The Power in Private Banking and Wealth Management Relationships

Findings from empirical research studies of global HNWIs and private bankers (PBs) by Dr Stuart Gibson found that without question HNWIs believe that they have the power and control in the private banking relationship, but it does depend upon the size of assets the HNWI holds, as to how important they are to the bank and how much they want them as a client. HNWIs like the involvement and flexibility when discussing investment decisions with their bankers. However, HNWIs believe that they make the choices and that banks need to take their wishes into account, moreover if they ignore their preferences then the HNWI will find a PB that does. According to Seal (1998) the relationship between the banks and their customers involves potential conflicts as well as commonalities of interest. One of the great strains on the banking relationship would seem to be the incentives for opportunistic behaviour with the changing balance of power at different phases of the business cycle. Thus in times of boom when credit is easy, the customer is tempted to play off one bank after another in order to shop around, whilst in times of depression the power swings towards the bank, where the bank will be tempted to walk away from a troubled borrower. Whereas, from a client’s perspective, as described by Coulter and Coulter (2002) the greater the power of the service provider (e.g. the bank), the greater the likelihood that the supplier will be able to dictate the terms of the service relationship. Further, HNWIs consider that it isn’t the individuals that lost their money in poor performing investment products, rather it was the institution that was responsible, as expressed by the following respondents:

Most of the stuff I am invested in today was my decision or my recommendation which was guided by and assisted with the specialists in the bank but I have changed a couple of things but the control is with me. (HNWI-1)

We make decisions together, on their advice, but if ‘X’ [name of PB] suggests something and I say no, then they will do what I want to do. (HNWI-5)

The client makes the choice … I have as much power as the assets that we manage so it depends how important you are to them and how much they want you as a client. (HNWI-8)

I had cash, I am the guy in the controlling seat, they need my cash to loan to their clients. (HNWI-23)

However, during the research, PBs suggested that the HNWI and PB have identical power, as they both have equal power to destroy the relationship. Further, they believe the power is balanced because the PB can upset a client and cause the HNWI to move or they might have given the HNWI the wrong perception of the private bank which, through word-of-mouth could adversely affect the image and reputation of the private bank. However, some PBs advocate that the power lies with themselves, as expressed by PB11 and PB12:

We have equal power to destroy a relationship. (PB11)

I think the client would like to think it is with the client and the bank would like to think it is with the bank. (PB12)

However, most PBs suggest that the balance of power depends on the type of service provided, whether transactional, lending or wealth. On the wealth management side the WM gives the HNWI client their philosophy or ‘house-view’, as an institution and then the client will then determine whether he likes it or not, so the client has the power. However, on the transactional banking side the RM will normally have the power, client options are limited to what they can do outside of the normal banking regulated policies and procedures. Furthermore, on the lending side the Structured Lender has the power, as they have something the HNWI desires. Finally, it also depends on whether the PB has the full mandate for the wealth of the HNWI, as PB9 explains:

It depends if you have got a full mandate, then I presume you would make a call and the client then ratifies or not. That decision again lies on the client. (PB9)

The above is an extract from Dr Stuart Gibson's research study of global HNWIs and private bankers into relationships, client acquisition, client retention, client satisfaction, trust, loyalty, service quality and digital wealth management. 

For further information on how Dr Stuart Gibson can help you with your private client engagement strategy, business growth strategy, market entry strategy or client research, please email: [email protected]