“Ugly side” of Asian banking revealed as firms hire, fire then keep clients

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Private banks in Asia are quick to bemoan the shortage of quality relationship managers (RMs) in the region and they are now becoming increasingly quick to fire new recruits who don’t perform in their first year. And when these RMs get shown the door, the banks are often perfectly placed to keep a large proportion of their clients.

“Revenue pressure in the industry in Asia means it’s recently got more common to fire people after, say, nine months and retain some of their clients,” says a private banking headhunter in Singapore who asked not to be named. “This year I’m speaking to more and more candidates who’ve been on the receiving end of this – it’s the ugly side of the growth of private banking in Asia, and it’s not often spoken of.”

Profit margins in Asian private banking are edging up from the low levels they hit in 2011, according to a November report from McKinsey. But competition for market share in the sector remains high, with a plethora of firms continuing to target expansion. Their success ultimately depends on their RMs’ ability to generate revenue and they have little tolerance of underperforming bankers.

“Private banking in Asia is a very entrepreneurial business and if the new RM doesn’t show any business-like spirit, they are bound to fail, especially if they are too far from their year-one targets,” says Rahul Sen, head of private wealth management at search firm The Omerta Group in Singapore.

“These days, there’s about a 50/50 chance that a banker will work out in the first year,” adds the anonymous headhunter. “If they succeed and do a good job for the bank, then great. If not, then the bank has the option to get rid of them and retain at least some of the client assets they brought over, so it’s a win-win either way for the bank.”

Any RM who changes banks will have gone through the gruelling process of convincing their clients to move some of the their assets. “And if you’re only at the new firm less than a year, these same clients probably won’t want to follow you yet again after such a short time – account opening is tedious,” says the Singapore headhunter.

Large private banks – UBS, Citi, Credit Suisse, HSBC and Deutsche are the top five in Asia by assets under management, according to a new report from Asian Private Banker – are the most likely to fire RMs prematurely and retain their clients. They typically use their vast product platforms to entice clients to stay. “The bank then allocates the clients to other, better performing, bankers. It’s up to the RM taking over to develop a strong working relationship with the client and ensures that they stay and give them more money to manage,” says Sen.

Private banks, however, aren’t setting out to hire potential underperformers with a view to axing them soon after and capturing their clients. “No bank will deliberately plan to do this at the recruitment stage – it's just the realities of the market that it works out this way,” says Clarence Law, a Singapore-based business advisor in private banking.

“Before a banker joins, the bank requests a business plan and has a serious discussion about it with the banker,” adds Sen. “And once the banker joins, all possible support – marketing, product, operations –  is given to the banker to help ensure they succeed.”

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