Private-bankers point out that the VIP-service market in Russia is still in an embryonic state. Russian private clients, as opposed to affluent clients in western countries, are more independent and individuated.
Participants of the IV bank forum “Private Banking in Russia: Features of Upmarket Service System. Trends and prospects”, organized by Kommersant Publishing House, discussed many issues relating to development of the private banking industry in Russia.
Discussion was started by Aleksei Gusev, a member of expert board, the Financial Planning Institute, suggesting to analyze the group of people which forms the target audience for the up market service, and to consider specificities private-banking in Russia.
According to Mr. Gusev, Russian private-banking does not cater for magnates on the Forbes list of the 100 richest Russians. Private bankers, who managed to attract some of these magnates and make them their customers, are really into luck. “As to the portrait of our client, they are a person running their own business, and willing to sell or propagate it at some future day. The age of our clients is 40-55 yrs. Our clients are keen on gadgets, communicate in Twitter, but they are rather conservative and want stability. We need to find a way to attract customers to new products” said he.
Mikhail Gorba, Vice-President and head of private banking at bank “Saint-Petersburg”, says that the current stage of private-banking development is especially challenging due to the fact that the mind of VIP-customers is evolving into something new. “We attempted to create a high power product line, to predict demand. However, after the five years at bank “Saint-Petersburg”, I discovered the simple truth of the matter: one should not try to anticipate events. First of all one should let the client feel their competence in a real sense, but then to allow them to say what they need. It is time to offer customized products to clients. In the Western world, clients are more inclined to give ear to their private-bankers, and are willing to follow their advice, while in Russia clients are more individuated. There is a need for continuous dialogue with customers. It may take from one to three years to build trust-based relations”.
Svetlana Grigoryan, Head of Affluent Client Services division of Raiffeisen Bank says that one of the main issues faced by the Russian private banking sector is to define the group of people which may be described as private clients. “Each bank tends to answer this question in their own way. Our bank believes that in Russia a person may be qualified for the private-client status if they own at least half a million euros. The domestic private-banking market is in an embryonic state, so, probably, you can say that in Russia there are no providers of service for very rich people yet” she said.
Varvara Stepanova, head of department of personal banking services at BFA bank, says that any person who has placed assets with BFA bank for over 1 million ruble is deemed to be a VIP-client. “However, speaking about the private banking category, the lower ceiling is $1 million” she said.
According to Varvara Stepanova, over the last three years the majority of banks in the Russian market started to offer VIP-services, however, the quality of services may vary considerably, depending on the bank, at the same time, the ceiling for premium segment decreased ten times.
“There are several key trends in the market. As for currency diversification, private banking clients do not limit themselves to investments in US dollars and euros, but consider investments in the so-called “protection” currencies, first of all, Swiss franc and British pound sterling. The general trend is increasing the stability and security of portfolio, and avoiding risks. There is a decline in investments in the Russian stock market, clients are increasingly attracted by investment instruments with protection of the capital, by international securities, diverse hedge funds, investments into non-financial instruments, such as real property, art, and wines” explained Ms Stepanova.
Marina Zinchenko, director at Duvernoix Legal told us that, being a large-scale law company, they are focused on the legal component, starting out from legal and tax consulting services, including consulting on law of any jurisdictions, asset management in Russia and abroad, and solving issues relating to residence.
“However, taking into account big prospects of the HNWI, i.e. large asset owners, we are breaking in the areas of expertise which are new to us” said Ms Zinchenko. “Everyone understands prospects of private banking and family offices segment, but fewer than all know how to go about working with them, so as to efficiently incorporate this activity into the business model of the bank, family offices or any other player in this market”.
Ms Zinchenko believes that the main challenge in the private-banking market is the still unreformed mentality of some customers from the first or, less often, second generation of affluent families. These people are slow to recognize the potential importance and benefits of services provided by participants of this market. “Many of our affluent clients still prefer to solve the most issues independently, spend their own time and sometimes take decisions which are far from being efficient or instruct nonexperts to do it in their stead. The most HNWI in Europe and US tend to outsource management of their problems, including some of personal matters” she said.
Lawyer Liubov Duyko, head of consultation office of S&K, says that the company provides VIP-clients services relating to family law, tax legislation, and supports investment projects and transactions involving real property and artworks. “The needs and goals (of customers) are in keeping with the growing number of rich and influential people. Of course, the market exists and develops, there are VIP-clients preferring to work more than five years with the same lawyers” said she. “Generally, problems faced by VIP service providers are technical ones: it is sometimes difficult to harmonize so many issues, due to customers’ leading a stirring life, and constantly traveling around the world”.
Participants of the forum also debated the issues relating to alternative investment types, especially precious metals, artworks, gems, and wines.
Maksim Nozin, Head of Affluent Client Services division of Northwest bank, Sberbank of Russia, says that evaluating precious metals and jewels are quite different matters. “Precious metals are exchange commodities, and they are standardized. As to cut diamonds, it takes an expert to put a price tag on a given diamond. There's a whale of a difference between precious gems” he said.
Vadim Varvarin, president of non-profit organization “Fond Podderzhki Sovremennogo Iskusstva “Erarta” (Modern Art Support Fund ‘Erarta’), tells that statistically, people tend to buy art works for the three main reasons: personal pleasure derived from collecting process and from art works one possesses; investment potential; and aesthetic aspect of artworks used as an interior design element. “Erarta” advises corporate and private clients on how they can better integrate contemporary art into their interiors, works out multiple options relating to visualization of homes and offices homes/offices, and helps clients to identify works with greater commercial potential and investment prospects” he said.
According to Mr. Varvarin, client preferences in the art market may be subject to change over time. “In recent years, contemporary art has become an increasingly popular segment in global art market. When it comes to returns, the contemporary art outperformed all the other segments of the art market these ten years gone; it exceeded the S&P 500 growth more than ten times. The Chinese art is especially popular, and many experts emphasize that new wealthy class of the Celestial Empire which arose due to growth of the real estate market have a high demand for works of contemporary artists” he said.
Mr. Varvarin noted that the Russia's contemporary art market is in development stage, therefore many proven processes which are doing very well in western markets still do not exist in Russia. We should start these processes from scratch. “For instance, 78 % of western banks which have private banking operations, offer their clients many services relating to investment into art, while in Russia this trend has just started gaining in popularity”, he said. As explained by Mr. Varvarin, for “Erarta” a client’s status is determined by their investments in contemporary art (and the degree of involvement in this process), rather than by their fortune.
Vladimir Vorobyov, Head of private and corporate client services at SIMPLE, St. Petersburg (one of the major players in the Russian wine market), says that the private banking market in Russia is still in an embryonic state. In most cases, a bank’s offer to their clients is little more than a discounting program provided by partners. “But we offer VIP-clients some services related to wine tourism, building up wine collections, organizing enogastronomic events, selecting presents for anniversaries, etc.” he said.
According to him, clients’ preferences change as time goes on. “When it comes to wine stylistics, clients prefer astonishing fine wines to big-name brands. Moreover, the trend of value for money has recently become more obvious with an increasing number of clients choosing wines that provide great value for money,” explained Mr. Vorobyov. He pointed out that it takes people a long time to develop passion for wine collecting. “Money is not the sole determinant. It is often a mere matter of maturity of outlook, of fascination with life. Of course, one’s bank balance matters a good deal, but there is no proportional relationship between the variables." concluded Mr.Vorobyov.