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Archive for the ‘Cost Savings’ Category

How Social Media can dramatically lower banks’ customer service cost

Thursday, December 11th, 2014

(by Francis Groves, Senior Analyst)

Social Media Charter, formed in August to help the UK’s financial services industry to use social media compliantly and effectively, is holding a Summit event at the House of Lords on the subject of using social media responsibly.

Interviewed on the BBC this morning, Kitty Parry, the Social Media Charter Chief Executive, highlighted the upside of social media for the banking industry, including the interesting statistic that customer service interactions provided via Twitter and Facebook costs banks (presumably UK ones) an average of 75 pence a time, compared with a cost of £4.75 for an equivalent interaction conducted over the phone. She went on to mention the empowering nature of social media for bank customers as a way of comparing customer service and products between banks.

In our recently published report on ‘Social Media for Banks and Wealth Managers: 2014′, MyPrivateBanking finds that the leading banks globally are indeed focusing heavily on customer service functions in their approach to social media. In our report we provide detailed coverage of the most effective customer service strategies that our analysts encountered and the lessons to be learned from them, as well as information on how much customer query/complaint traffic is now going to banks’ social media presences. However, we also found that very few banks are using social media effectively to showcase their products and services, even new offerings. Although fear of infringing regulations in relation to marketing and social media may be one inhibiting factor, we see a more general lack of social media vision and a pervasive defensiveness in relation to their reputations as the main drag on effective involvement with social media.


The Robo-Advisor Threat

Friday, January 17th, 2014

The relationship between clients and their financial advisors has undergone a fundamental change within the past few years. While in the past wealthy clients relied heavily on the recommendations of their financial advisors and private bankers, the situation nowadays looks fundamentally different. On the one hand there is the older, yet shrinking client segment that mainly still depends on what their financial advisor proposes while on the other hand a new generation arises, namely that of the young and tech-savvy.

Though (on average) not yet earning the really big money, the urge of moving independently and self-confidently on today’s markets encourages them to deal with do-it-yourself-investments. As this generation has grown up with the Internet and all its possibilities, they know where to find the information and support they need. Most recent developments offer them tools known as robo-advisors that promise to replace face-to-face meetings with costly advisors. These tools help them to build up and manage their portfolio, give recommendations about which assets to sell, buy or to hold, and support personal financial planning. Robo-advisors range from pure technology websites to established financial service companies which are enriching their services by offering online advisory. Probably the best known example in this new, fast-growing space is a start-up company called WealthFront, based in Silicon Valley, which has just surpassed USD 500m assets under management. This trend is also partly triggered by the rise of low-cost, indexed ETFs, on which this younger generation mainly focuses rather than on active investments.

In essence, robo-advisors claim to offer not only substantially lower fees but also (in the long run) higher performance as investment decisions are taken by sophisticated, self-learning algorithms rather than error-prone human beings or investment committees.

So far, robo-advisors have only a miniscule market share in the overall wealth management market. However, we believe that over the long run such platforms could play a much bigger role, threatening established wealth management firms and eroding fee levels. Every wealth advisor firm should very closely watch these new competitors and think about defensive measures.

In the longer-term, it may be even a matter of life and death for established private banks and wealth managers to think about integrating the robo-advisor business model in their own offer for wealthy clients. The personal relationship with clients and their trust is today’s biggest asset of wealth management firms around the globe. But isn’t it true that these relationships and the hard-earned trust have recently been under attack – especially since the financial crisis started five years ago? It is not too farfetched to assume that this erosion will accelerate over the coming years and robo-advisors will play the role of catalyst in this process.

Wealth managers and private banks need to re-invent themselves and think hard about how to integrate elements and ideas of the robo-advisory-model in their own business model. How exactly this might look is the billion dollar question.


BNY Mellon - Not the Only Case of Forex Scam

Thursday, October 6th, 2011

A few days ago the Bank of New York Mellon was named in a foreign exchange fraud case by the New York State Attorney General. BNY Mellon allegedly has promised insitutional clients to give them the best exchange rate available. But in reality the bank gave clients the worst or nearly the worst rate defrauding clients of USD 2 bn.

In this case institutional clients were the victims. But as we know from many complaints of private clients, it happens to private wealth clients as well. In these cases most often the bank does not even promise a good or the best foreign exchange rate. The bank executes transactions just at bad or very bad rates for their clients. Most clients don’t even notice as they have no clue what the market rate for a specific currency pair is at the point in time when the transaction is executed. It is common for private banks to deviate 100 to 200 basis points from the market rate (1% to 2%). This generates a very nice income stream for the bank - the client does not even register the scam. We can only recommend to check very closely any foreign exchange transaction, compare with competiors and re-negotiate the rate.

