Wealth management

VALUE CHAIN AND CLIENT CYCLE

Personalised financial and banking services for wealthy individuals (HNWI) where the private bank provides tailored advice and access to a larger variety of conventional and alternative investments. Further to investment services the bank provides solutions to structured protect and transfer wealth to the next generation, integrating corporate advisory and family business advisory services or special financing.

Elements of the value chain:

1. Organisational set up
2. Risk management
3. Product and solutions
4. Financials
5. Relationship management
6. IT and operations

Products and solutions require a seamless execution, under legal, operational and reputation all risk mitigation, in order to be delivered to clients through an efficient organisational set up and profitability. Clients, on their end, need to entrust their wealth to people and institutions.

Client prospecting process:

• Prospecting can be performed relying on a personal network, via referrals from third

Parties, sharing life-style events or educational event.

Building relationships: empathy and authenticity are necessary elements to building a relationship, soon after you need a qualified interaction on topics which are of prospect interest, a frequent qualified interaction is key for a successful relationship. Identify those triggers to raise prospect attention is key and a necessary step before pitching, this requires interpersonal skills to gain a quick and in-depth view of client asset-liabilities situation to suggest remedies for a given challenge.

Pitch: a well coordinated pitch with clear agenda and qualified speakers is the showcase of the bank capabilities for the selected topics. Extra-mild, tailoring, high touch and true commitment are the factors which matter most in this phase, negotiation and pricing will follow soon.

Client on boarding:

KYC: the relationship manager, RM, gathers critical information about client personal background, profession, source of wealth and yearly

income; the purpose of account opening must be also cleared. Sources available are direct information from the client and public and private databases like World Check or EBIC. - Anti money laundering: the RM must comply with AML rules, the information gathered must exclude the criminal origin of generated wealth, if this case cannot be cleared because of indicia the relationship must be notified via the internal service to MROS. Under the provision of AML act, it receives and analyses suspicious activity reports in connection with money laundering, terrorist financing, money of criminal origin or criminal organisations and, where necessary, forwards them to the law enforcement agencies for follow-up action. Advisory process: The RM aims at understanding the overall financial situation of the client, namely investments, wealth creation, liabilities, wealth attrition. Creating the balance sheet of the client with dedicated assets fulfilling planned liabilities and free assets not bound to.

liabilities; previous steps allow to establish both the risk ability and the risk tolerance of the client, upon client's profile the asset allocation and investments choice is executed. The RM defines the asset allocation of the client distinguishing a strategic approach, long term, and a tactical one, short-medium term; free assets are invested according to the asset allocation, dedicated assets will be also invested matching planned liabilities requirements.

ESG process:

• based on client needs and preferences
• match client expectations and regulatory requirements
• support transitional economy and redirect lending activities

Suitability process:

• It is an enhancement of the client risk profile relying on the client knowledge and experience, the client product risk classification and the clients investment purpose; each proposed transaction is tested against K&E of the client, CPCR, ability to bear the risk, IP, portfolio objectives and risk budget. The result of testing each proposed

formatted as a bulleted list: - Transaction is stored in the client data management. - In case the client is willing to buy a product which the RM does not think is suitable, the transaction will take place as non-advised and under the client's responsibility. WM process: - A truly holistic approach identifying areas of advice: - Family, enterprise, ownership situation - Wealth governance, portfolio opportunities, banking platforms, financing, education - RM mobilises bank capabilities gathering specialists and a dedicated client service team advising proactively on wealth management topics. Client meeting process: - Risk-return review of the portfolio as core activity allows the RM to perform rebalancing and to stick to the risk return profile of the client. - KYC, account set up, and powers review is a standard component of the client activity. - Analysis of further areas of business between client and bank is a critical step where new capabilities are introduced to match potential and latent client needs. This step needs to be

