With its size and resources as more of a boutique Swiss private bank, how can Lombard Odier best position itself to take advantage of the dramatic growth in private wealth across the Asia Pacific region? “My answer, “Magnenat begins, “is that we must continue to emphasise and expand our value proposition and maintain our discipline. We need to avoid the tendency to try to be all things to all people, to try to do everything across the whole region, and must instead build and retain a keen focus on delivering fully on our defined value proposition.”
Lombard Odier today has two core offerings in the region: the high net worth family services practice, and investment services. In both of these areas, the bank is expanding its presence across the region, both through its own offices in Singapore, Hong Kong and Tokyo, as well as through its growing array of high-quality onshore alliances, which now include Thailand, the Philippines, Indonesia, Taiwan and Australia.
Two core businesses
Magnenat had in mid-2018 explained to Hubbis how these two core practices are founded on four key pillars. The first is the expansion in both numbers and quality of the three private banking office operations. The second is an expansion of the onshore private banking proposition through its regional partnerships. The third pillar is external asset management. And the fourth pillar is building more discretionary portfolio mandates, which have been taken up by about 60% of Lombard Odier’s clients, versus an industry average of closer to just 5-10%.
Magnenat says the bank has a clear proposition and a clear strategy for building its presence and revenues rapidly and sustainably to ride the wave of expansion in Asia’s private wealth market.
Firstly, he disagrees with any claims from the ‘street’ that private banks can build successfully by aggressively hiring RMs from other banks. “That practice does not work today,” he reports, “simply because clients largely no longer follow their bankers, even if they might have done so in the past. The idea of a banker bringing over a large book of clients’ assets and retaining most of those assets in the new bank is not viable. If RMs can bring and keep even 40% of their old clients’ assets, we would be surprised.”
No short-cuts to growth
Magnenat mines down further to unveil the core reasons, although he concedes that there is no one answer. “On the regulatory and compliance front, it is extremely difficult to even open an account these days,” he reports, “with so many signatures required. Clients, therefore, do not really want their bankers to move, if they are happy with them and with their banks. Even if that client is very close to his RM, they will most probably not follow them nowadays.”
He explains that clients today migrate to other banks largely only when they are dissatisfied with the RMs or with the firms. “This makes it even more essential,” he says, “to articulate and expand the value proposition of the organisation. Of course, some RMs do move banks and do so effectively, but we are realistic at Lombard Odier and do not rely too much on that approach for our growth.”
Empowering the best
Magnenat maintains that as a privately-held bank, there is a particular luxury in being able to focus only on fewer, higher-grade bankers and of working in a totally focused manner to help make those bankers as successful as possible. “We can look to the longer-term,” he comments. “It means we can commit the time and resources to help our bankers understand the value proposition we offer and achieve optimally.”
He expounds on this, adding that given Lombard Odier’s approach and its resources, this means advancing on a step-by-step basis. Just as the bank cannot hire bankers who hit the floor running and bring their entire book of clients, so too the bank cannot hire more RMs than it can comfortably absorb and nurture to achieve their full potential.
“Additionally,” he reports, “we are heavily oriented towards discretionary portfolio management, so the bankers have more time for their clients, as they are not distracted by numerous execution orders from clients, but are instead focused on growing and servicing their clients, winning referrals, being partners with those clients and with the bank.”
Knowing the markets
Magnenat says that he and other private bank CEOs sometimes meet to discuss trends in the industry. “We actually meet to compare ideas which helps all of us be realistic about the market, our achievements and so forth. We know this is a challenging and difficult business, and we know that we can only grow with the right talent.”
Magnenat also envisages more consolidation, acquisitions and partnerships in the market. On this last point, partnerships, he comments on how proactive and creative the bank has been, noting that “some of the other larger boutique private banks are following our lead.”
On the subject of partnerships, Lombard Odier has had great success in building what is now a valuable collection of wealth management alliances with leading financial institutions in Thailand, the Philippines, Indonesia, Taiwan, and Australia. And the bank has eyes on other countries in the region, providing Magnenat and his team can identify the right partners, who share their vision of the future of wealth management and who complement each other’s DNA and product and service suites.
“Partnerships,” Magnenat reports, “are so valuable in that they combine our traditional strategy of growth and our own operations with strong partners that can really help propel us in the other markets. We have bankers in our three offices – Singapore, Hong Kong and Tokyo - covering the region and the partnerships are a vital and complementary second leg to our strategy. Combining two strong organisations, one onshore and local, and us offshore and global, allows both sides of the partnership to achieve far greater success than on our own.”
He further articulates the value Lombard Odier brings to the table, on its own or in its alliance. “Our experience is remarkable,” he comments. “We have overcome some 40 financial crises in our long past, we remain a family-controlled business and Asia is dominated by family ownership in their first and second generations.”
He says the bank has a deep understanding of the psychology, motivations and challenges of owner-entrepreneurs. “We also have a profound knowledge of the challenges of transitioning ownership and wealth from generation to generation,” he adds. “We understand family and corporate governance, we have great skills at wealth planning, and we are dedicated to structuring for our clients and their families.”
To sum this up, Magnenat says the bank adopts and adheres to a holistic approach. “We are not selling products,” he reports. “We are promoting solutions after engaging deeply with the clients to understand their needs and the objectives. In partnerships in other countries in the region, we bring all these skills and the values to the table, for their clients. And our partners there bring their client relationships, their local knowledge, their expertise in their local markets and the solidity of being leading institutions in their markets for the long-term.”
Magnenat concedes that despite significant progress in the past six years since they began building out the Lombard Odier Asian franchise, the bank remains somewhat less well-known today than he would like.
Always more to do
“We are somewhat at a disadvantage in this regard,” he says. “Of course, as an institution, we are discrete by history and inclination, and we do not have big budgets in terms of branding and marketing, but the reality is that, for example, in China, eight out of ten new accounts go to the global Swiss or other banks, just because of the name.”
Magnenat, therefore, recognises that no matter how great the Lombard Odier product and value proposition, the continued development of brand name recognition is essential. “We might be in a region of huge growth,” he says, “but we also know that the brand is key and right now that is a disadvantage for us, one that we must work to overcome.”
Strength and scale
Nevertheless, the bank has a strong story to tell existing or potential clients across the region. Not only does it have a history of 223 years, it also has a notable scale, even if it is not amidst the global brand names competing in the market.
Magnenat reports that the bank has around USD 262 billion in total client assets.. Moreover, the bank has great financial stability, according to its powerful Tier 1 capital ratio of 29.9% and the AA-minus credit rating, which is as high as a bank can achieve if it is privately held.
“We have a great story to tell,” Magnenat says, “with a history of 223 years on our side. We believe we actually have the right model as well and we are of a scale and solidity where we offer an institutional mindset to our private clients, helping them achieve performance with a medium to long-term perspective on the markets and careful attention to returns and risks.”
Taking the wide-angle perspective
He also reiterates the Lombard Odier ethos of long-term perspectives to achieve longevity. “We have continually looked to the future for our clients and for the bank,” he reports. “We have enjoyed a very positive start to 2019, but of course, we must position ourselves for future opportunities and continue to enjoy what we are doing.”
He closes the discussion by reiterating his conviction to remain faithful to the vision that he and other leaders at the bank devised and elucidated some years ago. “We have an offering, an approach and a culture that resonate with Asian clients,” he reports. “These clients want to achieve longevity for their family business, their wealth and to preserve the family’s integrity into the future generations. The different and exciting elements of our activities here in Asia are maturing and expanding, and we are well positioned to build for the future and to provide our clients with the best outcomes possible.”