TRADITIONALLY, NORDIC DOMESTIC banks have focused on affluent clients, rather than high-net-worth clients. The high level of taxes in the Nordic region, excluding Iceland, has kept a lid on the growth of the high-net-worth sector, while the technology boom pushed a considerable number of Nordic retail clients up into the mass affluent zone.
In 1999, there was a 39% increase in the number of affluent individuals in the Nordic region as a result of their heavy exposure to equities and, in turn, technology stocks. Indeed, although there are only an estimated 114,400 people with more than e300,000 in liquid assets in Denmark, Finland, Norway and Sweden, there are more than 1.4 million individuals with e50,000 to e300,000. It is therefore understandable that offerings to wealthy clients have tended to be extensions on retail banking rather than efforts to match clients' specific needs, but this is gradually changing.
"We're finally seeing a private-banking culture starting to develop," explains Marko Kauppi, chief executive of the Finnish Mandatum Private Bank. "It's no longer about putting together retail banking and asset management. The Nordic region is following central Europe by looking at a more holistic wealth management approach." Forecasts of growth in the number of affluent and high-net-worth Nordic clients of between 6% and 7% by 2007 are encouraging the push further, and competition is building.
When the technology bubble burst in 2000, the Nordic region's wealthy lost significant amounts. In 2001, mass affluent clients' liquid assets fell by 5%, and dropped a further 1% in 2002. The number of high-net-worth individuals dropped by 2% over the period. Sweden and Finland were worst hit, as their stock markets had a relatively high exposure to technology stocks. "The S&P may have been down 49% from 2000 to 2003, but the Stockholm OMX was down 73%, largely because Ericsson had a high weighting," says Torbjörn Söderberg, Carnegie's chief investment officer for private banking in Sweden (see chart).
Ready for the challenge
Even more so than their counterparts elsewhere in Europe, the Nordic region's wealthy have emerged from the wreckage demanding better asset allocation advice, greater diversification of investments and better relationships with their advisers. Ulf Peterson, global head of private banking at SEB Private Banking, believes the banks are ready for the challenge. "There have been some tough years in terms of downsizing and restructuring, and 2003 wasn't much better, but the upswing in stock markets means that now the focus for the banking industry is on top-line growth and cost control," he says.
The first step towards offering more tailored solutions for wealthy clients has been to make clearer distinctions between retail, affluent and high-net-worth individuals in order to create a separate identity as a private bank. SEB raised its minimum level for private-banking clients last year, to enable it to offer a more personalized service.
Peterson says: "We knew we had to work with the private-banking client in a private-banking way, not a retail banking way – but offering these tailored services to mass-affluent clients with e150,000 was not profitable. We are still working with them but there are more customers per employee and more standardized products than for the high-net-worth customers."
Oliver Guirdham, wealth management analyst with research company Datamonitor, believes that the Nordic universal banks can be successful in creating separate private-banking businesses if they take advantage of other in-house capabilities. "The universal banks need to create an identity in the private-banking sector, but be able to leverage the bank's other capabilities. For example, referring retail clients across, using the investment banking arm as a source for entrepreneurs and wealthy clients, and the asset management arm to structure unique products."
Danske Bank decided to create a high-net-worth business separate to its retail banking business four years ago but to use the same products as a base. "We are now in two segments, offering the same basic banking products, but now we have an entirely different approach to advising clients and allocating assets," says head of private banking Klaus Monsted Pedersen. Danske now offers a holistic approach to customers with more than e500,000, and has increased the number of advisers to this customer base.
Broadening the product range
In addition to lowering the number of customers per adviser, banks are focusing on product range to differentiate their private-banking offerings from the retail offerings. In investments the Nordic private banks are following their western European counterparts in offering a broader range of asset classes – particularly in the alternatives sector. Carnegie launched two alternative fund families nine months ago for Danish and Swedish clients.
"Since the downturn in equity markets there has been a clear switch of focus to absolute returns. We decided it was important to offer absolute-return products of our own using tactical allocation and focused risk control to ensure stable absolute returns, so we launched a global long/short fund for Denmark and a family of portfolio funds for Sweden investing in a broad range of funds and structured products," says Carnegie's Söderberg.
Mandatum's Kauppi agrees that the offering of alternatives is a growing trend in the Nordic region. He cites hedge funds, private equity and commodities as asset classes that will attract increased interest. Mandatum itself is well positioned for this. It has a sister private-equity company, Mandatum Private Equity, and its parent company, Sampo Bank, bought hedge fund company 3C two years ago. 3C and Mandatum Asset Management's absolute-return objective fund managements were then merged.
Third-party product offerings have also attracted increasing demand from Nordic clients seeking exposure to a more diversified range of international investments. Carnegie, for example, established a partnership with manager of managers Russell in September last year to offer its clients diversity.
It will require more than broader asset classes to convince the region's wealthy of a commitment to private clients, however. Datamonitor's Guirdham says: "The approach [of offering third-party and multi-manager funds] has now become a must-have in Nordic wealth management and no longer offers competitors genuine competitive advantages in attracting affluent customers."