Faculteit Bedrijfskunde Rijksuniversiteit Groningen Auteur: Wolter Bentinck Studentnummer: 1134485 1
ebegeleider: Mr. Drs. Ritsema 2
ebegeleider: Drs. Stek
Providing ultra service to the ultra wealthy
Management Summary 5
Chapter 1: Introduction 11
1.1 Fortis Private Banking 11
1.2 Services 12
1.3 The Private Banking Service Offering 12
1.4 Organizational Structure 14
1.5 The Asian Wealth Management Market 15
1.6 Competition 15
1.7 Clients 16
1.8 Current Issues 17
Chapter 2: Research Design 18
2.1 Introduction 18
2.2 Reasons for the research 18
2.3 Problem Definition 18
2.3.1 Research Objective 19
2.3.2 Research Questions 19
2.3.3 Definitions 19
2.3.4 Limiting Conditions 19
2.4 Sub-Questions 19
2.5 Conceptual Model 21
2.6 Methodology 22
Chapter 3: Theoretical Framework 23
3.1 Introduction 23
3.2 Strategy Design 23
3.3 Analyzing Customer, Corporation & Competition 25
3.3.1 Interpretations of Kotlers’ Dimensions 27
Chapter 4: Customers 29
4.1 Introduction 29
4.2 Characteristics of UHNWI’s 29
4.2.1 “New Money” vs. “Old Money” 29
4.2.2 Asia vs. Europe & America 30
4.2.3 HNWI vs. UHNWI 31
4.2.4 Customer Acquisition 32
4.3 Customer Loyaltyand Customer Retention 33
4.3.1 UNHWI Questionnaire 33
4.4 Conclusions 39
4.5 Implications 41
3
Chapter 5: Corporation 42
5.1 Introduction 42
5.2 Product Differentiation 42
5.2.1 Business Features 42
5.2.2 Non-Bunsiness Features 43
5.3 Performance Quality 43
5.4 Services Differentiation 43
5.5 Personnel Differentiation 44
5.6 Channel Differentiation 45
5.7 Image Differentiation 45
5.8 Price Differentiation 46
5.9 Conclusions 46
Chapter 6: Competition 47
6.1 Introduction 47
6.2 Interview Outcomes 47
6.2.1 Product Differentiation 47
6.2.2 Services Differentiation 48
6.2.3 Personnel Differentiation 49
6.2.4 Channel Differentiation 49
6.2.5 Image Differentiation 50
6.2.6 Price Differentiation 50
6.3 Conclusions 50
Chapter 7: Conclusions 52
7.1 Product Differentiation – Business Features 52
7.2 Product Differentiation – Non-Business Features 53
7.3 Performance Quality 53
7.4 Services Differentiation – Customer Training 54
7.5 Services Differentiation – Staff 55
7.6 Channel Differentiation 55
7.7 Image Differentiation 56
7.8 Price Differentiation 57
7.9 The Strategic Triangle 58
Chapter 8: Recommendations 60
8.1 Introduction 60
8.2 Value Factors 60
8.3 The Client Valuation Scorecard 62
Bibliography 65
Appendix 67
I) UHNWI-questionnaire
Preface
Those who know when they have enough are rich.
Confucius
This report is the result of an 8-month internship at Fortis Private Banking in Hong Kong. It deals with the quest for a strategy that will win the favor of the richest of the richest, the elusive ultra high net worth individuals. Writing this report has been an interesting journey in itself. It has shown me sides of myself I didn’t know I had, and it has learned me more than I could have ever imagined. It’s been the trip of a lifetime.
A trip that wouldn’t have been possible without my great colleagues from Fortis in Hong Kong. Thank you, for being great hosts and teachers. I would especially like to thank Lodewijk Lamaison for giving me this chance in the first place and I would like to thank him for his patience and his guidance.
Next, I would like to thank my parents who made this possible for me. Thank you for pushing me and helping me reach my goals. Thank you for always being there for me.
Finally I would like to thank some people who have helped me with my report with their insights and expertise. Mr. Ritsema, for putting me back on the right track. Mr. Stek for his help when I got lost in my own research.
Last but not least; Kiek, I couldn’t have done it without you.
M’goi Sai!!
Wolter Bentinck
20
thof august, 2007
5
Management Summary
Asia Pacific is the fastest growing wealth management market in the world. Competition for wealthy clients has become fierce. Fortis Private banking is not found in the higher performing ranks within the top segment of the market, the UHNWI (Ultra High Net Worth Individual) – client segment. Fortis now wants to tap into that valuable and growing group of clients and expand the current UHNW-client base. Therefore, this research wants to supply Fortis Private Banking Asia with a practical strategy that can be used to create a superior service offering in order to capture and retain these clients.
In order to reach this objective, a situational analysis based on the descriptions of Kenichi’s Ohmea’s three C model has been conducted. This analysis provides answers to the following questions:
1) What do UHNWI’s expect from a bank?
2) To what extent does Fortis have the capabilities to serve UHNWI’s?
3) What is the competition doing to fulfill UHNWI’s wants and needs?
Customer, Company and Competition are analyzed and used to create a comprehensive strategy. In turn, the three C’s will be critically analyzed using Kotlers differentiation dimensions.
C1 - Customers
Before analyzing the clients’ attitude towards specific private banking products we will delve further into the characteristics of wealthy individuals. Literature research shows the diversity of the group.
Although on the surface there seem to be a lot of similarities, different attitudes between “new money” and their “old money” counterparts are compelling. Old money millionaires are more conservative and have a more long-term perspective when dealing with their investments.
