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Credit Suisse Invest Creates Transparency

The new Credit Suisse Invest investment solutions don't reinvent the wheel, but they do change it quite a bit. Growth through more advice and greater transparency is the underlying concept.

Nothing would get done in the financial sector without people. This business cannot be conducted reputably without personal contact, without trust. However, the financial market crisis tested clients' trust in banks, in some cases seriously. New regulatory provisions were issued, including provisions to protect investors. Credit Suisse made structural improvements to its advisory process, such as the mandatory assessment and documentation of whether a product is suitable and appropriate for the client.

More Transparent Catalog of Services

However, there was further need, from both a regulatory point of view and the perspective of clients and the bank, to clarify the role of the client advisor. As it was not stipulated in the agreement, the scope of the advisory relationship used to be largely at the discretion of the Relationship Manager (RM). With Credit Suisse Invest, Private & Wealth Management Clients CH, Private Banking Western Europe (now known as Private Banking Europe) and Private Banking Latin America are breaking new ground. Clients now conclude an advisory agreement that explicitly states what services they will receive at what price. Thus, they know at all times what services the bank has to provide and what they can expect. Advisors now offer their clients the best solution as part of an agreed mandate framework.

The three business areas were involved early on as the driving force behind the project work. The project team sounded people out in advance using structured interviews to ensure that the new investment solutions took into account each area's specific circumstances and requirements from the outset. "At Private Banking Latin America, for example, we conducted workshops with RMs, team heads and investment consultants," explains Olivia Sigrist, co-head of the project in the region. "This meant we had first-mover advantage in the majority of our markets, which enabled us to position our offering attractively."

A Solution for Every Need

With Credit Suisse Invest, the bank is launching a range of investment solutions from which clients can choose: Compact, Partner, Expert and Mandate. The first three follow an advisory approach. Compact (which only has this name for Private & Wealth Management Clients Switzerland) is a comparatively lean package with a set of basic services; clients who choose Partner will enjoy additional benefits – for example, tool-supported monitoring of the portfolio risks – and, finally, Expert clients, who are closely supported by the bank, will also profit from tailored investment strategies, valuable investment tips and the support of an investment consultant. In addition to these three solutions for advisory clients classified by services, there is also a fourth investment solution: Mandate, a service offering for those who would like to largely delegate the management of their assets to the bank.

With all of these service packages, clients enjoy a new advisory experience that is bolstered by innovative tablet solutions, clear investment ideas, regular portfolio quality reports and a modern online banking system.

What about Fees?

Quality has its price. The investment solutions are not free. In the future, clients will pay an investment fee in addition to transaction fees and – depending on the market in question – safekeeping fees. Advisory services will no longer be covered by safekeeping and/or transaction fees, but will instead be charged separately. A value will thus be placed on advice as the greatest asset.

An additional fee? How will clients react to this? – "Transparency is a crucial aspect for our clients. And that is exactly what we are providing thanks to Credit Suisse Invest. Our service and advice will no longer be tacitly offset against transaction fees and retrocessions. Instead it will be covered directly and ex­plicitly by the new investment fee," explains Daniel ­Hunziker from Market & Sales Management in ­Private & Wealth Management Clients CH. "That's why safekeeping and transaction fees will be reduced with Credit Suisse Invest, the latter substantially, and clients will benefit from more favorable, retrocession-free asset classes." Overall, the new model will be much more favorable, particularly for active clients. "The business case actually turns out to be slightly negative, particularly in the case of Private & Wealth Management Clients CH," emphasizes Olivier Schucht, Head of Offering and Sales Development. – But why is the bank introducing a fee model that doesn't offer it additional profits? – "While the new fees don't offer any additional profits, the business model as a whole does," notes Olivier. "Credit Suisse Invest is a clear growth project. Greater transparency and a service promise that better meets client expectations – particularly with an attractive price model – create higher client satisfaction and will help us not only retain clients, but also increase the share of managed assets per client, strengthen overall client activity and acquire new clients."

