RELATIONSHIP MANAGER EFFICIENCYIncrease revenue without cost? There is such a thing as having your cake and eating it

White Paper

RM Efficiency2

It is perhaps no secret, that the private banking industry has been under margin pressure for the past few years. In a recent Orbium study1, 94% of C-Level participants believe that margin pressure will continue in the near term.

Wealth managers’ responses, show that banks were addressing margin pressure primarily through cost cutting and consolidation. Industry news in the recent past provide some examples of such measures:

• Scaling up to take advantage of cost synergies (e.g. UBP through the acquisition of Coutts2 or LGT’s purchase of ABN Amro3)

Increase revenue without additional cost? There is such as thing as having your cake and eating it...

• Outright cost cutting through headcount cuts (e.g. Credit Suisse4)

• Exiting selected local markets altogether (e.g. ANZ5, Barclays5).

However, in our C-Level Survey, we have also found that at least one third of respondents had cost income ratios greater than 80% and only 25% of respondents achieved around 60%, which helps demonstrate the limit of what cost cutting can achieve.

www.orbium.com 3

As markets are improving and major regulations have been implemented, the timing is right for a renewed focus on revenue growth.

We believe that profitable revenue growth may be a more effective way of addressing margin pressure in the industry. This is because there are still plenty of unexplored opportunities in the Front Office to increase revenue with limited investment required and limited increases in costs.

This contrasts with ever decreasing opportunities to cut costs further after the repeated cost cutting rounds over the last few years.

The Front Office has often suffered from benign neglect. Therefore, it is not surprising that we have found plenty of opportunities to drive revenues by improving the way the Front Office operates:

High level examples include:

• There is plenty of opportunity to drive additional revenue from the Front Office: often relationship managers (RMs) spend less than 50% of their time being client facing*. By reviewing existing processes, models, policies and pricing management this can be changed and improved.

• The emergence of new client segments (e.g. millennials, high net worth female investor, emerging market entrepreneurs) calls for new propositions & service models but also holds out the opportunity for profitable growth if a bank captures these segments early.

• There is further opportunity to drive revenue growth as a range of technological developments have opened up the opportunity to make existing RMs more efficient (serve more clients) but also more effective (convert more leads into sales).

19%

25%12%

44%

37%

19%

ROA 80bpsCI

R 60

%

High performers

Margin pressured

Gro

ss R

etur

n on

Ass

ets

(bps

)

Cost Income Ratio (in %)0

140

30% 100%

Today2020

Laggards

Poor cost controllers

19%

25%

PROFITABILITY ASSESSMENT(Positioning of participants)

A strict focus on costs is only one side of the margin equation and therefore can only go so far in reducing the cost-to-income ratio without starting to affect current or future revenues.

Unsurprisingly, the other lever to improve cost-to-income ratios is to grow revenues faster than costs.

A Focus On Revenue Growth May Be The New Path to Improved Industry Profitability

RM Efficiency4

Many wealth managers are ignoring these additional revenue enhancement options that exist and are far less costly than acquiring and integrating new RM’s. To unlock these opportunities, banks can consider:

• a review of a bank’s value proposition (“are we selling the right products and services to the right clients”)

• pricing optimisation (“are we pricing our services and products correctly and maximising revenues”)

• reviewing the RM model (“are RMs pre-occupied with internal tasks and what options exist for removing or reallocating some of these tasks”)

• evaluating sales effectiveness (“what makes RMs effective at selling and how can this be shared with other RMs”).

*Orbium industry research and experience

IN THIS PAPER WE FOCUS ON RM SALES EFFICIENCY

How do you ensure RMs bring in more Asset Under Management (AUM) per sale, gain greater share of wallet?

RM Sales Effectiveness

What drives discounts and how can they be reduced? How can we improve our pricing models and governance?

Pricing Optimisation

What activities can be moved to other roles and what activities can be simplified or are redundant?

RM Sales Efficiency

How do we make sure we are selling the right products and services, in the right way, for the right segments?

Proposition Optimisation

www.orbium.com 5

RM Efficiency6

Often banks do not manage their MOST PRECIOUS

resource sufficiently – RMs”

number of measures. These have immediate bottom line impacts, especially when RM targets are adjusted in line with their new capacity.