New money millionaires seem to be more risk taking and interested in gaining their net worth instead of preserving their wealth in the long run. New money millionaires also demand more sophisticated services and products.
Certain subtle differences come to light when comparing European and American private banking clients to Asian clients. In a nutshell, Asian clients demand a global service, they like to be involved in managing their money, and they want short-term profits. They are more secretive about their money and are more labor intensive. They also like to try new things and are very knowledgeable.
When looking at the differences between HNWI’s and UHNWI’s, UHNWI’s high demands to private banks come to light. They want to be able to create liquidity from their non-liquid wealth, they want tailored statements that can be integrated in their global financial position.
They also require ready access to specialist advisory services, such as international tax and legal specialists and experienced relationship managers that knows theirs needs and they want to be in contact with senior management. They want responsiveness and immediate access to information anytime, anywhere.
Survey
A survey has been conducted within the UHNW-population to uncover their motivations to
switch banks and the reasons to stay loyal to a bank. A questionnaire was set up based on
Kotlers differentiation variables. They have been translated in service/product characteristics.
Answers were scored on a 4-point Likert scale to ‘force’ respondents to make a choice and avoid receiving most answers in the middle range. There was a clear top three of clients’
needs and wants identifiable in the research. Firstly we can conclude that performance quality is the most important variable for this client group. UHNWI’s seem to be highly motivated by return on investment. Secondly we can conclude that clients want the highest possible level of service and the best possible products from their bank. Thirdly, the level of staff is very important to clients. They want experienced and senior relationship managers and specialists to handle their accounts.
Based on the literature research these outcomes aren’t very surprising, what is surprising though is the relatively high score awarded to channel differentiation. Channel differentiation was translated as Internet access in the questionnaire and clients interviewed showed they are moderately motivated to switch and stay loyal based on online possibilities.
Another interesting result was the disinterest of UHNW-clients in gifts, golf tournaments, trips and other perks that come with private banking.
C2 - Corporation
In this chapter the companies’ service offering is analyzed using Kotlers differentiation variables.
On the product side we can conclude that Fortis Private Banking is limited in the products it is offering that are especially designed for the UHNW-set. They do offer products that could be of special interest to these clients, like philanthropy services, but they don’t offer products that are specifically designed with the UHNW-client in mind.
Fortis Private Banking does not offer expensive gifts to their clients. They have their standard Fortis branded gifts that don’t represent a high financial value. They have strict compliance rules in place that forbid them to do otherwise.
Fortis has been performing better than its competitors over the last years. When comparing, Fortis’ performance to the industry benchmark they have been outperforming the competition in terms of return on investment.
In terms of customer training, Fortis leaves that up to the respective relationship managers. He has to decide whether a client needs or wants extra information or education on certain products. He will always be available to answer questions, but here is no formalized training scheme in place.
Fortis is struggling to recruit new talent and will have to do so to become more attractive to UHNWI’s. As these clients only want to deal with top-level staff this could prove to be a problem. Poaching to quality staff is an option, be it an expensive one. A more economic way to deal with this issue would be internally educating talented staff to deal with the special needs of UHNWI’s.
Fortis provides Internet access to their high tier customers. They can check their portfolio’s performance, find out market information and take advantage from financial information and investment research published by in-house specialists.
Concerning image differentiation, there is no specific marketing push towards UHNWI’s.
Fortis has a marketing campaign that covers all of their product offerings, from insurance to wholesale banking. Another marketing campaign is more specifically directed at (possible) private banking clients; “Time to listen, Capacity to act”. Again, this campaign is not directed at UHNWI’s specifically.
Fortis Private Banking is not cheaper than its competitors, they do however offer discounts to
UHNWI’s, but this doesn’t set them apart from the competition because they too offer these
discounts.
7 C3 - Competition
This chapter is dedicated to the competitions’ service offering. Interviews have been conducted with relationship managers of competing wealth management providers. They have been interviewed based on Kotlers’ differentiation variables.
Most of the banks interviewed offer specific products for UHNWI’s. They are based on the financial needs and wants of this special group. The products range from the possibility to set up family offices to special tax-issues relevant to very wealthy individuals that for instance have a lot of non-liquid wealth.
The competition has different opinions on offering gifts to clients. Some of the bankers interviewed state quite extravagant gifts (tickets for VIP seats at formula one races etc.) offered to their top clients. Others however don’t believe in the relevance of gifts, especially those that represent a high financial value and like to strengthen the personal relationship through more personal gifts.
When dealing with performance quality, results seem to differ considerably because of the bespoke portfolios UHNWI’s have and their difference in risk-appetite. The bankers unanimously underline the importance of senior bankers dealing with UHNW accounts.
In the delivery of services, time is said to be a very important factor when dealing with UHNWI’s. Their requests have top priority and are dealt with swiftly.
The outcomes concerning personnel differentiation were very consistent. UHNWI’s will want to deal solely with senior bankers. Having very senior and experienced bankers among the staff is imperative when a bank wants to have the slightest chance to reel in clients from the UHNW-category.
Concerning channel differentiation, particularly Internet access, seems to be unimportant to clients. Moreover, bankers prefer a direct rapport with their clients as to enhance their relationship with them.
The bankers interviewed anonymously agreed that image differentiation is an important subject. The image of a bank is particularly important for Asian clients; they prefer to do business with big name banks, especially the banks with an Asian heritage. These banks have a natural advantage in this region.
There seems to be no room for price differentiation, the bankers agreed that a bank has to offer the lowest possible price to UHNWI’s, or the client would simply walk away.
Conclusions
In the concluding chapter, all Ohmae’s three c’s are compared based on the differentiation variables put forth by Kotler. These are analyzed and the implications of the combined fit will be described below.
