UBS and Credit Suisse have courted the richest of the rich for many years – it became an end in itself. Now, the signs are that a rethink is underway.
The two big Swiss banks have not been shy to show off their efforts to cater to super-rich clients, hoping to attract even more of what they claim is a lucrative business.
Despite the fact that in banking with demanding clients margins have taken a nosedive, investors were told that the UHNW segment was lucrative and more stable than other segments. The investment banks are depicted as providing a competitive advantage as seriously rich clients can use their infrastructure to make complex transactions.
Rather Belated Rethink
Still: the story as it was told by the banks didn’t convinced their shareholders. They seem to put a lower value on the big banks than on private banks such as Julius Baer and Vontobel, with its focus on the investment business.
The two Swiss wealth-management giants seem to have come around belatedly and now both simultaneously announced the launch of a push into the business with clients who have a little less money to invest.
UBS for instance pledged to serve clients with assets of $500,000 to $5 million in a faster and more targeted fashion – and no longer according to the classic high-net-worth approach. Credit Suisse will subsume the business with the not-so-rich in a sub-division. The banks say that this will help them respond better and more efficiently to demands in this segment.
Underused Resources
Two major areas of concern can be identified in the strategies and developments at the big banks, which prompted the repositioning. «Big banks realized that the focus on the UHNW business wasn’t enough to make successful and full use of their capacity,» said Robert Buess, financial services practice adviser at Oliver Wyman.
With the focus on the richest clients, the erosion of margins accelerated despite the higher volumes of net new money.
A Huge Legacy
The reason for this is a development, that is unpleasant news for the banks. The super-rich clients increasingly are using own networks for their transaction – leaving their bank aside, for which the investment bank thus becomes a hugely expensive disadvantage.
Josef Stadler, head of the UHNW business at UBS, made it plain in the autumn what he thought the problem was: the tightly regulated banks have become far to slow and cumbersome for the most demanding clients, those who wanted make investments in the private market. He added that suddenly, the bank had no business.
Mere Asset Service Providers
The identical strategies of UBS and Credit Suisse, providing the service of their investment banks for billionaires to make complex investments and deals isn’t working, because the flow of deals is simply too thin.
UBS and Credit Suisse are mainly used as asset service providers and custodians by the richest of their clients – and certainly not the one-stop-shop for holistic advice and complex investment plans.
Question is whether the focus of UBS and Credit Suisse on the rich and billionaires mainly serves as an excuse to maintain such big investment banks.
Neglected NHW-Clients
«Big banks have to markedly improve their private-market capabilities to become more important for this clientele and to increase their margins again,» says Buess. Both UBS and Credit Suisse have made an effort to this effect in 2019 – a move that came with a delay compared to rivals.
The other problem are less wealthy clients in the NHW- and affluent segments. They have been neglected and they have taken note, says the Oliver-Wyman adviser.
Investment advice geared toward own products that led to heavy losses in the financial crisis, never-ending restructuring and reorganization in an ever less personal advisory service caused dissatisfaction among this clientele.
Digital Services Free Up Resources
With their increasingly complex structures, Credit Suisse and UBS are ever less able to offer an advice to normal clients that is paying off.
More flexible and dynamic banks are using digital and standardized services for the less demanding clientele – and UBS and Credit Suisse are following suit. The latest initiatives show that the companies are trying to use digital services to improve their product in the mid-market segment.
Christine Novakovic, the head of Europe at UBS Wealth Management, said that clients with up to $5 million in assets belonged to the most important. In the past, these words were almost exclusively used to describe the super-rich. Today, the not-so-super-rich clients are to be taken care of as clients again.
