The glory years of Swiss private banking are long gone. The 2008 global financial crisis set in motion what many consider was the downfall of the once all-mighty Swiss private bank. Political and regulatory pressures relating to financial services and tax laws diverted the focus away from the core business and turned these prestigious institutions into bureaucratic mazes that saw profitability dwindle steadily and banking secrecy die. Some banks closed their doors, others were bought out and – almost a decade later – there are far fewer banks left in the market and jobs are becoming scarce.
Two main regulatory streams can be identified as the culprits here: client-related regulation and financial services regulations as a whole. The resulting business consequences have been rising costs, steps to “put the house in order”, updated compliance procedures, and the emergence of important hurdles such as travel or sales restrictions that deeply impact client interactions.
In short, along with rising costs and greater transparency, Swiss private banks find it increasingly difficult to interact with clients and far greater expectations in terms of transparency mean that Swiss private banking has lost its unique value proposition and now has to compete on an equal footing with the rest of the world. This isn’t even taking negative interest rates and a historically strong Swiss Franc into consideration.
These strategic threats are universally acknowledged and today, most industry experts and strategists also agree on what needs to be done in order to keep Swiss private banking relevant and competitive internationally. Without the country’s traditional banking secrecy and with fairly similar investment performance across the board, banks need to redefine their core competency. There are, however, two important challenges that need to be faced before the industry as a whole breaks out of its chrysalis and reveals its new form: efficiency and value proposition.
Efficiency entails an exhaustive, thorough rethinking of the bank’s inner workings from its compensation schemes to its business travel policies and how to operate the back office … all the way down to the choice of stationery. Historically, Swiss private banks had never needed to monitor expenditure closely, but with so many regulations to meet, structures now need to be lean and costs kept under control.
The value proposition, which once had the infamous “banking secrecy” at its core, today has to evolve and improve at each and every touchpoint. Adding value is the only way forward and, in a globalized world where financial products and wealth planning services are fairly homogenous, many think that differentiation will have to come from brand value and the customer experience.
Laurent Gagnebin, CEO of Rothschild Bank Switzerland and an alumnus of Ecole hôteliere de Lausanne (EHL), is a firm believer in the unique value of a genuinely customer-centric approach. He also believes that Swiss banks have been too comfortable for too long and need to be tougher on themselves.
“All banks need to be more client-focused. They need to have better performance, be more competitive, have a better platform, have better IT, have better client advisors, have better service at all touch points”, he said in a recent interview.
He went on to explain how Rothschild tackled these challenges: “Each of our client advisors looks after only roughly 30 clients. This gives him enough time to closely accompany his clients, always be up to date, have a comprehensive view of the financial situation of his clients, and proactively suggest optimizations throughout the different departments of the bank.”
“We are independent advisors to our clients as we do not have in-house products and therefore aren’t obligated to sell specific products to them. Our investment approach is transparent and we do avoid complex products. We do instead invest as directly and cost effectively as possible. And last but not least, we do not try to be everything for everybody. Preservation-first is our approach, in an environment where short-term thinking prevails, we believe a long-term perspective ultimately works in the best interest of all parties.”
As critical as he may sound about the industry having been complacent, he remains very optimistic and his outlook on Swiss private banking is bright. “We failed to invest in the past, but Switzerland still has a lot to offer because we have a stable country, exceptional professionalism, a good network of legal and fiscal advisors, and political stability, of course”, he explained.
Gagnebin personifies a new breed of highly efficient financial generalists with strong business management skills and who don’t underestimate the value of interpersonal skills. Looking back at his EHL education, he recognizes how valuable it has been in achieving client satisfaction in one of the most demanding client-facing jobs.
"I think my EHL background helps me focus more on quality and I think banks have put a lot of emphasis on relationship managers, but the client experience doesn’t only happen through the relationship manager …. You can optimize the client experience through every single department of the bank. You just have to always bear it in mind" Laurent Gagnebin, CEO, Rothschild Bank Switzerland.
In hospitality management, this is the predominant paradigm. The perfect client journey is the ultimate goal of hospitality management and it is becoming extremely relevant in the private banking industry, which many are now comparing to the luxury industry, where part of the premium is paid for the experiential and emotional elements of the transaction.
When asked what the hospitality industry could bring the Swiss private banking industry, Gagnebin focuses on three elements: values, an obsession of service quality, and human resources: “You need to identify the clients you can serve best and focus on those. Every mail, every phone call, every visit, every statement that you send, every trade, every execution that you provide to a client … think of how it could be improved. And for the client to be comfortable enough to develop an emotional attachment to the institution, banks need to trust relationship managers with the long-term client relationship.”
For Serge Fehr, Head of Private & Wealth Management Clients at Credit Suisse SA, service excellence also represents “the answer to the rising difficulties Swiss banking is facing”. Bankers, he told EHL Hospitality Insights, need to “stop deciding unilaterally what is best for the client”.
Serge Fehr, Head of Private & Wealth Management Clients at Credit Suisse SA.
Fehr, who has initiated a global strategy for his staff with the support of EHL, believes there needs to be greater consideration for individuality and customization. Hence, while some clients can be satisfied with a fully-automated experience, others will prefer a “high touch” approach and a dedicated advisor. From time to time, however, when it comes to buying a house or navigating an inheritance process, clients may need to call upon expert advice.
Fehr emphasizes that, “whether the relationship is physical or digital, it is the definition of the service that is important. And the service must be exceptional”.
Focusing on positive emotional triggers and the client’s long-term interests evokes the privileged relationship that bankers previously had with clients (and often their families) at the start of the golden age of private banking. Today in many private banks, there may be a disconnect between top management and relationship managers who are dealing with clients rather than trying to tackle compliance and regulatory issues. Clients inevitably feel this disconnect, which has a negative effect both on employee and client retention.
Laurent Gagnebin, CEO, Rothschild Bank Switzerland.
So can hospitality management graduates from schools such as EHL go on to become exceptional private bankers? Many graduates like Laurent Gagnebin do choose finance and banking careers, as well as roles with consulting firms, rather than go into hospitality. Gagnebin believes he and others from a hospitality management background have an edge over other business school graduates: “I think that the bridge between hospitality management and private banking is actually closer than people think”.