Product differentiation features - Business
Fortis private banking seems to be lagging in the case of providing adequate services and
product for UHNWI’s. There doesn’t seem to be a specific focus towards creating services
and products for this particular group. It is a very important differentiation factor to
UHNWI’s and one of the leading factors to switch and stay loyal to a bank. If Fortis wants to
solidify their position as an attractive alternative within the various private banking offerings
that are out there, it will have to consider investing heavily in creating tailored products and
services for UHNWI’s. Their current offering is far from sufficient when considering the
alternatives available.
Product differentiation features - Non-Business
“Non-business features” (gifts etc.) seems to be a differentiation variable that is risky to invest in. The current offering of non-business features is not even close to what some of the competition is offering. The results of the UHNW-questionnaire show the low interest in these services from a client perspective. They will not increase loyalty and won’t seduce clients to switch. This, combined with the legal tightrope that will have to be balanced, makes it an uninteresting differentiation variable to examine further.
Performance Quality
Performance quality was the highest scoring variable in the UHNWI-survey, and that was to be expected. The clients are very sensitive to the performance of their portfolio and they would bring their portfolio elsewhere if the return is better. As Fortis’ performance has been above the company benchmark, this is something the bank should stress to their prospective clients and their current clients, because this is their main motivation to switch and stay loyal.
Service Differentiation – Customer Training
When focusing on UHNWI’s a focus on teaching your clients on the possibilities and products available within the bank doesn’t seem very effective. Both the competition and the clients themselves underline the lack of interest for this. Investing in this differentiation variable doesn’t seem to be a wise decision. The current manner of operating employed by Fortis seems to be adequate. A relationship manager should be updated regularly about new products available and educated on the possibilities they could represent for clients.
Service Differentiation – Staff
The differentiation of staff could pose a problem for Fortis. The importance of employing senior and experienced bankers is underlined by the competition as well as the interviewed customers. To attract more of these clients, the number of senior bankers will have to be increased and Fortis is currently struggling to attract high quality personnel because of their scarcity and their tendency to join big name banks. Fortis could poach personnel from the competition but this is a very costly operation. A cheaper option would be upgrading internal staff to make them more suitable to deal with UHNWI’s. This is something that Fortis is not offering to their staff as yet.
Channel Differentiation
Fortis can be considered at the forefront of the digitalization of private banking. They are one of the only banks that provide this service to their clients. As of now, clients seem to be indifferent to the availability of internet access to their portfolios, this might change in the near future now that internet is demanding a more important role in society. Nevertheless there isn’t a high demand for the service and it won’t persuade clients to switch banks.
Another factor mentioned by competing bankers that should be taken into account is the notion that a more personal approach can increase loyalty towards the bank and volume of business.
Image Differentiation
When investigating the Asian market, the competitor’s interviews show that Asian UHNWI’s
like to do business with banks with an Asian heritage. The client interviews show that clients
are not influenced much by the image of a bank. It has to be said that the interviewees were
predominantly European and might not give a realistic representation of the motivations of
Asian clients. Nevertheless, Fortis doesn’t have an Asian heritage and that is a fact that is not
9 going to change in the near future, unless the bank decides to merge with an Asian
competitor. Investing in changing the image of the bank is therefore not advisable.
Price Differentiation
It seems there is no room for price differentiation within the wealth management market.
Banks offer their products for the lowest possible price, and if they don’t clients will take their business somewhere else. The client-survey showed a contrasting result. They don’t seem to bother about pricing, and they are not especially loyal based on low pricing. The in discrepancy could be explained by the minimal pricing employed by the majority of the private banks what leads to a small difference in price.
When putting all of this together we can conclude that Fortis should increase the level of both their products/services and staff, if they would like to retain and expand their current UNHWI-client base. To reach a level that a client would consider employing Fortis as their wealth management provider they will have to start offering UNHWI-specific products and will have to employ relationship managers and specialist that can offer the clients the high level of service they demand.
To differentiate the Fortis service offering, the leading role in e-banking should be further
developed. Fortis is already on the forefront of the digitalization of wealth management and
should increase its attention towards this underestimated differentiation variable. It could
increase loyalty through higher switching costs and it will be attractive to younger “new
money” millionaires that are more digitally able. These clients are interesting because of their
higher risk appetite (and thus higher profitability) and the increased possibility of long lasting
relationships to reap this high relative value. This direction is especially interesting for the
Asian market as research shows that Asian private banking clients are always willing to try
new things and want the newest technologies available. The constant lack of time of
UHNWI’s is also a reason that could make this option attractive, because well-streamlined e-
banking options could make their operations run more efficient.
11
Chapter 1: Introduction
§ 1.1 Fortis Private Banking
What people now refer to as Fortis Private Banking in Asia, was known as Fortis MeesPierson private Banking up to a year ago. The story of this bank is as interesting as it is old. MeesPierson has been active in financial services for the last three centuries. The history of MeesPierson started in 1720, when Gregorius Mees set up as a broker of bills of exchange and insurance in Rotterdam. The name of the bank derives from the merger of the Bank Mees
& Hope (since 1720) and Pierson, Heldring & Pierson (since 1875).
Merchant banks
The precursors of MeesPierson were merchant banks avant la lettre. They financed international projects like the construction of the railroads in Canada and infrastructural works in Russia during the rule of the Romanovs. They mediated the acquisition of the Louisiana Territory by the young United States from the French government in 1804, and organized the funding of this biggest transaction of land in history.
Next to that the preambles of MeesPierson introduced foreign stocks on the Dutch stock market, and provided foreign loans. The specialties were private wealth management or trust- business, financing and arbitration on different stock markets.
