At first glance, it looked like a haircut at crisis-ridden Credit Suisse when, at the beginning of the week finews.com, among others, reported on an internal letter from top private banking boss Francesco De Ferrari to his client advisors.

The memo announced the reallocation of Credit Suisse clients registered in Switzerland. Those with under 20 million francs under management at the bank not requiring complex services will be served by the Private Banking International (PBI) unit under Raffael Gasser. Bankers are also moving with the clients, with up to a third of client advisors in local offshore currently not reporting to PBI, are to be transferred.

Plans Hinted in June

De Ferrari's «move» was expected for some time. Gasser's unit has been in place for three years and Credit Suisse had begun to distinguish between super-rich (UHNW) and millionaire clients (HNW) with traditional financial needs in its offshore business. This followed the segmentation practiced in its home market.

De Ferrari now wants to accelerate business with the latter once again, as announced at the investor day in June.

He sees the «sweet spot» as the HNW business forming the largest revenue pool in the entire wealth management business, generating recurring fees with the idea that it can be served efficiently. This could pay off for the clientele and also for the bank. The cost-income ratio of Gasser's PBI is just 55 percent, and much better than the 93 percent in Credit Suisse's wealth management division in the second quarter.

Quick Transfer

This was achievable because of lower costs for support and administration since not every PBI client service needs to be provided by hand. According to the bank, the unit has been able to build up a track record over the past three years and enjoys a good reputation among bankers and customers, and the transfer of the relationship managers should now be completed within two months after intensive preparations.

In a further step, the new HNW model will be tried out in Hong Kong and Singapore.

Billions to be Earned

Credit Suisse is not alone in trying to bring private banking to the masses. Recently the consulting firm Oliver Wyman spoke of «Wealth Management 3.0», characterized by modular services that can be offered to a much broader clientele yet still be tailored to individual needs.

Wyman consultants calculate the market penetration of private banks among wealthy «affluent» clients and HNW is at most 20 percent. By 2026 this market is expected to generate $45 billion in revenue streams, and four years from now, two-thirds of all private banking revenue could come from this segment.

The use of technology can also reduce the cost of processing clients substantially from $20,000 per client in the traditional advisor model to $2,000 in pre-digital client contact.

Megadeal Announcement

Against the backdrop of such a numbers game, it is easier to understand why UBS paid around 1.3 billion Swiss francs for American digital wealth manager Wealthfront at the beginning of the year. With just under half a million users, its client pool is not yet huge, and UBS to have bought is potential as well. And CEO Ralph Hamers who is a big fan of digitalization has his sights set on a broader horizon with the acquisition.

At the time of the Wealthfront acquisition, Hamers said it brings UBS closer to its long-term goal of providing scalable, digital wealth management services to high-net-worth investors.

UBS has been segmenting its private banking clients for years with one strategic swerve or another. In 2017 the world's largest private bank created a separate unit to serve the super-rich, headed at the time by Josef Stadler. But two years later his empire was added to the individual regions, save for the family offices business.

Wealth and Affluence

Last March, UBS made another big splash with the creation of its Global Family & Institutional Wealth (GFIW) unit, now headed by investment banker George Athanasopoulos.

Perhaps most consistently, UBS European head Christine Novakovic pushed the focus on millionaire and high net worth clients. With assets under $5 million, one is considered a «Private Client» and those with under 500,000 as «Mass Affluent».

The lower the assets, the more standardized products are used, and the results of recent years now seem to prove Novakovic right.

The Word is Spreading

It is true private bankers often focus on the largest clients in their books and put the needs of smaller ones on the back burner. But those familiar with the matter say that can be overcome by creating sufficiently large teams for the respective client segments and giving them internal attention within the bank. Another argument in favor of segmentation.

Word gets around. Smaller Swiss private banks which try to distinguish themselves from UBS and Credit Suisse are now not taking it so seriously when it comes to the minimum requirement for client assets. They are doing this in the hope of future wealth creation where the minimum million of yesteryear is thus giving way to the potential millions that will one day find their way into the private banks' custody accounts.

Raiffeisen is There

The supreme discipline of Swiss banking is therefore heading for the mass market, where it will encounter competitors at the lower end who have already recognized the signs of the times. Raiffeisen CEO Heinz Huber explained last Wednesday, that the cooperative bankers are currently pushing asset management mandates with an entry threshold of 50,000 francs.

Of these portfolios, 225 were opened at the Raiffeisen banks in the past six months - per day.