The last 12 months have been interesting for most of the emerging market economies, particularly the Nigerian economy, which is FirstBank’s primary market. Crude oil prices significantly declined, increased concerns about insecurity and a heated polity in Nigeria have all combined to adversely affect the fortunes of our existing and prospective clients’ wealth significantly. Our portfolio management objectives were solely focused on preventing any diminution in the value of our clients’ assets through various defensive manoeuvres.
These manoeuvres included investing in US dollar-denominated instruments that consider the defensive nature of the currency from the fluctuations in the global and domestic markets. We also orchestrated a shift from instruments with significantly higher risk to our clients’ portfolios to those with lower risk, which led to somewhat competitive returns considering the prevalent situation. For a certain period of time, this usurped the more usually ‘mercantile’ objectives of the bank… or did it?
Knowing your customer
This period taught us some valid lessons that would guide our approach in the weeks, months and years to come – in order to ensure our business is profitable our clients must be profiting first and foremost. One of the greatest misconceptions facing the business of private banking in the emerging markets is that it is relatively easy to run the business profitably, with some banks in these economies wrongly assuming that what we do is ‘glorified retail banking’ with additional bells and whistles under the guise of lifestyle management; providing clients with access to services they generally do not need to go to their bankers for. However, our experience of the aforementioned period has more than disproved this fallacy as we saw that.
Our target clientele consists of some of the best-informed individuals on the planet. They are constantly in touch with the market and searching for alternatives. Their high mobility means they usually research prospective banks extensively – especially in the area of fees charged – which is why we must ensure that our services are as personalised as they can be, as the demand for this has been a boon for private banking in recent years.
The wealthy in Nigeria and other emerging markets present a huge opportunity for private banks. How to profitably serve these clients is one for further discussion. Research has shown the average net worth of the top 20 richest individuals in Africa, Central Europe and the Middle East to be $2.3bn, $3.2bn and $7.8bn respectively (see Fig. 1) – thereby indicating that a vast opportunity exists in these regions for any bank willing to venture.
Most entrepreneurs in the emerging markets have made impressive steps in building global companies; however, they are still at a disadvantage in terms of creating global brands and this is an area that many seem to be focused on remedying in the not too distant future. Part of our value proposition to clients includes our role in ensuring they achieve these global targets. The nascent nature of some of these UHNWIs’ fortunes means their personal money management practices are also at an earlier stage than those of their contemporaries in the more mature markets (see side bar).
Global acceptance is becoming increasingly important to the UHNWIs in emerging markets, and as such our focus is on building our capacity to enable us to serve as partners with which they are able to achieve this objective. Our approach has been to enhance our capacity to play the role of one-stop shop to our clients; investing in the required training, technology and adapting our client engagement model to become more client-centric. The only way to justify fees is to add undisputable value for clients. We have identified some critical success factors for our business in the emerging markets:
Customer segmentation and profiling
Emphasising our ability to understand the subtle differences in the needs of the different categories of UHNWIs whom we currently serve and are looking to serve. The accuracy of our assessment of the risk/return profile, financial goals, life stage and nature of wealth owned by our clients as well would be key.
Leveraging our platform/cross-selling
The FBN Holdings Group – the parent company of FirstBank – is one of the most robust financial platforms in the West African sub-region and continues to grow in geometric proportions. The bank’s focus on establishing cross-selling processes to diversify our revenue streams, especially from the fees earned on services provided by other strategic units within the group is expected to add to our bottom line.
Third party tie-ups & international offerings
We believe these can help the domestic players in the emerging markets ‘rub shoulders’ with the banks from more developed climes. We believe that this would assist us in creating strong pull by offering solutions not available within our jurisdiction or under our home country regulations.
Offering services that are outside the conventional financial solutions usually provided by banking institutions is imperative. This ties in to the previous point – partners do not have to be international bodies but must be held to the highest possible standards of service. Such services would be purely focused on lifestyle management and providing our clients with access to a world of convenience. Fees charged on these services would further diversify our sources of revenue.
Family offices/inter-generational wealth transfer infrastructure
In mature markets the culture of family offices exists and is prevalent especially for intergenerational wealth transfers. This phenomenon is only beginning in many emerging markets, and is very new in Nigeria. These legal and financial vehicles would be helpful in aiding UHNWIs execute their wealth transfer and planning. In the past, UHNWIs have worked with private banks from mature climes to access this service, but we plan to increase our capacity to provide this
Developing a team of domain experts with thorough understanding of various investment products, asset classes, market trends and macro-economic fundamentals to work closely with relationship managers. Increasing our credibility – especially in the area of wealth management – would go a long way in increasing our clients’ trust which would ensure the effects of our business development activity reflect positively on our profitability.
Another way we intend to boost profitability is through our involvement in the spending of our clients. UHNWIs have been found to share similar patterns in their spending and investing activity. Among Nigerian UHNWIs in Africa, real estate is the preferred asset class. The wealthy invest both within the country and internationally with a preference shown for property in the UK and South Africa.
Sports investments are more vanity projects than speculative acquisitions – they provide a form of recreation for the UHNWIs and also a level of visibility. This is a growing area of investing/ spending activity, especially in Africa. Sometimes these purchases are seen as the ultimate toy. Philanthropy is also at the early stages in emerging markets. These activities are usually embedded in those of family offices and aid in executing some degree of intergenerational wealth transfer with some beneficiaries registered under charities.
Our intention is to continue adapting to the changes in our environment towards serving our clients as efficiently as possible, identifying the business models and decisions which would impact profitability, and enhance core competencies required to improve our overall performances.