Crisis sends private banks back to basics

By Lisa Jucca, European Wealth Management Correspondent

GENEVA (Reuters) - Global financial turmoil is forcing private banks to go back to basics and get closer to their clients, whether super-rich or not, rather than pushing products they often don't fully understand themselves, bankers to the world's wealthy say.

The special client-banker relationship that was the pillar of the whole private banking model appeared to have been put aside during the boom years in the run-up to the credit crisis that saw many new players entering the segment.

But now that even the ultra-wealthy are feeling the pain of global financial turmoil, private bankers admit that what's needed is more transparency and less greed.

"There have been too many people in this business who have sold things they don't understand," Gerard Aquilina, Vice Chairman of Barclays Wealth told the Reuters Wealth Management Summit.

"There have been too many people selling wealth management services, to compete with returns clients could have in their own businesses... trying to outdo what the clients did."

The push for higher margins has prompted many private banks to offer increasingly complex financial products that bankers hoped would produce better returns.

But as the crisis deepens, all that panicky clients seem to seek is guidance on how to protect their wealth. Sound advice seems to be a scarce commodity.

"The need for advice has never been bigger than today," said Juerg Zeltner, Head of Wealth Management for UBS in North, Central and Eastern Europe. "Clients desperately seek guidelines and an advisor who acts on behalf of the client in a very professional way in the markets."

CRISIS OF CONFIDENCE

The implosion of the U.S. subprime mortgage market and the credit crisis that subsequently unfolded has eroded client trust in financial institutions worldwide and prompted government intervention to rescue some banks from collapse.

Switzerland's UBS, the world's largest wealth manager, was the most prominent example of brand name damage following billions of dollars of write-downs on risky investments at its investment banking arm.

"One consequence of the crisis is the comeback of the traditional private banker, the banker who acts in the best interest of its client without having excessive hunger for risk leverage," said Teodoro Cocca, a banking professor from the Johannes Kepler University of Linz.

"This could become the role model for the future of a healthy wealth management industry," he added.

Bankers admit that the credit crisis is prompting clients to demand more information and better services from their advisors.

And as rich clients turn to cash, gold and government bonds and other low-margin products perceived as "safe havens," private banks will have to work harder to improve their profits.  Continued...