Staying the Course: Strategy, Discipline and Compounding Growth

Welcome to Beyond the Benchmark, the EFG podcast with Moz Afzal.

Moz Afzal:

Hi everyone. So today we have a special guest, our very own global CEO of EFG International, Giorgio Pradelli. Giorgio, welcome.

Giorgio Pradelli:

Thank you, Moz. Thank you. Good morning.

Moz Afzal:

So this is the second in the series of podcasts we've had with Giorgio. And very much the idea of the podcast is to learn and to understand both the strategy of EFG and particularly fresh off the investor day, but also to think about the sort of core principles that we at EFG use in terms of leadership and of course management. So you've just returned from your roadshow in the US and obviously in Europe following our investor day and our new 26 to 28 strategic outlook. Tell us more.

Giorgio Pradelli:

Oh, look, I mean, it was probably the best roadshow we've ever had. I've been on the road at least two, three times a year since 2012. I always ask at the end of the meeting how they perceive our industry. I think that in general, wealth management and private banking is seen as a very attractive industry going forward. And we have the advantage that we are a pure play private bank and wealth manager. I think the investors day, we had the ability to present the strategy in a clear way and explaining not only what we want to do, but how we want to do it. The investors appreciate it. And I think that they have this consistent performance over seven years. And actually if you include also the integration, which at the end was a success, is a decade. And the majority of our investors are long-term investors and they liked that.

So it was a very positive sentiment. I think the investors, they all appreciated the depth of information and the details. Maybe for the media, the presentation of two and a half hours was a bit too long. One newspaper in Switzerland said that it was a bit long, but concluded that at the end, given our performance and our stock price performance, we were boring but sexy. And I think we can live with that.

Moz Afzal:

I think the power compounding, which is obviously the title was I think is exactly positioned in that way. And I think that certainly as I said, the outcome was indeed successful. So when you were talking to investors, what are kind of key topics that they were sort of delving into?

Giorgio Pradelli:

There are, I would say, two types of investors that we usually face. There are the investors that know us extremely well. And obviously with them, the conversation is much more in depth. And I think the big topics are always revolving around clients and CROs. The engine of growth, clearly the mother of all questions, if I can say that, is always, can we sustain that? How can we ensure that clients will find what we offer attractive? How can we ensure that we can attract more clients, that we can increase the share of wallet of the clients to have more engagement with the clients? I think that coming back to the presentation and investors day, the fact that we have explained very well, I think, how we do that and that we have a method that we have an approach. And this has been working here in year out, irrespective of Covid, war, inflation, interest rates going up, interest rates going down, I think gave a lot of comfort.

And clearly another key topic is always the topic about margins. As you know, our industry, we always say, I mean, for the last 40 years that there is margin pressure and yet we always find ways to be innovative and to try to defend our margins. And then I would say the third topic is all about technology, how the way of doing business, the cost of doing business is changing how technology can help, both in terms of client experience and CRO experience, but also in terms of improving processes and becoming more efficient and therefore all the topic of cost management and operational leverage.

Moz Afzal:

Well, I think one of the things that has really come across, I think certainly over the last few weeks, is the fact that we're very disciplined around execution of our strategy. How do you ensure obviously with both organic or inorganic, how do you make sure you stay the course executing on the strategy?

Giorgio Pradelli:

Yeah, this is one of the key topics and maybe talking a bit about my personal experiences. I like sailing and when I started sailing, I started actually with my father. So he was always the skipper and I was always the second. And for a long time, I enjoyed it. Then at some point you get frustrated when you are second, but the only area where I think I was better than him was navigation and was setting the course. So for me, setting the course, setting the strategic course and keeping the course and ensuring that sometimes you cannot ... In sailing, like in business, you cannot always stay perfectly on course. You have external factors, you have currents, winds, you have obstacles in the middle. But every time you drift off, obviously you need to think, how do I go back on course? And if you are in a favourable position and you know that maybe going forward you encounter some headwinds, then you try to take advantage and to anticipate.

