SOME private banks are more open than others - and a top executive at Standard Chartered's private bank thinks the time has come for clients to demand more pricing transparency from private banks.
Speaking to The Business Times in an interview, Didier von Daeniken, global head of private bank and wealth management at StanChart, noted out that few private banks offer an "open architecture" model.
This model is grounded in the promise that private-banking clients get the best-possible quotation on a forex or equity derivative based on quotations from a range of banks, rather than an inhouse quote from the bank's trading arm.
Many private banks may claim to offer an open-architecture model, but Mr von Daeniken said the litmus test comes only when clients can openly compare prices. And when that is done, he thinks few private banks would pass the test, despite their claims. Based on internal checks, he believes StanChart to be one of the few private banks that would."
"For me, it leads to the question, in the future, should we enable the clients to have that price discovery for himself or herself? And why not?"
Right now, clients who want to buy a forex or equity derivative - say a swap agreement to borrow one currency and lend another currency, or an option for the right to buy a stock six months from now - would usually call up the private bank to get a quotation, without having a full view of the range of quotations available.
So long as private banks can anonymise the name of other banks behind the prices being quoted on trades, then offering transparency of price ranges is something the business should embrace, he said.
"I quite like the idea."
A future of greater openness comes as regulators are raising their watch over pricing transparency and conflicts of interest within the bank. The transparency is driven by the tone behind the reforms written into a set of rules under the Markets in Financial Instruments Directive (MiFID) II out of the European Union.
Private banking clients are increasingly making their own trades for equities and bonds, but that is far less so for derivatives, which are mainly quoted via over-the-counter (OTC) trading. OTC trades, which are done between two parties, remain much more of an opaque market, when compared against a more open price discovery with various parties as is done on an exchange.
Given the broad lift in regulatory scrutiny, pricing transparency is a matter of course for the private banking industry, said Mr von Daeniken, who pointed out that while the private banking business is siloed in dealing with rich clients, it is, at its essence, managing the wealth of individual customers.
Given this, it is better for banks to step up than to wait for regulators to come a-calling.
"It's like with little children: it would be good sometimes if they do something before their parents tell them," he said, noting that banks need to work better with regulators, especially as financial crime remains the top risk for private banks such as StanChart.
"You get upset with the police when they tell you to buckle up. But then you get into an accident."
StanChart's private-banking business has fully de-risked its clients after some 21/2 years, said Mr von Daeniken.
He said StanChart's anchor in Asia, and particularly in China via Hong Kong, gives it a clear competitive advantage. When asked about the risk behind operating in China following the recent detention of a Singaporean UBS private banker in Beijing, he said that broadly, banks need to understand the regulatory environment in markets and to mind certain "idiosyncratic" risks.
With the bank's chief executive Bill Winters anchoring private banking as a core part of the bank's business strategy, the bank has been able to attract senior bankers in a tight job market. Close to half the bank's new hires are either executive directors or managing directors.
While StanChart private bank's assets under management (AUMs) globally as at last year of about US$65 billion does not put in among the bulge players, the unit's play as a key priority for the bank means staff "don't have to worry about our existence every year", said Mr von Daeniken.
The bank does not break down its AUMs out of Asia, but StanChart overall derives much of its business from emerging markets. The bank's annual client survey found that more than half its clients would like to do more business with the bank.
Mr von Daeniken noted that the bank is open to options to scale the ranks, but is focused on being among the top three private banks of choice for clients.
"We have a fair chance," he said, but declined to offer a target.
Asked more broadly about any new wave of consolidation in the private banking space in Asia, he said thus far, just two large transactions have significantly changed the complexion of the industry in Asia.
The more recent transaction was in 2012, when Julius Baer bought Bank of America-Merrill Lynch's non-US wealth-management business.
The second occurred in 2009, when OCBC snagged ING's Asian private banking business. The rest of the deals over the years have been smaller or appear to have been more bolt-on in nature.
But he noted that valuations are unlikely to come down, even amid any new wave of consolidation, as a private-banking business remains attractive to universal banks in particular, for the business unit's small appetite in capital and high return on equity.
"There has been competition in private banking since forever," he noted. "It's here to stay."