WEALTH MANAGEMENT (COMPARTMENTALIZATION)

Written by Steve Knabl

Conquest by Compartmentalization

Large private banks have become mired in inertia, compartmentalizing all of their functions through micro-managing and segregating every process and procedure – and this to their own detriment. As a primary result and in the name of compliance, compartmentalization disrupts simple transactions and results in ineffective horizontal economies of scale. Lack of motivation, no sense of belonging, and apathy stunts the formation of cross-functional managers who should instead develop a deep understanding of the business as a whole.

For an organization to be successful, its leaders or leaders-to-be should know the company inside and out. Every strength and weakness should be known, as well as how to take the business to a higher level while still understanding and respecting the inherent risks involved. Experience and skill are key.

What is Compartmentalization?

The definition of compartmentalization is to separate things into different categories, different functions. This has its uses to a certain extent, but when overdone it creates the segregations that inhibit creativity and growth. For example, the compliance function within a large banking institution is so far removed from the customer that it invariably ends up hindering business. Questions are asked and decisions are made about whether potential clients should become clients without even having personal contact with the individuals. The source of funds and plausibility are often used by the compliance functions to try and determine if the client should be accepted. Today a client needs to fight to become a client of a private bank. This is the epitome of anti-business practice and a large opportunity for external wealth management firms such as ours.

Another great example is the research analyst; he is required to perform only a single function and nothing else. Once his research and advice is completed it is pushed up to the higher echelons and whatever takes place next is of no concern to him—it’s no longer his problem. His research will be packaged and pushed off on to the relationship managers to sell to their clients in one form or another. I am of the opinion that this process creates a disconnect between the bank and the client. No one person has any real vested interest in anything aside from his isolated function to generate a sale and thus revenue for the bank and himself. No one cares if the product is what the client truly wants or needs, as long as it simply generates revenue for the bank and ticks all the boxes from a client profile or client suitability perspective as defined by the bank. Unfortunately, many of today’s private bankers haven’t a clue as to the needs of their clients and those that do end up leaving the large banking institution to smaller boutiques or become independent.

Our Point of Difference

While these are extreme examples, let’s face it: this is not very far off from reality. It is my point of view that this divide and conquer method of conducting business in big banks is in place to make every employee expendable–able to be replaced with 24 hours notice–and to generate large profits that are eventually paid to regulators as fines for recurring misconducts in various matters as we can all read in the news today.

In boutique private banks, and external wealth managers like Swiss-Asia, we have a tradition of placing the interests of the clients first, listening and responding to their wants and needs. This is the antimony of what private banking in big institutions is about, and we take pride in caring for our clients, seeing the whole picture, and holistically looking after their interests.

For more information on what we do, please visit: www.swissasia-group.com