So this is what we are trying to do in business. We try to stay on course. Obviously both in sailing nowadays with all the technology, but in banking is the same with all the technology, you are constantly, and we are constantly in the cockpit, so to speak, looking at all possible data. So we are extremely data driven. If you are not able to anticipate for the foreseeable future where you're going, then obviously you're not able to stay on cost. At the end, you need to use a lot of data to understand and to predict where you're going. The other key topic is obviously the team, because you can have a vision and you can be obsessed with data and be on the cockpit all day. If the team is not convinced, it's not persuaded that we are going in the right direction, then you're not going to get there. And so how to motivate the team, this is, I would say, the other key element.

Moz Afzal:

Yeah. So we've got 40 different locations around the world for EFG. How do you unite everybody? Those 40 different locations, people with different cultures, people with different, sometimes different attitudes. How are you able to bring them together on the same strategy, but also motive them to continue?

Giorgio Pradelli:

I think what we did well and what we continue to do well is first of all, to engage, to engage people and conversations and speaking and being present and travelling and having meetings and having town halls and confront and hearing the feedbacks. I think we have a good speak up culture. Obviously you can always improve, but in general, I think we have a very transparent and open culture. And I think what for us was extremely successful was to articulate a vision and a strategy. And in 2019, when we started, we came out with this strategy, which looks very simple, which was about sustainable and profitable growth. At the time, many people were actually sceptical that we could grow because during the integration years, we were actually not growing at all. And that somehow united everyone behind this growth strategy. The vision at the time was that we were, I would say, one of the top 10 Swiss private banks, but somehow we were not performing to our potential.

And we thought that we had all the ingredients to be able to perform in line with the best in our industry. And this was a vision that galvanised, I would say, a lot of people, because we're all very competitive. Now, I think the vision is different. Now, actually, I would say that looking back at the last five, 10 years, probably we are the best growth story in wealth management and private banking, pure play, I would say. And we have been recognised. The market has recognised that clients have recognised that and media as well. And so now the vision is how can we sustain that, first of all, and then how can we become the bank of choice for our clients? I think now we can compete really to be among the top three banks in our industry, and not only for our existing clients, but for generations to come.

And I think this vision now that we want to become one of the top brands in the industry is also something that is uniting the teams. Now, after that, clearly coming back to the discussion we're having with all the team, all the team has embraced basically what we have presented to the investors, which is everything starts with the clients, everything starts with growth. We are obsessed with net new assets, as you know,

But because net new assets, they reflect the ... For me, if we're doing well in net new assets, it means that our clients appreciate us because the way to grow net new assets is new clients joining EFG and existing clients increasing the share of wallet. So they appreciate what we offer. So it all starts from there. And then if we are able to engage clients with services and products that add value to them, they are prepared to pay the right price. And then obviously you translate this growth in a top line growth. And then if you are efficient and with the use of technology and improving processes, and our team have embraced now the concept of simplicity that we have presented a few years back, I think then you are able to grow year after year profitability in a very consistent way.

And I remember the early roadshows, people were saying in EFG, there is too much volatility, you need to become boring. So for me, boring is a positive. Consistent, predictable profit growth is a virtue. And then I think what we have done well is also to take part of this profitability and invest it within the firm to improve, to transform, to prepare for the future. As always, you can do things faster, better, but I think this constant transformation mindset is important. And if we achieve that, then obviously the outcomes are very, very positive for all the stakeholders. I think that obviously the challenge is how to make sure that 40 locations, they all buy into that. And again, I come back to the fact that we are very focused on the performance, not only at group level, a consolidated level, but at every single unit and business. And I think people have embraced this approach.

And what I like and I love about EFG, coming back to the point of transparency and being authentic is that I feel that people are very authentic and honest and there is no posturing. And we have had in the last few years incredible turnaround stories of many businesses. And for me to see businesses that maybe a few years back where in the doldrums, the doll drums is this place around the equator where there is no wind and you're stuck. And then suddenly now they're doing fantastically well, or people that had to go through a difficult restructuring, which is painful, but then they came out the other side doing extremely well.