Private banking
In 1975 Pierson, Heldring & Pierson became a full daughter of the Amro Bank and Bank Mees & Hope became a daughter of the ABN. Three years after the merger of ABN & Amro, the daughters followed and the name MeesPierson was first introduced.
In 1997 MeesPierson was acquired by Fortis. Fortis included other well-known names in private banking like the Belgian Generale Bank and the de Swiss-based Gestion et de Banque Gonet, after that the Banque Générale du Luxembourg and the Spanish Beta Capital followed.
With all these new factors, the top ten position in private banking in Europe was ensured.
In 2002, when the Intertrust Group was acquired, MeesPierson (that was later named Fortis Private Banking) has become the leading trust services company of Europe. Today, nearly 300 years later, Fortis Private Banking has offices in 17 countries worldwide and manages assets of around 50 billion euros. Today there are 40 Private Banking Centers, 24 Trust Offices and 100 Business Centers. It first operated under the brand name MeesPierson, the Private Bankers of Fortis and the Trust & Corporate services operates under the brand name of MeesPierson Intertrust. Since 2006 most the offices have been rebranded to Fortis Private Banking.
121
http://www.meespierson-asia.com/l2aboutus_history.html
2
Schakel tussen verleden en toekomst. J.P.B. Jinker. MeesPierson, 1997
Fortis Private Banking Asia
Fortis Private Banking started operating in Asia in 1988. Asia is divided into two areas; North Asia which comprises Hong Kong, the Philippines, Taiwan and India and is headed from Hong Kong. South Asia on the other hand is headed from Singapore and comprises Thailand, Malaysia, Indonesia and of course Singapore. The major booking center is located in Singapore because of several reasons: the political stability, a secrecy code comparable to that of Switzerland and attractive tax-incentives.
§ 1.2 Services
Fortis Private Banking offers a wide range of services to their clients; the following are the main services they provide:
• Investments – Not only do investments cover equities, bonds and cash instruments but also alternative asset classes such as hedge funds, private equity and structured products.
• Structuring & Trust – Specialists have in-depth knowledge in international estate planning and asset protection. By devising legal and fiscal structures they can help protect their clients’ assets.
• International corporate management services – In addition to the set-up and formation of legal entities and financial vehicles, Fortis Private Banking can also take care of the maintenance and management of such companies (i.e. providing a director, a secretary, corporate administration services etc.)
• Financing – Fortis Private Banking also offers loans for various purposes.
• Financial engineering – Fortis Private Banking specialists can advice and structure deals, from the purchase and sale of companies to private structured financing schemes.
• Commercial banking – Next to private banking, there is also the possibility of Commercial Banking within the Fortis Private Banking service offering. These commercial banks are staffed by relationship managers that help the client. This means that all clients interact with a single person for all their banking needs.
Within Fortis Private Banking the organization is divided in two parts that have different responsibilities; Fortis Private Banking and Intertrust. Fortis Private Banking takes care of investments and financing. Intertrust takes care of structuring and management of trusts and other assets/companies.
§ 1.3 The private banking service offering
Because this research is focused on private banking a short explanation will be given of how private banking works at Fortis Private Banking Asia. There will be a specific focus on the private banking department as opposed to the foregoing paragraph that includes Intertrusts’
services also.
13 There are three types of service-products that are offered by Fortis Private Banking;
1. Custody/Deposit Accounts
Custody/deposit accounts can be opened when a client invests a minimum of US$ 1 million. It is the most basic service offered at Fortis Private Banking. It is up to the client to come up with a desired portfolio and the amount of risk the client is willing to take. Fortis Private Banking will act on the investors’ instructions, but will refrain from providing any kind of investment advice. The clients have to judge for themselves if the desired investment is a sound one. The advantage of this stripped service offering is the relatively low fee 0.2% per annum.
2. Advisory Accounts
An advisory account is the middle tier in the service offering provided by Fortis Private Banking. They too can be opened when a client invests a minimum of US$ 1 million. It boasts personal portfolio advice, which entails a more interacted portfolio allocation.
- Twice a year an in-depth analysis will be made of a clients’ investor profile, asset allocation, geographic/sector allocation resulting in a tailor made investment advice.
- On a regular basis the client will receive investment data in manageable proportions filtered to his needs.
The fee for this type of service is 0.6% per annum.
3. Discretionary Accounts
There are three different types of discretionary accounts offered at Fortis Private Banking, and they are fully serviced investment portfolios. When opening an account, the account manager and the client will sit down and create an investor profile. They will assess the personal situation of the investor and devise a portfolio accordingly. They will analyze the financial goals of the client, the clients experience in the stock market, the risk a client is willing to accept and the time horizon a client would wish to assess the performance of his investment portfolio. Based on this analysis, a portfolio can be set up and a relationship manager can start managing the account according to the clients’ demands.
- Private Fund Management (minimum invested amount USD 250K)
This product aligns investment policy according to one of the standard investor profiles. The minimum invested amount is relatively low because of the possibility to pool investors. This also results in a lower fee of 0.65% per annum.
- Classic Discretionary Management (minimum invested amount USD 1 Mill.) Classic discretionary management also uses the standard investor profiles, but uses other products that make the service more tailor-made than Private Fund management. The charged fee is 1.0% per annum.
- Specific Discretionary Management (minimum invested amount USD 3.5 Mill.)
This product is totally tailor-made; the client receives a totally bespoke portfolio. Fortis Private Banking will create a specific investor profile. Fee is 1% per annum.
Next to the yearly fees, the investor is also liable to fees per transaction. Equity transaction
fees add up to 1% of the total amount of equity acquired. Bond spreads cost 0.3% (<3 year
bonds) or 0.5% (long term) of the acquired amount.
