You’re a private banker, but your client wants investment banking products so you work with your colleagues in IBD to give them what they need. It’s an increasingly common scenario, particular in Asia where private clients tend to be entrepreneurs with expanding businesses that could require help with listings or acquisitions.
Large banks in Singapore and Hong Kong are touting cross-department collaboration as a key reason why clients (and relationship managers) should choose them over boutiques that don't provide in-house investment banking. Last month, for example, Nomura hired Lee Chee Pin as head of financial products and solutions in Asia and tasked him to lead its collaborative efforts.
But while joining a cross-selling bank often seems appealing to relationship managers (RMs) whose clients are seeking IB products, working with investment bankers can be challenging and some banks have yet to perfect their collaborative model.
“The universal banks with mature investment banking division tend to pursue collaboration more intensively,” says Pathik Gupta, head of Asia Pacific wealth management at consultancy McLagan. “However, collaboration is also a function of leadership drive, individual motivation and incentive frameworks all working together in tandem, so not all of them execute it effectively.”
As a rule of thumb, Gupta says collaboration works best when private banking is either part of institutional banking, or there is strong “leadership alignment” between it and IBD. The CEOs of UBS and Credit Suisse, Asia’s two largest private banks by headcount, have both made cross-selling a strategic priority, for example.
“These two Swiss banks are essentially private banks first and investment banks second. So the collaboration here is strong and their IBD activities in Asia support the ambitions of private clients,” says Josie Ling, a private banking consultant at search firm Eban. “The American banks are good at it too – Citi, J.P. Morgan, Goldman Sachs and Morgan Stanley – they have strong IBD departments and serve the private banking side well for deals they can both work on.”
Gupta says the firms that have struggled to forge a collaborative approach are those where the private bank is part of a larger consumer bank which “can’t effectively align with the value proposition of the investment banking side”.
Another private banking consultant, who asked not to be named, agrees that consumer banks such as HSBC, Standard Chartered and DBS aren’t your best bet if you’re a private banker in Asia looking to cross-sell IBD products. “Their IB divisions are not as strong as the likes of JPM and Morgan Stanley and there’s not the same top-down push to encourage collaboration either.”
Whatever the bank, however, working more closely together is not always straight forward. “Potential deals for high-net-worth clients are often smaller compared with institutional client deals,” says Ling. “And because their fees depend on deal sizes, investment bankers feel that some private-client transactions are too small for them as they would use up the same amount of resources as structuring and executing a larger deal. This is frustrating for private bankers.”
Cultural difference in the way investment bankers and wealth managers work with clients can also cause strained relations. “Private bankers look to build long-term partnerships, while i-bankers tend to see clients from a short-term deal perspective – they work on executing flows and finding the next big deal,” says Gupta from McLagan. “If the client is not worth their time, no matter how hard the private banker tries, the deal won’t happen. Private bankers should be careful to ensure that i-bankers don’t disrupt their relationships or the ‘image’ of the private bank.”
When cross-department collaboration breaks down, it’s largely because each party is too focused on achieving their own targets rather than helping the client with their business objectives, says Liu Sanli, practice lead, private banking, at CA Search in Singapore. “Because of this many banks have not achieved true collaboration between IBD and private banking,” he adds.
The biggest obstacle for private bankers is a fear of losing control over their client relationships if they buy too many investment banking products, says Gupta. “But smart relationship managers realise that if they don’t provide IB access, clients will go to another bank and they will lose their market reputation for providing holistic solutions. Some banks have tried to resolve the ‘what’s in it for me?’ issue by developing incentive structures for RMs for cross referrals.”