In many ways, the banking industry is under pressure. At the same time, private banking is an enormous source of risk-adjusted revenues. The issue is that relatively few private banking operations are achieving nearly the revenue levels possible.
Private banking is comprehensive wealth management, including lending, and can be extremely profitable for the bank. Concurrently, the demand for high-quality private banking services has never been greater. The number of prospective wealthy clients just continues to expand year after year. The expertise provided by private banking divisions is also very viable for middle-market commercial and real estate clients, as well as an array of other types of banking clients.
In researching private banks and the wealthy, the obstacles to greater success for these banking operations becomes clear. Some of the biggest hurdles include:
• Failing to leverage client relationships from other parts of the bank. In many banks, the bankers operate in their own silos. The mechanisms that foster introducing wealthy bank clients to private bankers are rarely present. Moreover, in a substantial number of banks, the compensation and organizational arrangements demotivate such referrals.
• Lacking the processes that enable the private bankers to maximize client relationships. Although many private banks have a very robust platform of products and services, few of these organizations have committed the resources to empower their private bankers to deliver multiple types of expertise to their wealthy clients. The ability to develop an in-depth understanding of clients and being able to connect services and products to needs and wants is essential though often missing.
• Failing to effectively position the private bank to the wealthy. Few private banks have taken the steps to powerfully brand themselves in the minds of the wealthy. Those private banks making an effort are usually taking a “me too” approach as opposed to becoming thought leaders. The most successful private banks are seen as authorities “pulling” prospective wealthy clients in.
While there is little doubt as to the tremendous revenue potential of private banking, it is also quite clear that this potential is rarely being attained. Based on extensive empirical studies of private banking operations over the years, very few of them are coming close to generating the returns that are possible.
The weaknesses of many private banks are far from insurmountable. There are various processes and methodologies that can be readily employed to significantly increase revenues per client as well as source new and wealthier clients.
Russ Alan Prince, president of R.A. Prince & Associates, is a consultant to family offices, the ultra-wealthy and select professionals.