§ 1.4 Organizational structure
The organizational diagram below gives an idea of the sheer enormity of the Fortis Group.
Private Banking is only a small part of Fortis Group’s vast array of services. Not only is Fortis Group able to facilitate roughly every service in banking and insurance, they will be able to provide that service almost everywhere around the world. The focus on Asia is considerate and planned growth indicates the increased emphasis on this part of the globe. Asia is now commonly accepted as a growth market and Fortis has anticipated this and is making strides, especially in Mainland China. The Shanghai office is prepared for the increasingly liberalized banking legislation in this very promising area.
Retail Banking
Commercial
& Private Banking
Merchant Banking
Insurance Belgium
Insurance Europe
Insurance International
Fortis Group
PB Taipei PB
Indonesia PB
Hong Kong PB
Singapore
PB Region 3
Asia
PB Region 4 Luxembourg
Switzerland Guernsey
Poland Middle East PB
Region 2 Belgium
UK The Netherlands Scandinavia PB
Region 1 France
Spain Portugal
Italy
PB Shanghai
Fig. 1 Organizational Diagram
15
§ 1.5 The Asian wealth management market
The clients Fortis Private Banking Asia is dealing with, the High Net Worth Individuals (+1 Million USD) seem to be abundant and growing fast. In 2004, World Wealth Report 2004 stated that globally there are 8.3 million people that each held at least US$ 1 million in financial assets, HNWI wealth totaled US$ 30.8 trillion, a number that is steadily increasing year after year. In 2004, 2.7 million of these individuals lived in the Asia-Pacific region.
Singapore (22.4%), South Africa (21.6%) and Hong Kong (18.8%) witnessed the highest increase in HNWI growth in 2004.
Cap Gemini and Merrill Lynch expect HNWI financial wealth to reach US$ 42.2 trillion by 2009, growing annually with a rate of 6.5%.
3On a less positive note, it hasn’t been going well everywhere, all the time. In Hong Kong for instance, there was fluctuating macroeconomic performance in key factors for the Hong Kong Wealth market in a recent five year period (slow GDP growth, Hong Kong Exchange fluctuation due to the tech crash, record levels of unemployment).
4Nevertheless, these factors seem to be rebounding or have at least stopped worsening.
Despite these worrying factors, the Hong Kong wealth market hasn’t stopped growing. The number of millionaires in HK has increased from 54,700 in 1999 to 74,000 in 2004. That is 1.1% of Hong Kong’s population.
§ 1.6 Competition
In January 2006, Euromoney published its annual private banking survey
5. Fortis Private Banking private banking is ranked 11
thbest private bank worldwide. This puts them above renowned brands in the banking industry like Deutsche Bank, BNP Paribas, ING and Morgan Stanley. The top three performers in private banking according to Euromoney are; UBS, Citigroup Private Bank and HSBC Private Bank.
Euromoney’s research also focuses on specific areas of private banking, including the 10 million plus and the 30 million plus client segments. When looking at this specific part of the business, Fortis doesn’t reach the top spots in any region. The top Asian performers for UHNWI’s in the $10M-30M tier are UBS (1), Citigroup Private Bank (2) and HSBC Private Bank (3). In the $30M+ tier UBS tops the list, followed by Citigroup Private Bank and Goldman Sachs. Deutsche Bank Private Wealth Management and Credit Suisse Private Banking are number four and five in both of the lists.
3
CapGemini Merill Lynch World Wealth Report 2005
4
Datamonitor Private Client Services in Hong Kong 2005
5
Euromoney, January 2006
Fig. 2 - Factors underlying wealth creation
Fig. 4 Fortis Private BankingClient Needs Pyramid
§ 1.7 Clients
As of now, Fortis Private Banking distinguishes two groups of clients. Group number one get a service called “private asset management (PAS)” and the other group gets a service that is called “private wealth management (PWM)”. Who gets what service is based on the level of investible assets. If a client invests over US$1 million, they will get the more tailored PWM service. If a client invests under that amount they will get a more standardized service offering (PAS) and they will be charged management fees.
Within these groups, the clients are far from homogenous. Because every client has different needs and priorities they have to be treated differently. Fortis Private Banking uses a needs pyramid which comprises five levels of customer needs
6. It can be used to help ascertain the unique needs-structure of every client, based on five “primary” needs. This basic pyramid is the starting point when offering private wealth management services to clients.
At the base of the pyramid are client needs relating to wealth protection and transfer to the next generation. Above this is the need to generate
income. This is followed by capital growth considerations. The next level deals with investments in private equity or in personal interests such as yachts. The top of the pyramid is formed by the desire to express social values and investments in art and culture.
All of this translates into the portfolio of clients, and how their assets are invested. Depending on their investment profile, assets will be differently allocated. More conservative investors will have relatively more bonds in their portfolio; bonds are safe investments, but yield relatively low returns.
An investor that is focused on asset growth will have more of their assets invested in equities, which are more volatile (and as such, constitute a higher risk) in nature but can translate in higher returns.
6
MeesPierson, A Structured Approach to matching Clients’ Needs & Solutions, 2002
HIGH NET WORTH II ($10M-$30M) ULTRA HIGH NET WORTH ($30M+)
UBS UBS
Citigroup Private Bank Citigroup Private Bank
HSBC Private Bank Goldman Sachs
Deutsche Bank Private Wealth Management Deutsche Bank Private Wealth Management Credit Suisse Private Banking Credit Suisse Private Banking
Fig. 3 Asian Private Banking rating according to Euromoney
17
§ 1.8 Current issues
Fortis Private Banking Asia is currently in a very tumultuous internal environment and is characterized by uncertainty.
