The bank is revising how it awards bonuses to its private bankers. CEO Philipp Rickenbacher is severing a correlation between pay and past failures in fighting money laundering.
The Swiss-based wealth manager told its 1,456 private bankers this week it will more closely link profitability to bonuses, finews.asia has learned. A new scheme disclosed to the bankers on Wednesday will replace two separate bonus plans including one where advisers were rewarded heavily based on hauling in fresh assets. A spokeswoman for Julius Baer confirmed the measures.
The move, effective for private bankers in Switzerland, Asia, and the Middle East from 2021, represents a further attempt by new CEO Philipp Rickenbacher to break with Julius Baer’s past, including ex-CEO Boris Collardi. Less than six months after Rickenbacher took over, the bank was heavily sanctioned for failing to spot millions in graft money, including from PDVSA in Venezuela.
«Misplaced Incentives»
Swiss regulator Finma took Julius Baer to task with unusual transparency, saying «misplaced incentives encouraged breaches of the legal obligations to combat money laundering» during the heady era of growth under Collardi, now a Pictet partner. Rickenbacher is attempting to balance net assets and revenue against the costs of private bankers incur.
«We want our relationship managers to occupy themselves with sustainable profitability of the bank to a degree that simply wasn’t that relevant to them before,» Rickenbacher told finews.asia. «We also want them to think about the structural quality and development of their client book – are we offering the clients the best solutions for their needs, and are we earning something for our services or not.»
Delicacy of Changeover
In practice, this means private bankers need to think more about when more complex services – like borrowing against highly illiquid investments – make sense for clients as well as for the bank. Bankers will not be «incentivized» to sell Julius Baer’s own products vs outside ones, or discretionary over advisory mandates.
The bank’s gradual roll-out of the scheme over two to three years as well as its intention to leave fixed pay unchanged for now speaks to the delicacy of the move. «The new model will afford successful relationship managers a good, performance-linked variable compensation,» Rickenbacher said. «There are some who will probably not make the grade.»
Ditching Old Targets
Julius Baer doesn’t disclose the sum it spends on bonuses for its private bankers alone. The influential cadre of private bankers makes up more than one-fifth of Julius Baer’s total workforce. Last year, the bank applied a global cut to its total bonus pool.
This was stunted somewhat by severance payments to bankers it let go in 2019. The new pay plan follows Rickenbacher’s pledge to focus on sustainable profitability, after ditching a money-gathering target it held for years as part of a growth drive overseen by Collardi.
Conduct Counts
In addition to tying bonuses to profitability, Julius Baer will also consider more qualitative measures like conduct. For example, private bankers will be rewarded for a favorable «first pass rate,» which refers largely to how carefully they document their client files before compliance vets them.
They also stand to earn more if they work well with specialized, internal resources. The latter is a huge focus for Rickenbacher, who wants the private bankers to tap experts earlier in order to chaperone clients more extensively (and empathically) through the stages of their life.
Finma-Overseen Change
Julius Baer is now pushing the idea more forcefully by tying it to pay. «The variety and complexity of client needs are so vast that no one can cover them alone anymore, acting as a 'lone wolf,» Rickenbacher said. «I want our clients to benefit from the over 1,000 specialists and experts we have in-house. And I want to support our relationship managers in being successful in serving our clients.»
Rickenbacher squeezed in a round of job cuts just before the pandemic outbreak in February. He said Julius Baer hammered out the new bonus system in cooperation with its main regulator in Switzerland, Finma, as well as its other supervisors like the Monetary Authority of Singapore.
Ex-Banker's Lawsuit
Julius Baer's money laundering revelations have raised eyebrows in Geneva, where Collardi landed after nine years at the helm of Julius Baer. Finma in February singled out an unnamed ex-Julius Baer private banker for Venezuelans: the bank paid the so-called top performer millions in 2016 and 2017, even as it was reporting suspected PDVSA connections to authorities.
Julius Baer disclosed in its annual report that it is being sued in a labor claim by a former employee for $34.1 million in Venezuela. The employee is Matthias Krull, according to reporting by Swiss outlet «Handelszeitung» (behind paywall, in German).
