Private banking has long been an attractive segment in the financial services industry, both to potential clients and to those in charge of the management of financial service companies. Private bankers look to take advantage of the growth in assets under management (AUM), potential growth in business for other banking segments (most times as a result of the patronage from the various interests of the private banking clients), apparently rising profitability, increased liquidity and relatively low seed capital requirements. Clients, who are quite discerning, desire to belong to an exclusive club created for a venerated class of banking patrons to whom the utmost attention is paid.
Globally, private banks face similar demands stemming from a much more multifaceted operational environment. A number of developments are shaping the future of the private banking industry as it moves through an inflection point. Such developments include: the growing importance of developing economies, like Nigeria’s, in the area of profitability and AUM growth for the private banks; the environmental influences conspiring to force an alteration in the value proposition and service delivery models, especially to serve the unique requirements of an emerging generation of clients; and most importantly, the imperative to restore the severed trust in wealth managers and private bankers to provide superior financial and estate planning advice to clients.
Clients, who are quite discerning, desire to belong to an exclusive club created for a venerated class of banking patrons to whom the utmost attention
is paid
In addition, there is the geometric increment of the regulatory and tax requirements on the ‘one percent’, as well as those of us charged with managing their fortune. To add to the excitement, competition is growing rapidly from domestic and international players, as the market barriers between jurisdictions get lower with assets more fungible than ever witnessed.
Market insight
The wealthy in Nigeria present a huge opportunity for any bank, with personal assets to the tune of approximately $90bn as of the end of 2013, which is expected to grow to $109bn by 2016 (see Fig. 1).
Nigeria has one of the largest ultra-high-net-worth individual (UHNW) populations in Africa. The majority of UHNWs in the country possess an estimated wealth between $1m and $5m, albeit many newly created millionaires and returning diaspora are not financially savvy.
Like other emerging market economies, income distribution in Nigeria is concentrated in the upper echelons of the society, with the UHNW segment contributing nearly half of the country’s high-net-worth assets (approximately $44bn). Hence the opportunities are enormous for those willing to venture.
In light of the aforementioned, retaining clients remains a key requirement of any private bank to survive this terrain. In my experience, the average time it takes to convert a Nigerian UHNW individual to a full private banking client is approximately nine months. There’s an immeasurable amount of time, effort and resources required in gaining the trust of such individuals – trust that can be evaporated a split second for a number of reasons. For instance, an alteration in personal circumstances, which could be as a result of a change in the political climate; poor investment performance, which is rather subjective and may be measured against what is considered an unreasonable yardstick; following key staff to a competing bank; poor relationship management quality or a decision to change private bankers or wealth managers influenced by the UHNWs next generation.
An efficient approach
In order to stem such situations we adopted a segmentation approach to the management of our clients. The approach focuses on four main areas: age, investment objective, time horizon and risk appetite.
The crux of this approach is to exhibit a sophisticated understanding of our clients and ensure customisation in the provision of solutions to their investment needs. This ensures a unique client experience for each UHNW individual and their next generation. For instance, the approach best suited to the mother may not be the same for the daughter.
This method has gone a long way in securing the buy-in of the next generation for most of our clients, as we now have a situation whereby offspring who are next in line are approaching us for training in wealth management practices and in some instances for jobs. The above notwithstanding, the local banks will continue to have problems retaining clients as the focus on the growing assets of the emerging markets by the international banks increases.
Local banks are sourcing fewer products and services in-house and there is a gradual shift in third-party product provision. This could be seen as a more cost-efficient way of providing the diversification required by the next generation of private banking clients and as such is an approach we at FirstBank private banking are putting into practice. This would also reduce the instances of the poaching of our younger clients by the international banks.
With our growing presence in the UK and other European jurisdictions we are poised to provide more opportunities for willing partners in our value chain of wealth creation, management and transfer for our clients. Our activities in this aspect are particularly getting good acceptance from the new money clients. In deciding the composition of the investment outlets to white label it is worth noting the underlying assets of each product, taking into consideration the asset allocation of high-net-worths in Nigeria (see Fig. 2).
Customer relations
Customer relations management (CRM) is growing in its significance as the UHNW population possesses varying degrees of capability and less loyalty to service providers. With the rapidly increasing mobility of skilled human capital, a CRM system, which provides a seamless transfer of relationship managers, needs to be in place in order to ensure that the smallest detail is given the requisite attention for each client. Banks need to identify and invest in the talent they need, as this is going to be a major competitive advantage in the foreseeable future.
With the continuous modifications in the digital age, a good CRM system must be adaptable and also possess the capability to assist wealth managers and private bankers in reading each client’s ambitions towards mapping a plan for their future. Such capabilities include anticipating potential changes in life stages and the implications of these changes to all stakeholders, especially the next generation. Thus providing an opportunity to point these latent alterations ahead of the scrambling pack.
The aforementioned investment would further optimise the client experience and endear the next generation to the bank that puts this much focus on the future of the UHNW. With the sound macro economic environment gradually being created in Nigeria, steps being taken to improve infrastructure, continuous reforms in the various sectors, the resultant increment in consumer spending and growth in foreign direct investment; entrepreneurial activity is likely to be a primary source of wealth creation in the future.
Domestic players could leverage on their local knowledge and international access to edge out foreign competition in capturing new clients. On the client side, wealthy individuals will become increasingly diverse in their backgrounds, financial need and investment behaviour. The traditional service delivery model will most likely change with the rise of the next generation of inheritors as well as wealth creators. The increase in the use of technology will connect experts with their advisors/relationship managers on a real time basis; and the use of analytics in generating proprietary insights on huge sets of clients will be critical in meeting the needs and customising solutions.
We at FirstBank private banking are taking the necessary steps to ensure we are the primary conduit through which these changes would be brought about in the Nigerian market. We invite all our current and future clients (and partners) to strap in and enjoy the ride.
