A date with Roger Federer: the key to winning business from the rich
Last month, I conducted client interviews with investors who have more than $US500 million in assets. I spoke to an Englishman – living in America and in the hotel business – about how he was choosing his service providers.
At the time he had seven hotel projects on the go, mostly in China and America, and including one in Europe. He listed the banks he was using for the debt element of his $1-billion-plus building portfolio – and in each of the syndicates, he listed Credit Suisse as the lead. It wasn’t the point of the interview, but I asked him why he was using Credit Suisse.“Do you want the honest answer or the business answer?” he asked. I told him to give me both.
“Well,” he said, “they are pretty good; I’ve worked with them since the 70s; and the other answer is that my wife is absolutely bonkers about Roger Federer and I know if I do enough business with them we will get an invitation to the tennis, she will meet Federer and that will be a good day.”
For this investor, the utility in a $1 billion loan portfolio wasn’t just relationship and price, it was coffee with a tennis great.
For the past decade in Australia, CoreData has been researching the investment behaviours, satisfaction drivers and intentions of rich clients in Australia, Asia, Europe and America, giving us an unparalleled view of what they want, and what makes them happy.
When it comes to servicing the rich, Australia is different from the rest of the world. For a start, we just don’t have as many rich people as the rest of the world. (Here’s a fun fact: There are more $US millionaires in both China and India than there are people in Australia.) We don’t have any real intergenerational wealth and our rich just aren’t as rich as their rich.
A few years ago we started writing an annual report called Handbag Economics, looking at what is driving the satisfaction of the wealthy around the world. The report’s name came from the fact that one of the banks in the UK (Coutts – banker to the Queen) was providing a service to its newly rich Russian clients, helping them to jump the queue to get a Hermes Birkin handbag.
The point to this is that a Birkin handbag – the tall loop-topped, medium-sized and actually very practical bag, sold by Hermes – costs anywhere from $7400 (the cheapest model) to $150,000; and at the time of writing, there was reportedly a waiting time of 14 weeks. Coutts’ ability to jump the queue was providing them real utility as they built their business of newly rich Russian oligarchs and their wives.
Wealth is defined very differently in Australia. All of the big four banks and financial planning businesses have high-net-worth (HNW) teams, but most of them define HNW as “having more than $1 million”, while in the USA, the UK and Asia, many banks will not even start talking to clients until they have more than $US50 million in assets.
This means that in real terms it is almost impossible for Australian firms to compete for the attention of the truly very wealthy. UBS, for example, provides art banking for people who cannot keep control of their burgeoning art collections.
For $58,000, Amex will organise everything for their clients, from a haircut to a new hand basin. One of CoreData’s HNW clients absolutely swears this service is terrific value. He claims that it means that when he flies he is always upgraded from business to first class, and that he is able to track all of his wife’s activity, as she uses the service to do everything from buying soap to booking nightclubs.
That’s not all that is available for the international rich. Private health advisory firm PinnacleCare provides the interesting service of ensuring clients get instant access to the world’s best medical specialists.
The hidden truth in all of this is that the rich focus hard on “utility”, asking the question of every investment that they make: how much does it cost, and what does it do? And it’s important to know that the metrics of time (how much of my time does this take?) and money (how much will this save me, or how much will this make me?) are the only metrics that are applied.
That means that every interaction that a financial planner or a banker has with the rich is viewed through this prism. And in a lot of ways, Australia does both well and poorly on these metrics.
CoreData’s global HNW efficiency research shows that Australian service providers tend to spend about 27 hours a week servicing their customers – about the same as in the UK, but much less than the Americans and Europeans – but that the range of services that they provide is much more limited.
The customers also state that the “benefits of belonging” – the soft rewards that they get for membership – are not as great as those in Europe, America or Asia.
One of the critical benefits that a HNW service provider can provide is essentially a bank concierge service: an individual within the bank who helps the client navigate the services and takes away the mundaneness of banking. Providing this service well drives up satisfaction scores and makes clients sticky.
Australia tends to do that poorly, because in Australia, this role is not a career – it’s a transition to somewhere else in the organisation.
A terrific indicator of this is the recent HNWI research we did at CoreData, showing that Australian HNWIs using one of the Big Four banks had a relationship manager for, on average, 28 months. And one of their biggest disappointments was that they were constantly having to build new relationships, explaining who they were and what they were trying to achieve.
The corollary to that is that in Europe, Asia and America those roles seem to be much stickier, with an average relationship tenure of 48 months across the three regions.
The other core driver is price. The rich are notoriously cheap. In a recent poll of lending for the rich in Australia, CBA came last in satisfaction – not because they had poor service (they didn’t; in fact they were ranked number two in service), not because they were slow (they weren’t; in fact they were the fastest processor of loans), but because they refused to discount their interest rate at a time when their customers knew that CBA’s competitors were competing hard for lending.
by Andrew Inwood