Customer satisfaction: What really matters in private banking

Customer satisfaction and customer loyalty are not ends in themselves; rather, they have direct economic consequences such as a larger market share and higher profitability. Companies that generate most of their revenues with their existing customers are more profitable than companies that heavily rely on generating business with new customers, as the acquisition of new customers is generally costly. This becomes painfully clear when considering that a private banking service provider needs to attract seven new customers to counterbalance the lost revenues from the churn of a single existing client. On top, private banking providers heavily depend on customer recommendations to attract new clients. Combining these insights with the results of the World Wealth Report 2009 from Capgemini/Merrill Lynch, showing that more than 25% of high net worth individuals (HNWI) are dissatisfied with their private banking service provider, indicates how much money is potentially left on the street.

Knowing about the severity of the issue does not solve it.
Despite the importance attached to high customer satisfaction in the private banking industry, the field has received limited attention not only from researchers but also from practitioners. In the twenty-first century, the question still arises: How to improve customer satisfaction in private banking? With the paper “Customer Satisfaction in Private Banking”, Assoc. Prof. Dr. Volker Seiler and Prof. Dr. Markus Rudolf examine exactly this question and identify nine predictors that primarily influence customer satisfaction:

1. The accessibility in terms of geographical coverage and banking hours is an inherent element of the service industry. It is like the saying goes: 80% of success is just showing up.
2. You eat with your eyes: Consequently, the servicescape (i.e., the physical surroundings, interior décor and furnishing, and the employees) is of high importance.
3. HNWIs expect objective advice and an unbiased selection of products from the investment opportunity set. In other words, the product range must be appealing.
4. Mutual understanding is at the heart of every good relationship. The written translation of customer needs into a specific asset allocation (investment proposal) strongly influences customer opinion when evaluating the service provided by the wealth manager.
5. Customers want to be kept in the loop, no matter whether the portfolio performs well or bad. Frequent and meaningful reporting can go a long way for retaining customers.
6. Returns are arguably the most important factor, since the overall goal of a client is to receive an appropriate level of performance.
7. One of the key advantages of private banks compared to retail banking is the personal relationship customers build with their banker. Customers reflect on their relationship with the service provider when assessing their satisfaction with a service. A distinction is made between the relationship quality offered by the private banking service provider in general and the appearance of the individual relationship manager.
8. At the end of the day, people do not want to lose money in the process of managing it. No matter how good the coffee and how nice the relationship manager is, HNWIs are not in the habit of throwing money out of the window. Value for money is therefore key in customer satisfaction. Portfolio returns and fees need to balance each other.

As it is often the case, soft skills win.
The results may come as a surprise to some. Investment performance as a “hard” criterion is no driver of customer satisfaction. Neither search qualities such as accessibility nor servicescape are of great importance. Experience qualities such as relationship quality and the specific relationship manager are the prevailing determinants of customer satisfaction.

Again, it is a people’s business, and in private banking the relationship manager is the center of the universe. Hence, the training of relationship managers should be taken seriously. Only when private banking service providers can retain qualified relationship managers, long-lasting and profitable relationships with customers can be sustained.

Please refer to the original paper for further details:

Seiler, V. and M. Rudolf (2014). Customer Satisfaction in Private Banking. Credit and Capital Markets 47 (3), 485-520.