Increasing RM client facing time helps both reduce the cost of business (as redundant activities are cut or migrated to lower cost roles) and increase revenues (as additional time with clients or serving more clients translates into revenues).

quantify prioritiseidentify

Based on our previous work, we have devised a structured approach that allows us to quickly identify short term measures as well as build a roadmap for longer term strategic initiatives.

Identify MeasuresWe focus on RM activities and whilst a review of many front and middle office roles may yield opportunities to migrate activities to lower costs roles, in our experience a focus on RMs yields the biggest results.

We have compiled and validated a list of RM activities, which holds true in all jurisdictions. This list helps structure and focus the investigation and also serves as a basis for quantifying the findings. More on our quantitative approach in the next section.

For many Private Banks, RMs represent the biggest (human) cost of doing business (e.g. for the Top 3 Private Banks in Asia this averages out at approximately 37% of the total cost)6, though clearly a justified one. However, often efficiency and cost cutting measures focus on middle and back office roles and functions with little consideration of the Front Office.

Cutting headcount in the Front Office is certainly counterproductive but we have observed there is a lot of opportunities to improve RM Capacity or RM Sales Efficiency i.e. where RM Capacity is - how many clients an RM can serve (with no change to conversion ratios) and RM Sales Efficiency is how well an RM can convert clients into business (within a given time or how good are they at selling, as more experienced and better RMs can write larger tickets in the same amount of time as less experienced ones).

Over the last few years, driven by increasing regulatory requirements, additional activities were often pushed into the Front Office and became part of the RMs role (e.g. responding to multiple client data requests). Over time these activities have accumulated in a piecemeal fashion to the point that RMs had less and less time to spend with clients. On some engagements we have seen RMs only spending 20-25% of their time interacting with clients, directly impacting the quality of the relationship as well as the number of clients they can serve.

Example: Given that approximately 1/3 of total costs is RM remuneration, gaining a 5% improvement can improve the bank’s overall cost/income ratio by 1-2%

As industry research shows7, private banks have in the past achieved 50% of RM time to be client facing and hence should aim for at least the same as a strategic target. Banks can often experience at least increases of 5-10% in the short term8, through a

However, there is often a lot of subjectivity and a multiplicity of views that accompanies this topic. Hence a structured quantitative approach is needed to

www.orbium.com 7

Our approach integrates RM interviews, given that RM’s have the best sense of what non client facing activities take up most of their time. The list guides RM interviews and ensures that opportunities are scanned for comprehensiveness and areas the RM may not have considered are prompted. This approach also helps make findings comparable across RMs and gives a sense of which areas are most challenging for most if not all of the RM community.

Over time we have collated our experience of the different improvement opportunities into a repository, which together with the standard RM activity list guides our investigations and help us prompt ideas when needed and proceed at pace.

The majority of our findings tend to be related to either process improvements, technology related needs or the operating model at the bank.

Process – there are many processes that are redundant, can be simplified or could be undertaken

by other roles. Examples include data requests being compiled by other roles and only reviewed by RMs or annual reviews undertaken simultaneously to cover KYC, investments and credit reviews and on a relationship and not account level etc.

Technology – we have observed both short term measures as well as truly strategic initiatives that banks can undertake. Short term measures include those that can be addressed through minor modifications or change requests such as auto rollovers on credit facilities or ability to clone client data into product applications avoiding “rekeying” of client data. Cumulatively these small changes can have a big impact on RMs’ capacity. Medium term initiatives can include creating a small IT change budget which can be voted on and allocated on a quarterly basis thus creating a way for the Front Office to influence the development of platforms and lead to ongoing productivity improvements. Other strategic initiatives can include e-signatures, greater automation of LTV assessments for Lombard lending etc.

A Few Selected Activity Examples from the RM Activities List

RM Efficiency8

www.orbium.com 9

Quantify MeasuresIt is often challenging to assess improvement areas because RMs have differing levels of experience, outlooks and serve multiple customer segments who often have very different expectations of service level and support needs. We have also seen that responses by RMs can vary depending on which RM’s are interviewed and their loyalty to the bank.

In such environments, it is clear that objective measures are needed in order to:

• quantify the problem

• make it comparable across teams, locations

• challenge perceptions

• identify and prioritise areas that need investigation and investment

• measure & track the benefits realised.

With no objective measure, some of the findings may be dismissed as “moaning and complaining”.