Because of the acquisition of MeesPierson by Fortis, the future structure is still unclear. This will all be devised by Fortis and what exactly MeesPierson is going to look like in the near future is still largely unknown. Currently Fortis is working on integrating MeesPierson in their banking division.
Being part of Fortis means that MeesPierson has recently changed its name to Fortis Private Banking.
Also, Fortis Private Banking has recently merged with brokerage firm Dryden. This process brings several issues along because of the differences between the two companies. For one, the clients of Dryden have very different characteristics compared to the typical Fortis client.
Contrary to Dryden, Fortis Private Banking is much more long-term oriented and focused on
long lasting relationships with their clients. To facilitate a smooth integration, management
consulting firm McKinsey & Company has been hired to advise on the issues concerning the
merging of the two companies.
Chapter 2 - Research Design
§ 2.1 Introduction
In this chapter there will be a short explanation of the reason for this research. With that in mind a problem definition will be set up. Within the problem definition the objective of the research and the main question will be explained. From these a set of sub questions will be derived that form the basis of the conceptual model, a visualization of the “road” to the answer. The following research model will explain the route that will be followed to reach the answer of the research question.
§ 2.2 Reason for the research
The last couple of years the competition in Asian wealth management has intensified considerably. The growth in competition is closely related to the obvious growth in wealth in this area
7. Asia-Pacific is the fastest-growing wealth management market in the world.
8As described in chapter one, there is a big increase in high net worth individuals (HNWI’s) throughout the Asian continent and analysts agree that this growth will probably only increase in the future. The worldwide banking community has reacted to this by offering their wealth management services to the Asian market, including Fortis Private Banking.
Within the vast group of HNWI’s, there is the most money to be made on the wealthiest of this group; the ultra-HNWI’s (investors who hold more than US$10 million in financial assets). They are a very important asset to the bank. Although they are small in number they represent a considerable asset in terms of revenue. On the other hand, investors that hold less than US$1 million are the least interesting revenue-wise for Fortis Private Banking.
Nevertheless, within Fortis Private Banking all of the clients are treated more or less the same. Ultra-HNWI’s hold no special privileges. There is no clear segmentation-strategy in place.
Fortis Private Banking would like to consolidate their current ultra-HNWI’s and would like to see this particular segment grow in the future. With the fierce competition that currently exists within wealth management in Asia, a specific tailored service offering based on a proper segmentation strategy might just make the difference.
§ 2.3 Problem definition
The problem definition consists of the research objective and the research question. The research question is derived from the objective of the research. Combined, the research objective and the research question state exactly what is being researched and why
9.
§ 2.3.1 Research Objective
The objective states for whom the research is carried out, what the result should be and why this result is important.
10It states the relevance of the research.
7
CapGemini World Wealth Report 2005
8
Businessweek, Wealth Management: The search for alternatives gathers pace, 2004
9
Verschuren, 1999
10
Leeuw, A.C.J. de, “ Bedrijfskundige Methodologie, Management van onderzoek”, Assen: van Gorcum, 2001
19 Supplying Fortis Private Banking Asia with a practical strategy that can be used to create a superior service offering for UHNWI’s in order to capture and retain these clients.
§ 2.3.2 Research Question
The research question encompasses the knowledge required to answer the research objective.
The answer should help the organization make the right decisions concerning the approach of UHNWI’s.
What kind of service offering can Fortis Private Banking Asia offer to capture and retain UHNWI’s?
§ 2.3.3 Definitions
“Superior service offering” = A superior service offering is the standard service offering with added services that have yet to be determined. The added services could consist of extra attention, special rates and special gifts. It comprises anything that could win the favor of current customers and customers in the future.
“Fortis Private Banking Asia” = With Fortis Private Banking Asia, the private banking part of Fortis is meant, not Intertrust. Intertrust is not being researched in this thesis.
“Capture and retain” = Capturing is getting new clients, that open an account with Fortis Private Banking Asia. Retaining customers means that current clients keep their business at Fortis Private Banking Asia.
“UHNWI’s” = Ultra High Net Worth Customers, meaning that segment of the current client- base that have more than US$ 10 million assets under management.
§ 2.3.4 Limiting Conditions
To conduct a well-focused research, it is advised to set up limiting conditions. Limiting conditions are twofold. One the one hand there are product limitations; limitations regarding the result, on the other hand there are process limitations; limitations regarding the research process. They are the boundaries within which the research should be conducted.
Product limitations:
• The research will be limited to Fortis Private Banking Asia.
• The research will be focused on Fortis Private Banking.
• The research will be focused on UHNWI’s.
Process limitations:
• The research will be conducted within the boundaries set-up by the Faculty of Management and Organization, Rijksuniversiteit Groningen
§ 2.4 Sub-Questions
The sub-questions are required to answer the research question in a structured way.
In an increasingly competitive market, Fortis Private Banking wants to have a differentiated service offering for a segmented group of ultra high net value individuals. Through the next sub-questions there will be an attempt to devise a concrete strategy that can do just that. Also, there will be considerable attention to the implementation of this strategy.
The sub-questions are based on the three c’s of the strategic triangle of Kenichi Ohmae
11. The core of the strategic triangle consists of three forces; the corporation, the customer and the competition. The strategic triangle can be used as source of insights for the strategic thinker faced with the challenge of devising ways in which the company can differentiate itself effectively from its competitors, capitalizing on its distinctive strengths to deliver better value to its customers. Strategy must then be defined in terms of these three as “an endeavor by a corporation to differentiate itself positively from its competitors, using its relative corporate strengths to better satisfy customer needs
12”. As this is one of the goals in this research, there will be a focus on the three c’s; customers, competition and company and the way Ohmae deals with them. Ohmea’s strategic triangle will be further elaborated upon in chapter three, the literature review.
