yet another fallout. The survey indicates that attrition rates are higher in Asia where 31 per cent of respondents are grappling with an attrition rate of over 25 per cent. Globally, around 10 per cent of bankers suffered attrition rates of more than 25 per cent.

Globally, only 55 per cent of respondents have formal client retention programmes, which PwC sees as a 'dangerous omission' on current market conditions. Most private clients report that they are rarely asked to comment on the quality of service they received; about 35 per cent said this happened only once a year.

Perhaps this explains yet another statistic: only 38 per cent of respondents are able to retain more than 50 per cent of assets upon intergenerational wealth transfer.

Low-yielding accounts

On their part, RMs, who are at the frontline of client servicing, have to cope with an environment of low-yielding client accounts. Clients were badly burnt last year by horrendous market losses, exacerbated by poor product choices and leverage. This suggests that those who still have cash with bankers are looking to asset preservation.

Against this backdrop, the top five factors used to measure RM performance become a steep challenge: increasing assets under management; meeting revenue targets; attracting new clients; satisfying clients and retaining clients.

'In the current environment, it is difficult, if not impossible, for RMs to perform well against most of these criteria - indeed they are making RMs demoralised and disengaged,' said the survey. 'Wealth managers need to focus on the factors that make a successful RM in the current market and take steps to measure their RMs against a new, more relevant set of criteria.'

The study makes the point that while CEOs see quality of advice as a key differentiator, compensation structures must change to reward behaviour that fosters long term relationships. The catch is that 55 per cent of wealth managers have no plans to change their reward structures over that period.

Justin Ong, PwC's Asia Pacific private banking and wealth management leader, says the Asian portion of the survey has found that private banks aim to make fee-based revenue a greater proportion of total income over the next two years, reducing reliance on commission income.

'Encouraging client-centric behaviour can only succeed if the way in which client advisers are remunerated is aligned with client interest. There must be some element of accountability for long term performance such as deferral of income or clawbacks.'

In the Asian survey, only 13 per cent have a clawback provision for poor performance.

Advisory-based fees is a goal, he says. 'But the challenge is that Asian clients tend to be ambivalent about paying for advice . . . So much of this is a matter of client education and the ability of banks to change the mindset of RMs to accept this as a more equitable measure of client service.'

On training, the Asian study has found that training hours increased, in contrast to the global finding. But the real issue, says Mr Ong, are the areas in which training dollars were invested into. 'The question is whether the training is for the bank or RM's benefit, or for the client's benefit.'

The survey found that the largest amount of training time goes into financial markets updates, product training, followed by soft skills.

'At the organisational level and looking at the issues clients are facing now, areas such as intergenerational wealth transfer and taxation are very low on the training agenda. But this is where the real value to clients are and ultimately to the private bank as a whole . . . '

Re-tool leaders

An expert involved in training RMs, who declines to be named, says: 'In how many ways can you train RMs to be nice and honest with clients? I think the issue is also to re-tool their leaders. You have to implement what you say you set out to do. The higher levels are governed by short-term goals.

'Salaries also have to be more realistic. Many RMs are paid like sales people, so they behave like sales people.'

Some banks, such as UBS, run their own training programmes. The Wealth Management Institute has a certification programme for RMs, which has received the Financial Industry Competency Standards (FICS) accreditation for training and assessment. The programme has trained some 500 RMs since it was offered in 2004.

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