Copyright The Asian Banker All rights reserved 1 Rebuilding trust requires banks to revisit the sales and due diligence process August 2009 Asian Banker Research

Copyright The Asian Banker All rights reserved Agenda 1.Asian Banker Research Findings on Impact on Banks’ Existing Sales Processes and Practices 2.Elements of Building a Sustainable Selling Process 3.Client Communication and Contact

Copyright The Asian Banker All rights reserved 3 “Indicate your personal opinion on the party(s) most responsible” Source: Asian Banker Research Restoring customer confidence is a major target of most Asian banks, particularly in Taiwan, Singapore, Hong Kong, Korea

Copyright The Asian Banker All rights reserved 4 Source: Asian Banker Research Banks begun changing the selling process to restore customer confidence “Please indicate the most representative statement as applies to your bank” 8% 53% 15% 18% The selling process is inadequate and requires significant amendments The selling process is inadequate but requires minor amendments The selling process is adequate but will undergo significant amendments anyway The selling process is adequate but will benefit from minor amendments The selling process is adequate and does not require amendments 0%10%20%30%40%50%60%

Copyright The Asian Banker All rights reserved 5 Source: Asian Banker Research However current emphasis for improvements revolves largely around the front office, treating only the most visible symptoms “Indicate which of the following aspects of the selling process you are looking to address”

Copyright The Asian Banker All rights reserved 6 Source: Asian Banker Research Wealth Management Architecture Building sustainable sales capability requires reconfiguration of the selling process at the front, middle and back office Client Services Risk Management Back Office Middle Office Frontline Staff & Products Client Risk Profiling Client Interaction Sales Management Front Liners Trust& Legal Unit Business/Product Controller Unit Compliance Unit Lending, Deposits,cards, remittances/ fund transfer & Custodial Services Investment& Insurance Trading Trade Services Accounting& Financial Reporting Business Continuity Testing Straight-Through-ProcessingEnterprise Resource Planning New generation of SharedServices-”Process Utilities Middle& Back Office Interfaces * Weak areas in selling process WORKFLOW

Copyright The Asian Banker All rights reserved 7 Demographics Financial Situation - Income Allocation - Risk Capital Investment Experience - Product type - Length of experience - Portfolio Investment Objective & Risk Profile - Investor Profile - Risk Tolerance Basic Suitability DataAdditional Best Practice Criteria  Source of funds for investment  Fixed payment schedules (e.g. mortgage, insurance etc)  Financial obligations / Other intended uses of funds  Gearing Strategy / Financed by Credit  Investment style (e.g. frequency, proactiveness )  Level of knowledge (expand to include more qualitative assessors)  Investment interests  Investor profile (expand to include more qualitative assessors)  Risk tolerance (expand to include more qualitative assessors)  Life stage planning & Aspirations Mapping  Specific purpose of investment Source: Asian Banker Research Robust client suitability profiling complemented with middle and back office verifications will reinforce existing selling processes

Copyright The Asian Banker All rights reserved 8 The most prevalent forms of training conducted are basic, generic and cost efficient Source: Asian Banker Research Commonly cited forms of training offered at sample banks Simulated Training Role Playing Industry Framework Certification Continuing Professional Development Advisor Experience Prevalence of training provided Conferences Postgraduate Degree In-house Training Best Practices in Training: Formal statements of competence Formalised competence assessment criteria Formalised training schedule Joint goal setting and sign-off between staff and supervisor Refresher courses “On-tap” e-learning support Low High Bespoke Training Special Case Examples Discussion

Copyright The Asian Banker All rights reserved 9 Building robust sales capabilities must also extend to improving product development and sourcing capabilities Stakeholders Top Management Product Development / Sourcing Best practices include:  Define an acceptable range of products to develop / source  Assess ability of sales staff to comply with internal rules for defined range of products  Develop systematic product screening procedures that incorporate client suitability and prevailing/expected market conditions (and not only financial parameters)  Stress-test complex products to understand performance under different market conditions  Include specific risk warnings and disclosures in reader-friendly formats Marketing  Create consistent and simple propositions for ease of sales staff and customer understanding  Develop marketing messages that reflect expectations and needs of targeted segments  Collaborate with compliance and legal departments in collateral approval process Sales Staff  Conduct risk assessment for each new product recommended / sold  Highlight risk warnings to customers during product walk-through and before sale

Copyright The Asian Banker All rights reserved Copyright The Asian Banker All rights reserved 10 The highest gap between front line and clients is in support capabilities, client communication and due diligence Strategic Levers of Client Retention in 2008

Copyright The Asian Banker All rights reserved 11 In terms of current levels of communication with existing customers, which statement best represents you / your bank's stance? Banks are evaluating their client communications strategy to build more holistic sales capabilities in the long term…

Copyright The Asian Banker All rights reserved 12 Will your bank conduct additional research to develop customer insight, and in what forms? Banks need to implement more structured customer insight programmes to guide marketing and promotional activities

Copyright The Asian Banker All rights reserved 13 “In which of the following areas are your bank looking to strengthen client communications in terms of frequency, quality and documentation?” …and to re-establish trust with consumers in the interim

Copyright The Asian Banker All rights reserved 14 How often is communication initiated with existing clients (retail.sme.investor)? e.g. portfolio reviews, information dissemination etc Strengthening sales capabilities not only requires increased client communications but via more personal channels

Copyright The Asian Banker All rights reserved 15 Conclusion  Sales capabilities embed sustainability into revenue streams (e.g. compensation, matching products to clients)  Front, middle and back office play equally important roles in configuring sales capabilities  Customer suitability and stress testing of complex products as an integral part right through to front-line selling process  Sustainable relationships is best ensured with strong risk and compliance framework supporting growth  Improving the quality and frequency of client interaction is crucial to restoring consumer confidence in the financial services industry

Copyright The Asian Banker All rights reserved Copyright The Asian Banker All rights reserved 16 “The banks we like” HSBC grants a 30 days service pledge, which allows customers to cancel the purchase of investment and insurance products. HSBC was the first bank in Hong Kong to adopt physical segregation and fully implemented all new regulatory requirements for investor protection measures. OCBC for its stringent due diligence and family focussed sales and advisory process, not pushing customers for sophisticated and risky investment products. The banks quickly adjusted its remuneration scheme, reduced sales incentives and introduced claw- back mechanisms.

Copyright The Asian Banker All rights reserved 17 The Questions We Ask What measures to take to assure customer protection and responsible sales due diligence. How to manage sales incentives against over-selling and mis-selling? Does your bank proceed regulatory changes or react on them? How to optimise employee training and minimise attrition while revisiting remuneration? How to align product development, marketing, sales to satisfy what the customer needs.

Copyright The Asian Banker All rights reserved Copyright The Asian Banker All rights reserved 18 For further information  Members and subscribers to this programme may request further explanations and consult with Asian Banker Research analysts on additional information and specific needs.  If the additional information you require can be repackaged from primary data we have already collected previously, the analyst will send it to you as part of your subscription or membership.  If the additional information you request requires new primary work that is unique to your organisation, then a small fee may be applicable.  For more information about this article and Project BankMetrics please contact us at