In April 2001 the Banca Popolare di Lodi (BPL) launched a new service targeted at Prime clients - Private Banking, 360° counselling with regard to the planning and management of one’s personal property. Its mission is to study personalized solutions to meet clearly marked out, shared and quantified objectives. Clients are greatly appreciative of the entire project. The highly professional, confidential and flexible nature of the services offered and, in particular, the exclusive relations with the Private Banker are the entire project’s cornerstone. We interviewed Dr. Paolo Monti, Manager of the Banca Popolare di Lodi’s Retail Banking Division, on this topic.

Q: Dr. Monti, what is Private Banking, a fashion-related phenomenon or an opportunity?
It is no doubt an opportunity. Let us consider trading on-line, for example - the phenomenon spread like wildfire in the three-year period 1998/2000, supported by the positive results of financial markets, and then it inexorably deflated due to the negative trends still underway. In our opinion this took place because emotionality decisively influenced investment methods of investors, who were drawn by the fashion of the moment rather than by real needs. Our Private Banking service instead, which starts from the clients real requirements, cannot be undermined by momentary fashions and phenomena because people’s needs change, not the systematic approach adopted to meet them. We have reached this point by analysing the history of the markets and clients’ related behaviour.

Q: Which factors did this survey focus on?
The analysis started from the outside elements that appeared during the three-year period ‘98/’00. We witnessed a great increase of volatility that implied an increase in risks, especially concerning trading activities. The increase of volatility was also followed by an increase of emotionality in the choice of the type of investment and its timing. We noticed, for example, that non-traditional clients are guided more by emotion rather than reason in their choice of paper securities. In other words clients buy at the highest rates and sell at the lowest, at times loosing considerable portions of their personal property.
Today we are witnessing, without performing sociological and psychological analyses, new emotional behavioural patterns such as ‘refusal’ in clients - they do not even want to know how much their personal property amounts to, aware that they will discover a small daily erosion. We can hence state that investors’ decisions are dictated more by emotional reasons rather than by rational ones. A further confirmation of this tendency is given by the flow of the collection and disinvestment of funds. These have dramatically followed market oscillations. Our great problem today is that we have no inkling anymore of our clients’ reactions when faced with market fluctuations and how much this can affect their assets.
Our clients’ anxiety invariably affects us too. In this context even the most expert clientele has undergone totally unexpected losses. The most updated client, the one who has begun operating with trading on-line, is the one who probably has been most affected, especially in economic terms.
We also noticed that the time horizon of operations created in the market depended on the distribution in time of returns more than on deliberation on the assets. In other words clients want to possibly earn a lot and immediately, without considering the risks they take and hence the impact rash decisions can have on their personal property. Hence it is rare that clients consider the problem of clearly marking out their real needs such as an integrative pension or such personal property that can satisfy their needs. I touched the topic of integrative pension because it is what must be most considered, but instead this is often inadequately realized.
Clients should learn to “identify” their long-term objectives and from there enter into tailor-made investment plans guided by professionals skilled in formulating their paper securities in order to enable them to reach the set objectives. To make a few concrete examples: to buy a car, purchase a house at the seaside and assure the children university studies, rather than other “X” needs. Hence, in the uncertain and bewildered atmosphere that characterizes current market trends, we have recognized in Private Banking an opportunity we can offer prime clients (those whose personal property exceeds 500.000 euros), to help them manage their resources so that they are not eaten away by high-risk short-term investments (which they do not often realize). We assist them by studying investment strategies that instead have long-term objectives.

Q: From this perspective, which are the most important factors in building paper securities?
A financial operation’s performance (statistical data), in the short-term, depends on: - The choice of securities - 15%; - The strategy (that is ‘How do I allocate my paper securities?’) - 5%; and, - The timing (an essential factor) - 80%. But these percentages are drastically inverted as the temporal horizon lengthens and we move towards a longer term - the choice of security can still present limited benefits and the importance of the time factor decreases, but 90% of the results yielded by paper securities are basically influenced by the strategy, laid out at the onset as diversified paper securities in various markets.
What has clearly emerged in these past five years is that at present there are no techniques and methodologies that can constantly support winning and valuable decisions in terms of market timing and stock selection. This means that the search for value in the short-term is a game that generally produces unsatisfactory and particularly risky results. For example, in a one-year period, the performance of small cap shares in the American market can range from over 150% to less than 50%. Instead the investment portfolio theory can lead us to create efficient paper securities, asset allocations that can perceive all the opportunities the long-term dynamics of financial markets can offer.
These dynamics are in fact more stable and hence more predictable. Returning to the example of small cap shares, in the past 20 years the same shares presented average yearly returns that ranged from plus 13.5% to over 11.8%. To focus once again on long-term objectives, which on the other hand are always predicted, even the less obvious ones, is a valuable answer to recent difficulties.

Q: So, which are the landmarks in planning a long-term strategy that can give the estimated results?
It is in this situation that prime clients, who tend to present the most complex needs and demands, must trust Private Banking as a system dedicated to this service. The Private Banker starts defining the client’s needs together with the client himself. Starting from an analysis of the current situation and marking out the client’s risk profile, he lays out the possible solutions that can meet the demands.
The whole in complete agreement with the client, as the Private Banker must absolutely not take the responsibility and risk of arrogantly forcing solutions on clients.

