May. 29, 2009
MyPrivateBanking.com has just released its annual survey on the top European based private banks and wealth managers. 20 of the most important private banks in Europe were selected for the research to assess the quality of their customer interface, their investment proposal and the total cost of asset management. In order to make the results of this research comparable and fair MyPrivateBanking.com analysts have contacted only the branch offices of these private banks in Switzerland.
The analysts of MyPrivateBanking.com uncovered in their research a series of weak spots in all areas of the wealth management process. Far too many private banks and wealth managers did not listen to their prospective clients. As a consequence portfolio proposals were in many cases inadequate. Another problem was the cost structure of the private banks. The research shows that on average 50% of costs were hidden from the eyes of the client. MyPrivateBanking.com analysts have approached all these private banks as test clients (mystery shopping) and graded them based on a series of objective criteria.
The biggest weaknesses uncovered by the research were:
Many Private Banks do not listen to the client: Hard to believe, but about one-fourth of all advisers visited would rather listen to themselves speak than to their potential clients. No questions were asked at all.
Pro-cyclical asset allocation: When the research was conducted the market had almost bottomed out, and more than half of the private banks recommended an extremely bearish strategy. In six cases the portion of stocks in the portfolio was 20% or lower, despite the test client indicating a long-term outlook and medium high-risk tolerance.
Deceptive cost structures: About one third of the private banks offered quite low flat fees but had significant hidden costs in their investment proposal.
Mediocre Funds instead of ETFs: The majority of funds we analyzed in the suggested portfolios could be easily replaced by ETFs, cutting the yearly costs by about one percentage point a year.
However, the research also found improvements in various fields such as higher degree of asset diversification and the use of questionnaires. Several private banks impressed with exceptional good service and customer focused investment strategies.
The following three wealth managers received the highest grades in our research.
Nordea is the number one bank with 79 out of 100 points, is. This leading Scandinavian bank is a somewhat surprising winner in our research because it was not a well-known brand name as a wealth manager in private banking. However, Nordea shows good performance across all our evaluation categories. MyPrivateBanking.com’s analysts were impressed by the professional handling of the customer interaction, the comprehensive inquiry using a questionnaire and a proposal that showed how the bank really understood the preferences of our test client. We also liked the use of ETFs and the avoidance of high hidden cost.
Sal. Oppenheim, the traditional Private Bank, headquartered in Luxembourg, but with strong German roots, comes second. Sal. Oppenheim showed a strong performance, especially in the area of costs. With an all-inclusive fee of 1% and almost no hidden costs (because of low use of managed products and no in-house products) this private bank showed how straight forward and cost-efficient wealth management could be.
UBS, taking third place, is still the world’s leading wealth manager measured by assets under management. Our research showed that the customer interface of UBS was very professional and the proposed asset allocation was an excellent fit with the preferences of our test client.
Overall it was possible for our contestants, i.e. the analysed private banks and wealth managers, to score a maximum of 100 points in the research. No bank was even close to this maximum score – 79 being the winner’s score. The average score was 52 points, with most banks being between 50 and 70 points and more than a quarter at or below 40. This result reflects the fact that most private banks had substantial weaknesses in one or more areas chosen by us for evaluation. We also found that overall there is a large variance among the banks. The scores vary from 26 to 79 points.
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