The Risk of Hiring Risk-Happy Relationship Managers
“Why didn’t you stay on at your earlier bank if they do everything better," was my blunt question to a freshly recruited senior relationship manager (RM) eight years ago after I had moved to Asia from Geneva.
He was pestering the credit committee - which approves new transactions and annually reviews existing credit limits - to do something they were not ready to do.
Business in Asia was good and brisk then as it is now and banks were recruiting a lot of staff across the board - RMs, middle management, back office and products people.
Bringing in assets under management (AUM) or rich people’s wealth to meet ambitious business development targets was the name of the game then as it is now.
Asia, excluding Japan, had the fastest AUM growth rate in 2010 of 17.1 percent, according to the 2011 Global Wealth Report by the Boston Consulting Group, even though it stills lags Europe and the U.S. in terms of total wealth.
Asia, again excluding Japan, will also remain the fastest growing region for AUMs for the next five years according to the same report.
So every bank is keen to strengthen or establish its presence in wealth management. The RM whom I wished had stayed at his previous “boutique” bank wanted us to launch into some risky transaction involving the owner of a new company. A first generation millionaire who wanted to borrow for his personal investments through his operating companies.
This is something we are always loathe to accept.
This could have put him at odds with other shareholders or key decision makers. Even if he was the sole proprietor, it could have compromised his achievements in the future.
Years later, after we had both moved on, I met this RM at an industry conference where we both politely avoided each other. A fellow panelist, however, told me that this RM had in the past five years changed banks twice with his whole team and his customers’ portfolio. So he was successful and had a team now!
This is bound to happen across the whole wealth management industry in such a rapidly expanding Asian market.
RMs in Asia tend to see themselves more as the clients’ ambassador within the bank than as the bank’s representative with the clients, as they constantly move from bank to bank.
The huge risk appetite of RMs in Asia comes from a desire to overachieve AUM targets, set by banks in their quest to grow. This puts the risk manager, whose job is to assess risks, in a hard spot, because while wanting to increase the profitability of the bank he can’t give the go-ahead to do something simply because it was done that way in another bank.
RMs in Asia have to accept that while being customer-centric is key to the success of any bank, they can’t be blind to the risk they are exposing the bank to.
The author is a private banker in Asia with over 30 years of experience. He is an alumnus of Sorbonne University and Sciences-Po (I.E.P) in Paris.