Sub question 1; What do UHNW-customers expect from a private bank?
This sub question deals with the first “c” in this research; customers. As has been mentioned before, the UHNW-set is an interesting group for different reasons. When looking from the perspective of a private bank, it is obvious that the incredible buying power of an UHNWI can translate in big transactions. To win the favor of a customer, understanding him is crucial.
In this case it is paramount that customers’ expectations of a private banking provider are chartered.
There will be a focus on a broad set of variables that entail certain private banking services (such as products, return on investment and internet access) and research the importance of these factors to actual UHNWI’s. This will be done through a questionairre that is to be completed by a group of UHNWI’s. The questions asked are focused on what increases their customer loyalty (how can Fortis retain its customers) and what motivates UHNWI’s to
11
Ohmae, K. , “The mind of the strategist; The art of Japanese Business”, 1982, Mcgraw-Hill
12
Ohmae, K. , “The “strategic triangle” and business unit strategy”, 1983, McKinsey Quarterly
Fig. 5 : The Strategic Triangle
Customer
Competition
STRATEGY
Corporation
21 switch (how can Fortis attract customers). The questions are based on Kotlers theories on differentiation.
Sub question 2; To what extent does Fortis have the capabilities to serve UHNWI’s?
As mentioned before, Fortis Private Banking wants to enter the profitable niche of UHNWI’s.
When dealing with the second “C” in this research, corporation, it is relevant to find out what Fortis has to bring to the table with regard to UHNWI’s. To find out what that services Fortis have to offer, internal interviews with relationship managers will be undertaken. Also, internal reports will be explored.
Sub question 3; What is the competition doing to fulfill the UHNWI’s wants and needs?
In order to differentiate the service offering in a structured way, Kotler’s review of differentiation in his book Marketing Management (2005) will be used. Kotler states an array of facets of product differentiation that can also be used in this case, differentiation of a service offering. To find out the competitions’ stance on UHNWI’s, a set of interviews with relationship managers of competing wealth management firms in the area have been undertaken in order to uncover their specific offerings and their views on the best ways of dealing with UHNWI’s.
§ 2.5 Conceptual Model
As said in the previous segment, the main question will be answered by going through a couple of sub-questions. The conceptual model will demonstrate a schematic approach of how this process will be undertaken.
• Product Differentiation
• Service Differentiation
• Personnel Differentiation
• Image Differentiation
• Channel Differentiation
• Price Differentiation
• Clients wants and needs
• Company strengths and weaknesses
• Competitions strengths and weaknesses C1:
Customer
C2:
Company
UHNWI-STRATEGY Recommendations
• Internal papers, documents
• Interviews with staff
• Interviews with relationship managers
C3:
Competition
• Literature on UHNWI’s
• UHNWI- survey
Fig. 6 Conceptual Model
The three squares represent the sources of information that provide the input for the analysis of Customer, Company and Competition. The three circles represent these three C’s of Ohmea’s model and also the three sub-questions.
1) C1: What do UNHW-customers expect from a private bank?
2) C2: To what extent does Fortis have the capabilities to serve UNHWI’s?
3) C3: What is the competition doing to fulfill the UNHWI wants and needs?
To provide a structured way of analysis, customer, company and competition will be analyzed using the same variables (product-, service-, personnel-, image-, channel and price differentiation), illustrated in the dashed text box.
When the sub-questions are answered, the outcomes of the separate C’s will be compared to find out what options remain to design a fitting UHNWI-strategy. In the last phase of the research this strategy will be formulated.
§ 2.6 Methodology
Methodology is a way of having a critical view on research, research-results and the use of these results. Methodology secures a critical view on all processes of knowledge creation, the use of knowledge and also the quality of the knowledge itself.
§ 2.6.1 Type of research
The research is explorative; it will explore a relatively unknown domain in search of hypotheses. The conducted research should support management decisions. This implies that that this research will be used to create insight in an issue that is relevant for the decision making process of Fortis Private Banking Asia based on scientific research. What is essential for this kind of research is the concreteness of the results, which is usable for management and satisfies in a certain knowledge need.
13§ 2.6.2 Data collection
Different types of data collection methods will be used to find an answer to the research question. The data will consist of external and internal documents, academic literature and the internet. The rest of the information will be obtained through oral semi-structured interviews, because this is the best way to get an idea of people’s knowledge, attitudes and opinions.
1413
Leeuw, A.C.J. de, “Bedrijfskundige Methodologie, Management van onderzoek”, Assen: van Gorcum, 2001
14
Baarda, D.B. en Goede. M.P.M. de, Methoden en Technieken, Groningen: Stenfert Kroese, 1999
23
Fig. 8: The Strategic Triangle
STRATEGY Customer
Competition Corporation
Chapter 3 – Theoretical Framework
§ 3.1 Introduction
This chapter will deal with the theories used and the relevance they have for the research.
Each of the applied theories will be elaborated upon. First, Kenichi Ohmea’s strategic triangle will be discussed. Second, the differentiation of services of marketing guru Philip Kotler will be examined.
These two theories provide the basic framework for this research, the backbone if you may.