Still ... adding fees for providing advice? Will that work? What would people say if in the future retailers of consumer electronics or cameras – out of fear, for example, of providing a customer with hours of advice when the customer is only "showrooming" and has no intention of buying the product in the store – asked for an advisory fee? And as a matter of course, irrespective of whether the customer actually bought the device. "Therein lies the difference," says Klaus Depner of Offering & Sales Development. "Buying a camera is a one-time activity; banking advice, by contrast, is an ongoing process, a long-term collaboration that's based on a foundation of trust, very similar to the trust one has in a family doctor or medical consultant."

A Retrocession-Free Offering

The seriousness with which Credit Suisse takes the subject of transparency is also demonstrated by its approach to retrocessions. Discretionary mandates have been retrocession-free since this summer. "In the area of advisory services, we will create retrocession-free asset classes for our proprietary investment funds, which will be available exclusively to advisory clients, until the launch of Credit Suisse Invest on April 1, 2015. This is a good incentive to switch to Credit Suisse Invest," explains Volker Köster, Head of Product Management Mandates. "For investment funds and exchange traded funds (ETFs) offered by external providers that are licensed for public distribution in Switzerland and/or Luxembourg, we will pass on any retrocessions to the client. In short, in the future we will offer clients a path free of hidden cash flows; in doing so, we are ahead of our major competitors. This promises us a clear competitive advantage."

Grist for the Mill

Clear terms when it comes to providing advice, a retrocession-free offering, an overall improved level of transparency: In the end, all of these changes are grist for the RM's mill. While communicating them to the client will take some tact, the message itself is excellent and will help RMs to make a good impression. RMs can also take advantage of the tools mentioned above, which allow them to prepare portfolio quality reports, send clients alerts via SMS or email, and provide research and investment ideas. These are all aspects that RMs can highlight during client meetings.

The alarm feature is particularly helpful. The tool-supported monitoring of portfolio risks triggers an alarm if a deviation from the bank's recommendations is detected. RMs thus have a concrete topic that they can discuss with clients. Many RMs find this sort of incentive for interaction to be valuable. Similarly, the portfolio quality report, which is sent to clients on a regular basis, offers RMs the opportunity to contact their clients with specific topics for discussion.

Clear Terms

"Highly rigid formality is seldom very popular. So for us it was clear from the beginning that our organization had to stand behind the project," says Klaus. "The front office has to be convinced. And it will be convinced if it sees a clear added value and an advantage for clients and the front office." So, is this really true?

Credit Suisse Invest represents a revolution in the banking business, emphasizes Andreas Nauer, Head of Market Area Zimmerberg & Etzel. "The feedback that I've received so far has been extremely positive. Many of our colleagues didn't like having to constantly disclose what were comparatively high transaction costs. Credit Suisse Invest creates clear terms." That advisory services are now charged to the client is ultimately an expression of the value placed on them. Clients who conclude an investment advisory agreement with the bank explicitly decide: "Professional advice is worth it to me."

Andreas admits that naturally front-office staff will have some concerns as well. "We've received questions, such as ‘What if all of my clients choose Compact, i.e. the leanest investment solution? Couldn't these clients be advised centrally someday, and I'll lose my job as a result?' My answer to them is: 'Currently, nothing of the sort is planned or even being considered. In addition to investment advisory services, our client support includes other elements, such as financial planning. Furthermore, I am confident that good advice will always be in demand.' However, such concerns must always be taken seriously."

Tobias Wagner, Head of Market Group UK/International Offshore concurs: "In order to address uncertainty from the beginning, Credit Suisse Invest was accompanied internally by open communication. The exchange with our colleagues in Italy and Spain was very valuable because the lessons learned during the pilot projects confirmed the assertions of management."

Will pressure on RMs increase? "Yes," says Tobias, "because they will have to deliver what they sell down to the last detail. And no," he continues, "because the scope of services for the investment solutions is defined in detail, as a result of which the RM and the client will be on the same page from the beginning, and they'll be able to avoid unpleasant discussions as a result of differing expectations."

As a result, Credit Suisse Invest will make a significant contribution to the concept of further standardizing best advice, says Tobias. "I am confident that we are taking a big step toward meeting our clients' desire for transparency. We're putting a clear offer on the table. In the past, people always said we bankers could only be successful if there was a lack of transparency. With Credit Suisse Invest, we're ­going to prove the opposite is true."