Temasek PolytechnIc - School of nformatIcs E T

COkE FINANCIAL 8bSINESSES

Iop|c 10: Fr|vote 8onk|ng
Temasek PolytechnIc - School of nformatIcs E T
Leorn|ng Object|ves
By the end of the lecture students will be able to
Client Value Management (CVM)
Describe the steps involved in CVM.
Understand how private banks can boost profits with
effective CVM process.
nvestment Advisory Process
Describe four stages of an investment advisory process.
Understand the types of investment mandates.
Technology
dentify the myths of online private banking
Understand the role of technology in private banking
Temasek PolytechnIc - School of nformatIcs E T
CIient VaIue Management
Also known as Customer Relationship Management
Process of effective client management to boost profits
may involve use of targeted databases, statistics and own
business knowledge
Concept of client lifetime value
must consider both tangible and intangible factors
tangible factors: current networth, age, duration of relationship
etc
ntangible factors: potential networth, family relationships,
business contacts etc
Temasek PolytechnIc - School of nformatIcs E T
CIient VaIue Management
Three steps process
CIient
Acquisition
Temasek PolytechnIc - School of nformatIcs E T
$tep 1: CIient Acquisition
Solicit for new profitable clients
Process is expensive and time consuming
Referral: ntroduction of new clients by existing clients, staff,
other business units within same bank or intermediaries.
Research shows that cost of a referral is 35% cheaper than non
referral.
CIient VaIue Management
Temasek PolytechnIc - School of nformatIcs E T
CIient VaIue Management
$tep 1: CIient Acquisition
New clients can be solicited through six different channels
Referring friends
Referring family
Referring work colleagues
isting CIients
Advertising
Cold calling
Seminars
Event Sponsorship
Marketing & Promotion
Acquisitions
Alliances
Financial advisors
External asset managers
Lawyers
Accountants
ntermediaries
Staff of competitors
Own wealthy staff
$taff
Retail banking
Corporate banking
nvestment banking
Stockbroking
nternaI referraIs
Prospective
Customers
Temasek PolytechnIc - School of nformatIcs E T
CIient VaIue Management
$tep 2: CIient DeveIopment
Build customer loyalty
Offer lower price / fees on some products or services to reward
clients
Offer gift related rewards
dentify cross-selling opportunities
Cross-selling: Selling of additional products or services to
existing clients.
Manage unprofitable clients effectively
ncrease minimum investment thresholds or charged higher
prices
Exercise care to avoid potential reputational damage
Temasek PolytechnIc - School of nformatIcs E T
CIient VaIue Management
$tep 3: CIient Retention
Top three reasons for leaving relationship managers
Dissatisfaction with service
Poor investment advice
Poor investment performance
How can banks strengthen ties?
Set up a systematic process to register and revolve complaints
mplement an early warning system eg high cash outflows, low
transaction volumes
ncrease focus on profitable or high risk clients
Temasek PolytechnIc - School of nformatIcs E T
The Advisory Process
Four stages of an advisory process
6||ent &
|nvestment
Adv|sor
8tage 1
6||ent Prof|||ng
8tage 2: |nvestment
proposa| & 8o|ut|on
8tage 3Agreement
& |mp|ementat|on
8tage 4Rev|ew
Temasek PolytechnIc - School of nformatIcs E T
The Advisory Process
$tage 1: CIient profiIing
Advisor gathers information of client's existing wealth and access client's
risk appetite and tolerance level.
Client covey his expectations and preferences (eg amount of returns
expected, investment time frame and type of investments to include or
exclude).
$tage 2: nvestment proposaI and soIution
Advisor proposes an asset allocation strategy based on client's risk
profile.
nvolves an investment specialist to perform risk analysis and simulating
different investment scenarios.
Temasek PolytechnIc - School of nformatIcs E T
The Advisory Process
$tage 3: Agreement & impIementation
Advisor consults client on solutions presented. A portfolio is then
constructed based on client's decision.
Advisor will monitor client's portfolio to ensure investments do not deviate
from the prescribed asset allocation.
$tage 4: Review
Advisor performs periodic review on client's risk and preferences.
Advisor monitors portfolio to ensure long term goals will me met and make
adjustments to portfolio when necessary.
Temasek PolytechnIc - School of nformatIcs E T
nvestment Mandates
Type of investment mandates
1. Pure Custodian
Asset safekeeping, income collection, fund disbursement
and reporting.
2. ecution-onIy Mandate
Execute or select brokers to execute investment transactions
behalf of clients.
Temasek PolytechnIc - School of nformatIcs E T
nvestment Mandates
Type of investment mandates
3. Advisory Mandate
A relationship manager (RM) provides investment advice.
Client makes own buying / selling decision.
RM earns commission based on transactions plus custody fees.
4. _____________________
n addition to provide investment advice, RM has sole authority to
manage client's portfolio (ie to make buy and sell decisions)
Temasek PolytechnIc - School of nformatIcs E T
RoIe of TechnoIogy
Phillip's On-line Electronic Mart System (POEMS) http://www.poems.com.sg
Temasek PolytechnIc - School of nformatIcs E T
RoIe of TechnoIogy
Myths of OnIine Private Banking
1. Not sufficientIy savvy for onIine banking
$hare of nvestors Who Are Active OnIine
42%
24%
9%
51%
30%
16%
54%
33%
22%
0%
10%
20%
30%
40%
50%
60%
ave Broadband at ome Visit FinanciaI $ervice
Provider $ites
Trade OnIine
<$100k $100k - $1mil >$1mil
Temasek PolytechnIc - School of nformatIcs E T
RoIe of TechnoIogy
Myths of OnIine Private Banking
2. Products and services can onIy be distributed through
face-face meetings and phone caIIs due to:
High level of customization and personal service
Complex financial situations
Low frequency of transactions (not cost efficient to maintain)
Banks should offer all possible channels (including online).
Clients can choose different channels based on own
preferences.
Temasek PolytechnIc - School of nformatIcs E T
RoIe of TechnoIogy
Myths of OnIine Private Banking
3. CIients wiII not fuIIy adopt internet channeI due to
concerns about security and confidentiaIity.
High-net worth clients are targets of identity theft and online
frauds
However, internet channel usually used in conjunction with
communications with RMs.
Private banks are developing more advance functionality to
tackle online security threats.
Educate clients on security measures.
Temasek PolytechnIc - School of nformatIcs E T
RoIe of TechnoIogy
Myths of OnIine Private Banking
4. OnIine banking provides more transparency to cIients
but private banks do not benefit from it.
Survey* shows that advisors who encourages online usage
has 11% more clients, 50% more assets under management
and 38% higher annual revenue.
5. mpIementation of onIine channeIs is epensive and
private banks cannot pass cost to cIients.
Many "off the shelves softwares are available which do not
require intense customization.