They will be used consequently in the following chapters to uncover the strengths and weaknesses of Fortis Private Banking concerning the UHNWI’s. These strengths and weaknesses are reviewed on three levels; customer, corporation and competition. Ohmea’s model is used to design a strategy and requires a comparison of these three; customers, the corporation and the competition. To effectively compare the three a consequent way of analysis is required to increase the validity of the results. To provide this constant way of analysis, every one of Ohmae’s three c’s are dealt with using the same differentiation variables, which are based on Kotlers theories on differentiation. In this chapter these two theories are dealt with in an in-depth fashion as to provide a clear view how this theoretical framework was constructed.
§ 3.2 Strategy Design
Throughout this research, the Strategic Triangle by the famous Japanese strategy guru Kenichi Ohmea will be used, it’s more or less the theoretical basis of this thesis. His landmark book, The mind of the strategist (1982), provided both a conceptual framework and practical advice on integrating the “three C's”—Customer, Competitor, and Company—in a strategic triangle that can sustain competitive advantage. When the three are compared, a strategy can be constructed.
The Strategic Triangle
When constructing a business strategy, these three components (the three C’s) must be taken
into account.
C1: The Corporation
At the level of the corporation, strategies need to be devised that are aimed at maximizing the corporation’s strengths compared to the competition in the areas that are vital to be successful in its industry.
• Selectivity and Sequencing
The corporation doesn’t have to excel in every function to be successful. If it can win in a certain key function, it will be able to improve its other less successful functions as well.
• Make or Buy
In case of increasing wage costs, it will become essential to subcontract a major share of its assembly operations. If the competition is not able to subcontract its assembly as fast as you can, the resulting difference in costs and the ability to deal with fluctuations in demand can mean a significant blow to the competition.
• Cost-effectiveness
Improving the cost-effectiveness can be done in three ways. First by reducing basic costs, second by exercising greater selectivity (orders accepted, products offered, functions performed) and third by sharing certain key functions with a corporation’s other businesses or even other companies.
C2: The Customer
Clients should be the essence of any strategy according to Ohmae. Therefore, the main goal should be the interest of the customer. In the long run, a company that is seriously interested in its customers will be interesting for its customers. Segmentation will help to understand the customer. The customers can be segmented in various ways;
• Segmenting by Objectives
When segmenting by objectives, the differentiation will be undertaken in terms of the different ways that different clients use a product.
• Segmenting by Customer Coverage
When segmenting by customer coverage a company makes a trade-off study of marketing costs versus market coverage. Generally, there appears to be a point of diminishing returns in the cost versus coverage relationship. The cooperation’s task is to optimize its range of market coverage, geographical and/or channel wise.
• Segmenting the Market Once More
When there is fierce competition, the competitors are likely to dissect the market in comparable ways. Over an extended period of time, the usefulness of a given primary strategic segmentation will tend to decline. In these situations it is useful to pick a small group of customers and re-examine what it is that they are really looking for.
A market segment change occurs where the market forces are changing the distribution of the user-mix over time by influencing demography, distribution channels, customer size, etc. This kind of change means that the allocation of corporate resources must be shifted and/ or the absolute level of resources committed in the business must be changed.
C3: The Competitors
Competitor based strategies are constructed by exploring sources of differentiation in
functions such as: purchasing, design, engineering, sales and servicing. The following aspects
show different possibilities in order to achieve this differentiation:
25
• Power of Image
When product performance and mode of distribution are very difficult to distinguish, image can be the only source of positive differentiation.
• Capitalizing on Profit- and Cost Structure Differences
Firstly, the difference in source of profit might be exploited, from new product sales etc.
Secondly, a difference in the ratio of fixed cost and variable cost might also be exploited strategically. A company with lower fixed cost ratio can demand lower prices in a sluggish market and consequently gain market share.
• Hito-Kane-Mono
A popular phrase of Japanese business planners is hito-kane-mono, meaning people, money and things. They believe that streamlined corporate management is achieved when these three critical resources are in balance without surplus or waste. For example: Cash over and beyond what competent people can intelligently spend is wasted. Of the three critical resources, funds should be allocated last. The corporation should firstly allocate management talent, based on the available mono (things): plant, machinery, technology, process know-how and functional strength. Once these hito (people) have developed creative and imaginative ideas to capture the business’s upward potential, the kane (money) should be given to the specific ideas and programs generated by the individual managers
1516.
§ 3.3 Analyzing Customer, Corporation & Competition
Kotlers differentiation dimensions have proved to be a great way to analyze the three c’s that are the foundation of this research. When dealing with the first C, Customers, the differentiation dimensions are used as a basis to uncover client motivations to switch and their drivers of loyalty. When the differentiation dimensions are applied on the second C, Corporation, they are used as a framework to analyze the current offering to UHNWI’s. This method has also been used for the third C, Competition. The differentiation dimensions are the basis used for analyzing the competitions offerings.
Creating Competitive Advantage
The key to winning and keeping target customers is to understand their needs better than the competitors do and to deliver more value. To the extent that a company can position itself as providing superior value, it gains competitive advantage. A company should position itself as to deliver a superior products and services, and should also deliver on that promise. Thus, positioning starts with differentiating the company’s offering so that it will give consumers more value than competitors’ offers do. Differentiation is the act of designing a set of meaningful differences to distinguish the company’s offering from competitors’ offerings
17. Companies worldwide are constantly attempting to differentiate their offerings from the competition. When a differentiation strategy is successful, the competition often quickly reacts by copying the offering. Kotler provides some clarity in differentiation in his book Marketing Management. He gives five dimensions that can be used to differentiate a company’s market offering. I’ll state the parts that are relevant for the service industry, and more specifically, private banking.
15
Ohmea, K., “The Mind of the Strategist”, McGraw-Hill, 1982
16
Ohmea. K., “The “Strategic Triangle" and Business Unit Strategy”, McKinsey Quarterly; Winter 1983
17
