How does a U(HNWI) choose a new bank?

This is one of the most common questions I get asked: a banker is trying to convince a former client to follow or is trying to convince a prospect to become a client.

Apparently, what usually happens is that the banker talks about the new bank, why it is amazing, and the conversation usually reverts to "how much money will you earn for me and how much will you cost me?"

Needless to say, more often than not, the conversation does not lead anywhere.

1. Fees and performance

When asked how HNW clients choose a new bank, 28% agreed that it was fees and performance. Which means 72%, nearly three quarters, disagreed.

There are many nuances to introduce in order to prove a complete picture. This requires sufficient time that it is part of the training I provide when I introduce an exercise that explains "How HNW clients choose banks and how to use this exercise to open accounts, increase share of wallet and avoid client outflows". As this takes a few hours, I can't provide the full content here, however I will run you through a few considerations.

First, it seldom is a simple decision. There are multiple considerations. Clients WILL revert to price and performance for 4 main reasons:

1. they are numbers, so are easy to compare
2. if they are too weak, they are deal-breakers
3. future performance = hope, and clients are probably addicted to hope
4. knowing the fees gives an illusion of control.

Of course, we know that fees are absolutely irrelevant. If we only look at fees. What matters is "performance AFTER fees". But as we don't know that, fees are reassuring.

So why do 72% disagree? Maybe because... while bad performance and unreasonable fees are the financial equivalent of someone with no personal hygiene, good enough performance and reasonable fees is not enough to win clients. And as we know that "past performance is NOT indicative of future results" and that balanced portfolios do not differ that much, it seems that "performance and fees" are not sufficiently persuasive.

2. Brand and reputation

The second point can be surprising: brand and reputation, or what does the brand and logo stand for. This point can be incredibly sticky. Branding is powerful: just look at your car, your phone, your shoes, websites, your watch. If you had the same object but with a different brand, would you perceive it differently? Probably. If I offered my services with a different brand, such as with a larger firm, people would perceive my services differently. And I would have less autonomy to offer tailored solutions and would have to "rent out" the brand, i.e. increase my prices. This might even dilute my own branding.

So branding is sticky: a client who has chosen a reputable bank may be reluctant to switch towards a bank that appears different, even if it seems like an upgrade. After all, how do we assess this? Banks invest significant money on mimicking high end institutions, such as boutique hotels, to play according to the same codes. This does not always work and it relies on the clients' capacity to unconsciously understand and make sense of what they're seeing.

Fortunately, the exercise I mentioned is a far easier and more cost effective way of getting the client to feel comfortable, if it is possible. And some clients are indeed "married" to their bank. If such is the case, chasing them is pointless. I know multiple highly successful bankers at large institutions who could switch to a smaller bank, but they believe that the assets would not follow because of how attached the clients are to their bank, because of how important the brand is for them. This should not be underestimated.

3. The Relationship Manager

Third, the Relationship Manager. 52% believe that the RM is the main factor for changing bankers. Is this accurate? Is it hubris or ego? Again, a nuanced answer.

If the relationship with the banker is not strong enough, the client will not follow. So what does strong enough mean? It means: it much be strong enough to overcome the "pull factor" of the existing bank. But, another nuance, the RM alone is not enough.

If you are a superstar RM and you leave to join a Mickey Mouse bank, clients will not follow you and they will probably start doubting your motives. The bank you are joining must provide some tangible benefits from the client's point of view. Not simply more salary for you, but from the client's point of view.

"How is this new bank offering something relevant to your former clients?" is a killer question. If you don't have a clear answer, get one before you resign. If you don't know how, contact me.

So the new bank must be good enough. And the RM must demonstrate significant added value. Too many RMs are interchangeable and they do not realise it. How are they themselves adding value? How are they standing out? What could they improve? What do clients honestly think of them?

Too often, RMs are concerned with "staying out of trouble", "keeping the client happy", or some other childish concerns that lead to passive behaviour, avoiding difficult conversations and creating a sense that "no one is in control". This destroys trust from the clients.

In a healthy relationship, the banker knows exactly which concerns are on the client's mind, knows how to address them or knows if they are a threat to the relationship. In a healthy relationship, the banker is NOT hiding away from difficult questions, but is uncovering them, preferably before the client thinks of them.

This is a tricky mindset to have because, one switched on, the banker increases their ownership over their book of clients. This means more control and more adult behaviour, both with the clients and with the management.

With the right type of management, this produces a win-win situation: the banker is in control, is autonomous, takes ownership and produces more wealth for the employer and themself.

And yet some managers sabotage this by encouraging childish behaviours in their bankers: imposing unhelpful metrics (n° of prospect meetings vs quality of meetings, pipeline reports that treat clients like commodities, n° of reports vs results, the wrong quantitative data vs hybrid qualitative - quantitative, etc).

The beauty of this issue is that it makes it far easier to win over clients once the banker moves to a different type of structure. Of course, not all smaller structures are smarter. This depends largely on the ego of the senior management and whether they have created a culture of credibility and truthfulness, or whether they lead a culture of deceit.

As a summary, yes: the RM will be one of the best reasons to change banks, especially if the RM can demonstrate that the switch was made in the client's best interest. It is of course possible to get client commitments prior to changing (the portfolio review is a fantastic opportunity for this).

4. It's a mystery

10% of respondents admitted that... it's a mystery. Why? Maybe because none of the above mentioned answers alone explains everything. Maybe it depends from client to client.

I take both these statements to be true: there is not one single explanation. And it is unlikely that two clients will give 100% the same answer. So what matters is that we get an accurate understanding from each client about what it would take to make him or her switch.

The common approach is the "provide as much information as possible and hope something sticks". This seldom works and makes the banker look desperate, unprepared, confused. This also delegates the decision making process to a person who probably hasn't quite figured out how to make that decision. Therefore, delegating to them simply makes their life more complicated.

So what if we could get a detailed answer for each client?

Understanding client needs and getting commitments

The tool my clients use was created specifically to help them get all the information they need from their clients and prospects to:

1. understand what is important for each client
2. understand specifically what it would take for each client to change banks
3. identify situations where the probability of a change is low
4. get conditional commitments from clients and a timeline.

As mentioned, end of year reviews are a wonderful opportunity to use this tool. It helps:

1. frame the conversation
2. proactively uncover points of frustration
3. discuss increase of share of wallet.

With prospects, it's a subtle way to understand their needs and discuss whether switching banks makes any sense.

If you are interested in individual training or group training, contact me or visit my website: www.frederickkermisch.com . And if we are not yet connected, do connect with me on LinkedIn.