1. Structured via an agreed agenda where specialists are asked to pitch the client and assess topic relevance, right timing and impeccable follow up is key to success. Client activities need to be reported manually and automatically in the corresponding databases.
2. End of relationship: Banks can close a relationship in order to mitigate legal, operational and reputation as risk, asking from a more detailed client activity, source of wealth or behavioural analysis. Reasons for closure do not need to be disclosed by the bank and therefore the correct form of communication and process execution can represent a severe challenge.
3. Client closes a relationship because of performance, pricing or service quality issues; furthermore even though in decreasing terms, clients might transfer their assets following the RM changing employer. Retention capability is paramount to secure assets to the banks in all cases, though the process may lead to concessions jeopardising client profitability.
4. Limitation to value

1. chainInfrastructure:
   • most IT system running WM businesses at traditional established market players are outdated and show legacy features
   • change and improvement requirements are costly and time consuming
   • outsources may be not fully aligned to customers needs and requirements
   • lack of data mining capacity and capability
2. Work flows:
   • work flows may be disconnected and therefore with a lot of manual intervention, causing errors and time loss
   • work flows are mostly built according to an analogical environment and therefore need to be redesigned when switching to digital
3. Complex regulatory environment:
   • today's regulatory environment is the product of a fast changing attitude towards prudential and conduct issues, implemented by regulators in the last 5 to 10 years following the 2008 crisis
   • small and medium players were deeply challenged trying to embed new requirements in the current IT systems and work flows

ADVISORY PROCESS

Advisory process, AP, is a structured approach which enables

the client's financial needs is crucial for a financial firm. It allows the firm to provide suitable advice and create value in terms of competitive advantage. This process is core to wealth management and is highly customized and dynamic, influenced by regulators and common in most developed financial markets. There are several key elements to this process: 1. Client needs assessment: This is the entry point where the firm gains an understanding of the client's present and future needs. 2. Financial plan: The focus here is on assessing the client's assets and liabilities to provide a financial concept on which the investment solution is built. 3. Client risk and service profile: This is the core of the process, where the firm assesses the client's risk capacity and tolerance in order to provide suitable investments. 4. Strategy: This step focuses on the strategic asset allocation and further the tactical asset allocation that is suitable for the client. 5. Implementation: This involves implementing the strategic asset allocation and following the tactical asset allocation within the available assets. The correct assessment of the client's financial needs is essential for the financial firm to provide suitable advice and create value for both the firm and the client.the information provide clarity on the client overall financial situation and following on the financial needs and objectives; a financial plan allows to fit the investment solution to the client's asset situation covering also the liabilities and to determine client's risk capacity. Ideally dedicated assets duration should match the duration of the liabilities, further risk associated to dedicated asset should be risk free; transparency on annual income and costs allows the RM to provide a saving of disinvestment plan affecting the client asset-liability plan. The combination of risk capacity and tolerance constitutes what the finance industry call the investor risk profile, investment are deemed suitable for the investor only if the investment risks fall within the limits of the individual risk capacity and tolerance. Investor risk capacity: the risk capacity measures how much risk you can bear without jeopardising your investment goal but moreover your living standard. Is

1. Objective criteria which defines the client risk profile, based on client financial data with three major indicators:
• Time horizon
• Size of bankable assets
• Source of income
• Size of annual savings respected to capital erosion
2. Investor risk tolerance: measures how much risk you are eager to accept in order to reach a goal and deals with the subjective or emotional part of the self, therefore no objective indicator but questions to client as:
• Client experience in investments
• Market engagement
• Risk awareness
• Risk comfort help in framing risk aversion
3. The service profile shapes the current and future WM business models, the degree of client involvement in taking investment decisions determines the service profile; client service profiles go from complete delegation to the bank to absolutely self-directed clients in execution only or linked to the trading room.
4. When providing investment advice or portfolio management, the investment firm shall obtain the necessary

information regarding the client's knowledge and experience in the investment field relevant to the specific type of product, that person's financial situation including his ability to bear losses and his investment objectives including his risk tolerance. A customer's investment profile includes but is not limited to, the customer's age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation. It is a deontological matter to advise own clients in the most suitable way for them not to jeopardise investment goals and standard of living; an effective suitable advice represents in the long run a competitive advantage for the investment firm.

After the 2008 crisis most regulators introduced new regulations.