satisfaction levels have been recorded among wealth managers seen
as being impacted by the global credit crisis. This helped drive
down overall satisfaction in the UK-based private banking industry
last year.
Overall client satisfaction in wealth managers last year fell to a
five-year low, marking the second successive year of decline,
according to research by MDRC, a consultancy that tracks how
clients perceive their advisers. The average satisfaction index
score was 59.8, just below the “good” rating benchmark of 60.0 and
the worst level since 2008.
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The highest client satisfaction score for UK-domiciled clients was
achieved by C. Hoare & Co with a rating of 82.0, an increase of
2.2 percent over the 2006 score by this old-established bank. In
seven of the past 10 studies Hoare has achieved the highest client
satisfaction ratings.
The highest client satisfaction score for UK expatriates was
achieved by Kleinwort Benson Private Bank, with a rating of
75.2.
Four of the firms with top-decile scores in 2006 saw their
satisfaction ratings fall by more than 10 percent in 2007. However,
the overall industry fall of 5.6 percent was not uniformly
distributed, MDRC observes.
The 2007 top decile firms increased their scores by an average 1.7
percent, while the scores of the bottom-quartile firms fell by
nearly 10 percent. The lowest score achieved by a firm in the
survey was 50.2, or 1.2 percent lower than the lowest score seen in
2006.
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By GlobalDataApart from concerns about the credit crisis, clients expressed
disappointment with the frequency and quality of client
communication and with increasing turnover in relationship
management staff, MDRC analysts note. But clients didn’t complain
about investment performance, presumably because the long bull
market since 2003 didn’t exhaust itself until the second half of
2007.
MDRC’s satisfaction index has been constructed to cover the entire
client experience, from the initial introduction to the firm
through to the continuing relationship with the client
manager.
The relative weighting attached to each of these components has
been derived from the relative importance that high net worth
individuals attached to those components.
Using this model, a private bank or wealth manager with an index
score of over 75 would be considered to be “excellent”, a score
between 60 and 75 from clients would be rated as “good”, between 50
and 60 would be “acceptable” and an index score below 50 judged
“poor”.
The overall industry average score of 59.8 suggests that “most
clients consider that they receive an acceptable level of service
from their wealth manager and that the products available are
generally in line with expectations”, says MDRC.
However, the study identifies that clients are not satisfied with
all aspects of the product or service mix. Areas of particular
concern in 2007 were:
• The high level of relationship staff turnover;
• The relatively low level of experience of some relationship
staff;
• The frequency and quality of communication particularly
about current market conditions;
• The level of fees, particularly for ancillary products and
services;
• The impact of the non-wealth management activity of the bank
(or banking parent) on the wealth management business.
This last concern had “an adverse impact on client satisfaction at
some of the UK’s largest wealth managers”, suggesting clients are
worried about the co-mingling of high-risk investment banking with
the wealth management operations.
As a result, the 5.6 percent overall decline in the index is not
indicative of a general fall of satisfaction across the industry,
but rather an effect of a sharp reduction in satisfaction at a
relatively small number of wealth managers.
Although it is doubtful whether these concerns about the impact of
the credit crisis on advisers alone would be sufficient to trigger
clients to change wealth manager, “it is an indication of the
damage to some of the major private banking brands”, MDRC
suggests.
While there was a continuing erosion of client satisfaction in
firms in the bottom quartiles of the study, no firm in 2007 was
given a “poor” score and a “good” or better rating was achieved by
65 percent of the private banks and private client managers in the
survey. So there was only a slight fall in the number of firms
rated as good or better in 2006.
There are two big factors underlying the general maintenance of
client satisfaction scores. Firstly, more than a third of the firms
in the survey have now implemented specific programmes to improve
key elements of the overall client experience, and to bring the
product and service mix closer to client expectations.
In some companies this has been in the form of business-wide
product and service changes or client facing process
re-engineering, while at other firms these programmes have been
local initiatives; both have yielded tangible benefits.
Interestingly, says MDRC, in firms where these programmes exist,
clients report a noticeable improvement in the quality of financial
advice provided by their wealth manager, and in the level of
satisfaction with their relationship manager and in the products on
offer.
A second factor that contributes to the maintenance of overall
client satisfaction is an apparent increase in the number of
clients who have withdrawn from an integrated wealth management
product and returned to an advisory or self-directed model. This
gives them a greater degree of control over their portfolios and
greater control of their management fees.
Discretionary accounts
Clients in an advisory rather than a discretionary wealth
management service tend not to be as concerned about the
performance of the firm, MDRC observes. Many of these individuals
had been the most vocal in expressing dissatisfaction with the
products and services provided by their private bank or wealth
manager.
The study also examined client satisfaction trends at firms that
are wholly investment managers compared to those that are
full-service private banks offering a complete range of credit,
banking and investment management services.
Over the four years from 2004-2007, full-service private banks
achieved an average rating 19 percent higher than firms offering
solely an investment management service. In particular, clients of
private banks gave their relationship managers a significantly
higher rating for the quality of financial advice and breadth of
financial knowledge than clients of wealth managers.
Clients of private banks also expressed increased satisfaction with
the wider range of products on offer. For the first time in this
series of studies, the availability of credit products, especially
mortgages, was identified as a key component of client
satisfaction, and a differentiator between private banks and wealth
managers.
In a recent study into the perceived differences between wealth
managers and independent financial advisers (IFAs), MDRC was unable
to identify any significant differences between client satisfaction
at the large IFA groups and the wealth management industry as a
whole.
This apparent contradiction is likely to lie in the difference of
expectations between clients of IFAs, wealth managers and private
banks, the researchers say. Although an IFA generally offers a more
limited product range than a wealth manager or a private bank, IFA
clients appear to have more limited expectations than clients of
wealth managers or private banks.
MDRC analysts believe the keys to improving client satisfaction
include identifying and understanding the customer’s true needs and
expectations – as opposed to what a bank may expect or perceive
them to be.
With the sharp changes in high net worth demographics seen in
recent years, relying on “experience” or information gathered in
the past has become little more than guesswork.
“Most organisations have some belief that they understand their
clients. Unfortunately this belief is frequently based on
‘folklore’ rather than any structured assessment,” the analysts
say. Coupled with this, advisers should measure client satisfaction
on a consistent and regular basis.