There are a few things every private investor should know about foreign exchange:

1. Before you make a foreign currency transaction, check the real time market rate on the Internet. Yahoo Finance or other portals give you an easy set of tools to get the most up-to-date market rate on almost any important currency pair.

2. Beware of automatic currency exchange when you do an online or telephone trade with your bank or broker. They might just convert money from your dealing account to buy foreign assets at the so called “system rate”, which is usually the worst on offer from your bank.

3. Negotiate your exchange rate: make sure that you get preferential treatment, an improvement on the system rate, when you want to change small amounts quickly online. Be even more insistent on preferential rates for any amount higher than USD 10,000. You should be able to negotiate a rate between 10 and 40 basis points better than the market rate.

4. If you can’t get what you want from your main wealth manager, don’t hesitate to switch to special platforms to get a better exchange rate. In most countries you will find online brokers who offer extremely competitive deals on foreign currency - especially if you make frequent trades for substantial amounts.


Bank Rip-Off of the Day

Thursday, May 12th, 2011

Felix Salmon reports about a Merrill Lynch client who is also active on Wikinvest:

“This guy probably knows that he’s paying his Merrill broker an annual management fee of 1.75%, which alone is more than $40,000 a year. But he doesn’t know that other Merrill clients in his position are paying far less - that Merrill brokers basically charge as much as they can, and the average Merrill client on Wikinvest pays less than half that, just 85 basis points.

“And there are other things this guy doesn’t know, as well, because they’re buried in his statements - things like the fact that Merrill charged him $5,763 to make 24 trades last year, over and above that $40,000 management fee. That’s about $240 per trade.”

From a European perspective this case would not even be among the most expensive fee arrangements. Looking at European private banks, overall fees of 200 basis points (2% of invested assets plus hidden fees, that come with the products) are not so uncommon. Check our research on open and hidden fees in wealth management accounts and what to do about it.


What Fund Fees Can Do To You

Thursday, September 30th, 2010

There is an interesting article on the fatal impact of fund fees on investment performance in the UK’s Telegraph. Especially the calculation on Buffett’s performance had he taken the usual 2+20 hedge fund fees is awesome. The result is shocking:

As you are aware, Warren Buffett has produced a stellar investment performance over the past 45 years, compounding returns at 20.46 per cent per annum. If you had invested $1,000 in the shares of Berkshire Hathaway when Buffett began running it in 1965, by the end of 2009 your investment would have been worth $4.8m.

“However, if instead of running Berkshire Hathaway as a company in which he co-invests with you, Buffett had set it up as a hedge fund and charged 2 per cent of the value of the funds as an annual fee plus 20 per cent of any gains, of that $4.8m, $4.4m would belong to him as manager and only $400,000 would belong to you, the investor. And this is the result you would get if your hedge fund manager had equalled Warren Buffett’s performance. Believe me, he or she won’t.

Hat tip to W.G.


Bloomberg on MyPrivateBanking

Thursday, March 25th, 2010

“Ninety percent of wealth-management clients are not aware of the costs they pay indirectly,” said Binder, 43, who in 2008 co-founded, a Kreuzlingen, Switzerland- based firm that provides research and analysis on the private- banking industry. “If they invest in relatively expensive alternative products it can be a huge amount.”

That’s from an exclusive story Bloomberg published yesterday on MyPrivateBanking and the wealth management industry in general.


Saving Costs of Currency Exchange

Monday, January 18th, 2010

One of our frequently contributing members posted an insightful group comment on the fees for currency exchange and options to reduce them. He was told by his bank that for a currency exchange he had to pay a commission of 1.5%, however, he got it down to 0.3% after re-negotiating the fee with his adviser. An unusually high discount, but still his experience is affirmed by other feedback we got from members.Currency exchange is expensive and provides a substantial extra earning for the bank. Especially because many clients underestimate the costs and also how often currency exchange is necessary when for instance the adviser recommends diversifying the asset allocation internationally.

To minimize the costs of currency exchanges clients should do three things: Firstly, have a clear idea of the long-term currency split they would like to have in their portfolio. A clear strategy prevents a rather unstructured changing back and forth of currencies due to changes in the asset allocation. Also it is worthwhile to check if the particular stock, fund, ETF etc. is quoted in various currencies, so that they can avoid currency exchange in their investments. Secondly and in particular when changing larger sums the investor should check possible discounts with his adviser. Thirdly, if he frequently trades assets in different currencies it can pay off to have an account with an online broker. Often they offer significantly lower fees.