We apply two solutions (A and B – see below). Using a simple survey, based on the standard list of RM activities, RM’s are asked to identify the time they

spend on average per day on each of the identified activities. This enables us to subsequently:

A. capture as a percentage the relative proportion of time spent on each activity making it comparable

B. identify outliers within the same group of RMs (e.g. HNW).

In this way the internal benchmark serves:

1. as a means to further guide the RM interviews and help understand the quantitative findings while putting qualitative feedback from RM interviews into perspective

2. to assist in building the business case for change with a clear understanding of the size of the opportunity and allows for benefits to be tracked

3. to identify best practices which can then be collected and shared amongst all RMs and booking centres, which would not be identified through an “interview only” approach.

Operating Model – our investigations have also identified a number of opportunities in the Front Office operating model where improvements can be proposed. Examples include clarifying the role of RM assistants. There is often ambiguity on whether assistants are client facing staff who will eventually progress to become RMs or whether these are administrative staff who will continue to support and perform internal functions to ensure that product applications, trade orders, client requests and the like are efficiently processed. This confusion in terms of expectations by both RMs and their assistants leads to frustration and unsurprisingly high turnover. This in turn means that RMs have to train new assistants and/or undertake many of these activities themselves, limiting their time to serve clients.

Once a list of opportunities has been identified it is important to quantify and prioritise the measures.

TechnologyExample:• Auto rollovers on

credit facilitiesE-signature

ProcessExample:• Data requests being

complied by other rolesand only review by RMs

Operating ModelExample:• Clarifying the role of ARMs

•

RM Efficiency10

References

1. Orbium C-Level Survey

2. https://www.ubp.com/en/news/ubp-completes-its-acquisition-of

3. https://www.abnamro.com/en/newsroom/press-releases/2016/abn-amro-has-reached-an-agreement-with-lgt-on-the-sale-of-its-private-banking-operations-in-asia-and-the-middle-east.html

4. http://fortune.com/2017/02/14/credit-suisse-job-cuts-loss/

5. https://www.bloomberg.com/news/articles/2016-04-06/ocbc-unit-to-purchase-barclays-wealth-in-asia-for-320-million

6. Orbium research

7. Private Banker International

8. Deloitte and McKinsey suggest 15-20% uplifts but this also includes strategic measures, not just tactical ones

Prioritise MeasuresOnce you have a list of measures with a clear understanding of their potential impact (uplift), it then remains to cost them and prioritise measures based on their relative payback. At this stage we have found that a number of considerations are worth keeping in mind:

1. it is important to prioritise short term tactical initiatives as the early results and improvements that can be achieved help inspire and galvanise the organisation to support further changes. In addition, they can often provide the funding required to fund the more strategic, longer term initiatives – creating a self-sustaining, multi-year programme to help transform the bank

2. whilst economic considerations are and should be key, taking into account preferences in the Front Office helps build the support required to have a broad range of initiatives implemented e.g. RMs may prefer an initiative with lower pay off and it may need to be prioritized to help build broad based support

3. experience in what the likely costs and benefits are, helps build a credible set of expectations, avoiding any risk of discrediting the programme early on

We have a structured three step approach (as outlined above) that can help you quickly:

quantify prioritiseidentify

opportunities in the Front Office and create a roadmap for ongoing improvement.

Given the relentless pressure to improve cost-to-income ratio, banks can ill afford to continue ignoring the opportunities that exist in the Front Office. There are significant benefits to be unlocked and the time to act is now.

www.orbium.com 11

About Orbium

Orbium helps banks and wealth managers realise their strategy and execution priorities. Widely recognised for exceptional commitment, the firm helps clients to realise revenue growth and efficiency gains through innovation and industrialisation. By effectively blending business and technology consulting with software products and strong partnerships, Orbium enables clients to focus on what matters most: their own success.

The firm has over 500 employees located in the world’s key financial centres: New York, London, Zürich, Geneva, Singapore, Hong Kong, Frankfurt, Düsseldorf, Luxembourg, Paris, Sydney, Berlin, Warsaw and Manila.

www.orbium.com

Contact

Piotr ZboinskiHead of Strategy and Operations, Management Consulting Services, APACpiotr.zboinski@orbium.com

© 2018 Orbium. All rights reserved. No part of this publication may be reproduced, amended, stored or transmitted without the permission of Orbium.