Q: Which steps must be followed to mark out the best plan for the client?
We begin with a questionnaire that enables us to understand the client’s requirements, his risk profile and gain the information required to trace a first “profile” of the same. If necessary a series of meetings will follow. The Private Banker’s skill lies in translating the client’s objectives in terms of time and money, also establishing the target capital. By comparing the objective capital with the initial one and with the temporal horizon established, we can calculate the average yearly performance the client’s investment portfolio should produce. This profitability data is associated with an asset allocation that presents the expected returns and a certain degree of volatility.
This data that expresses asset allocation risks is then compared with the client’s risk profile to check compatibility. If it is non-existent, it will be necessary to reorganize the process with the client, redefine the objectives or lengthen the time required to achieve them. Besides the Private Banker must present the client the possible performance development scenarios, both positive and negative, with their respective probabilities based on the different expiry dates, in order to check the client’s willingness to “bear up with” possible negative shifts. It appears obvious that the Private Banker’s professionalism is crucial in this process’ development. This is why, with regard to the choice of human resources for this service, we decided to select inside personnel who already operated at the trading desk. Besides, in order to train our Private Bankers adequately we organized a basic two-month training course in collaboration with the Bocconi University and all our partners who enable us to meet clients’ demands in a 360° perspective. It is worth mentioning that even after starting the service, our Private Bankers are constantly involved in very high standard training and refresher courses, periodically testing the knowledge acquired on various topics.

Q: Does the training of Private Bankers focus entirely on technical and financial subjects?
Absolutely not. In fact we recently organized a conference in Gubbio for our Private Bankers and most of the work centred on the relations they must establish with clients, on the skill to improve weak points in our behavioural patterns and lead clients to recognize in the Private Banker a qualified consultant who knows to listen to them, understand them and guide them in meeting their needs. We are in fact convinced that only through excellence in relations and excellent competence can we reach excellent results.

D: Hence Private bankers’ training is a crucial factor towards success?
We believe that a mere change of dress does not make you a Private Banker. Private Banking is a radical change of philosophy that we are following by working on many fronts such as the organization of highly specialized training courses. In fact we demand that the Private Banker lays out a weekly plan that will help him schedule his time and which also defines areas dedicated to training and study. Training is followed by many divisions.
There is an inside division, which comprises 5 highly professional people, in the head office and it follows the training from a financial viewpoint.
With regard to all the Clientele’s demands that cannot be met through inside counselling (fiduciary relations, the advisory board etc.) we trust carefully selected, first class outside partners. The objective we wish to achieve is to train our Private Bankers so that they are always able to understand and anticipate the clients’ demands and be the promoters of a solution.

Q: What are the critical success factors?
Other decisive factors in the success of private banking and which also create quality in the service are both the time and the confidential environment the Private Banker has and places at the client’s disposal to listen and interact with him.
Considering the need to dedicate a suitable amount of time to each client who joins our Private Banking project, we calculated that the perfect number of clients each Private Banker could follow, working at his best and offering a prestigious service, was 60.

Q: Have you noticed any changes in relations with clients who have joined the Private Banking service?
In the first place we noticed that when clients moved from the bank, where privacy was not complete and the time at the disposal of clients was limited, to Private Banking, where confidentiality and the time for conversation were considerably greater, there was, in many cases, an unexpected development in the degree of knowledge we gained of the client, with regard to the composition of his personal property, his interests and demands. In the second place we noticed that clients were more relaxed when faced with a negative market trend and this was the result of a greater awareness both of the objectives they were following by investing their capital and the risk they had decided to run.

Q: How many meetings are required with the Private Banker before a strategy can be outlined and proposed to the client?
The average time required to mark out the client’s goals and to translate them in terms of time and capital cannot be objectively stated because it depends on many variables. In the first instance the client must perceive the interlocutor’s reliability and quality in order to be willing to specify his objectives and the composition of his personal property in detail.
But three or four meetings could suffice as an average to gather the elements required to mark out the client’s primary objectives.
Experience has taught us that often the client convinced himself to “cooperate” with the Private Banker and to supply more detailed information only after the consultant had presented the results of his first analysis. The strategy planned in the course of the meetings with the client is not in any case binding - it is a suggestion; the final decision to implement it is and must be the client’s. We have noticed a positive response to this operational approach, because many Private clients who were satisfied with it introduced other potential clients, even from other banking institutions, to their Private Banker.

Q: Which obstacles do you find when you propose the Private Banking philosophy to your clients?
Italian clients are generally used to adapting their standard of life to the income they produce. Savings and their investment are considered a surplus; hence average clients’ do not set themselves any objectives on the investment except that of obtaining returns. Even a developed figure such as an entrepreneur, who plans a series of long-term investments for his company with a series of carefully studied strategies, often does not maintain the same attitude with regard to his personal savings, managing them without setting any objectives and without a precise strategy. Private Consultants must intervene during the stage that precedes investment decisions, that is when the client decides to invest and must ask himself the questions: “Why am I investing? Which is the objective of my investment? How much time do I have to achieve it?” and, “How much of my personal property do I want to invest?” During this stage the Private Banker must help the client give the right importance and priorities to these questions in order to assist him in defining a strategy.
To wind up, the Banca Popolare di Lodi places at its clients’ disposal the opportunity to join a 360° highly professional counselling service for the planning and management of personal property, characterized by: - excellent listening and communications skills; - excellent problem solving; - excellent competences.
These qualities are the results of BPL’s modern skill to propose itself and operate, turning the BPL Group in a few years, from a local reality to one of the main protagonists of the Italian banking system.

r.p.