More and more banks in Germany are facing declining returns and weak growth. Against the backdrop of the euro crisis, the eleven largest German banks saw their year-on-year earnings before tax drop by one third during the first half of 2012 alone. To still achieve the required returns, banks have to cut costs and find new sources of revenue, and wealth management offers good possibilities for generating attractive income. Nevertheless, the Roland Berger study on "Wealth management for entrepreneurs" finds that German credit institutions are still underestimating the potential offered by linking private wealth management and corporate business.
EUR 7 billion in annual revenue potential
"If German banks could persuade their corporate clients to entrust them with their private banking business as well, they could generate almost another EUR 7 billion in revenue per year," says Frank Heideloff, Partner at Roland Berger Strategy Consultants. "Our survey shows that corporate clients are indeed interested in receiving private wealth management advice from their bankers."
Around 30% of company owners have already entrusted both their corporate and their private finances to a single bank. Another 40% of respondents could conceive of merging the two types of banking business into a principal bank model. "These 70% of bank clients who are themselves entrepreneurs are an ideal and by no means small target group for wealth management services," says Heideloff.
Taking a look at the revenues of German SMEs illustrates the size of the potential wealth management market: There are more than 180,000 profitable family-owned businesses generating annual revenues of more than EUR 1 million. Around 70,000 of them are potential wealth management clients. The owners of companies with annual revenues between EUR 2 and 10 million alone could generate an additional EUR 2.3 billion in wealth management revenue. Entrepreneurs at the helm of companies in the EUR 10 to 50 million annual revenue segment offer additional potential of EUR 2.4 billion for banks.
Synergies between bank departments need to be tapped
"Most banks will have to refine their internal processes and management mechanisms to leverage this underestimated market," explains Roland Berger strategist René Fischer. "What they need is an internal organization that actively promotes collaboration between corporate and wealth management business."
The Roland Berger study shows that banks could win up to 60% of their corporate clients as wealth management clients if they create an institutionalized collaboration between the two business units. "This is not about eliminating the management structures and earnings responsibilities of the business units," explains Roland Berger Partner Olaf Toepfer. "This would hardly be possible in major banks. Both units should systematically collaborate."
The Roland Berger experts identified three sales models:
In the pull model, the corporate client account managers make decisions on a case-by-case basis as to whether an entrepreneur is worth considering as a potential wealth management client, and then pass these on to a colleague from the private banking division.
In the generalist model, the client remains the responsibility of a corporate client account manager that has expertise in wealth management.
In the specialist model, wealth management employees are specifically allocated to a corporate client account manager in order to more closely integrate corporate and private banking activities.
Offering the right solutions is key to success
But wealth management for entrepreneurs is by no means an easy task: "Entrepreneurs are very demanding. In their double role as corporate clients and high net worth individuals, they can be very particular in what they expect from their bankers," says Fischer. "So banks have to design products with the specific requirements of this target group in mind."
A good feeling for the client's individual situation is required. Many company owners prefer to invest exclusively in their own business. Advisors have to act with a great amount of tact and persuasion to interest entrepreneurs in considering external investments. What's more, succession considerations often are much more important to company owners than maximizing their private wealth. Drawing on the expertise of legal and tax advisors, wealth managers can develop specifically tailored all-in-one solutions such as foundation models to integrate wealth management with succession arrangements.