Moz Afzal:

Yeah. So just recapping some of that. So obviously the strategy, vision, you have to get everyone to buy into that. So that's exceptionally important. And it's repeat, rinse, as I say, repeat and rinse and repeat every single time. That consistency obviously generates that boring perception, but clearly not boring. So all businesses are going to be fluxing at some point. And I think generating that consistency across it and a framework to look at that is, I think, something quite unique. So let's move then quickly to setting targets because I know you've often said to us, you have a long-term target, but you can only achieve that long-term targets by meeting your short-term targets. Maybe you can elucidate a little bit on that.

Giorgio Pradelli:

The first thing that I always think of is where do we want to go? What is the destination knowing that once you achieve that destination, there is another one. And again, this comes sometimes with a vision that people were saying that was crazy or was unrealistic, but then you try to define, okay, to get there, you need to define the targets that are more short-term or medium-term, and you try to stick to the course to achieve those. The fact that we are still around is because we are good in articulating and distilling and managing competing priorities and achieving more than one target. We need to grow, we need to manage well our processes and our cost, and we need to be very, very good in maintaining a low risk profile. And so these are the three things that we need to do, and it's not one versus the other. Now, how do we do them in sync? That's the challenge. And this is why as manager and as leader, we are here.

Moz Afzal:

So moving back to the industry we're in and thinking about the future. So for not necessarily us as EFG, but looking out at the industry, the banking industry, private banking and high net worth industry for the future, what do you think are the biggest strategic challenges and where do you think the biggest opportunity is?

Giorgio Pradelli:

I'm very biased, obviously, but I believe that our industry within financial services is probably the best in the sense that the underlying trends for our industry are good. Obviously, nobody knows. I mean, obviously your job is to predict the future, as I always say.

Moz Afzal:

You do say that a lot.

Giorgio Pradelli:

My job is to navigate anything that the world throws at us, but it's difficult to predict the market. And you guys, by the way, you do a fantastic job. And I use the Outlook a lot parenthesis. And by the way, again, parenthesis, during the roadshow, it was very interesting to see that there was no consensus at all among investors. Very often there is some consensus when we go on the road. This time there were people that were quite bullish and people that were quite bearish, but nobody was sure. So that was super interesting. But again, I think that on the other hand, for our industry, the long term underlying trends are very positive and at the end of the day it's about wealth creation. We believe that we will continue to have wealth creation around the world and we believe that wealth creation is going to be in excess of nominal GDP, which is good and entrepreneurs will continue to create value across the world. And this is good because at the end of the day, this is our business. We manage the wealth that is created by entrepreneurs. The majority of our clients are entrepreneurs.

The second key point is that given all these geopolitical tensions and uncertainty, the wealth is on the move in the sense that obviously a lot of entrepreneurs will continue to invest in their business, but also they will take some of the wealth they have created and bring it to some of the international financial centres that are perceived as a shelter to all these geopolitical turmoil. And we all often say that private banking is geopolitical risk diversification and nominal GDP is growing at 3%. Wealth creation is at 6% and offshore wealth is growing at 9%. So clearly we are in the offshore cross-border private banking wealth management business, and we are going to benefit about that.

And we are very well positioned. As you said, we have 40 locations around the world, so we are very close to our entrepreneurs generating wealth, but also we have booking centres in the 10 most relevant financial centres where the wealth flows in order to be managed and then also in order to be protected. So from that perspective, I think that the long-term trends are very good.

Now, the challenges, there are plenty of challenges for our industry. I always mention three. I think in this day and age, cybersecurity is a major challenge. I think banking is de facto is a tech business with a banking license and fantastic bankers and teams around the world. And then, in the old days, you had bricks and mortar with thick walls and vaults and marble and columns. And now that is no longer relevant. What is relevant is that your fortress is digital, that your fortress has to be technological, and this is a challenge. And again, we are very, very focused on that and the team is doing great. So this will remain a major challenge because this is extremely obviously linked to reputation and the reputation and the trust is the critical element for a bank in private bank and wealth management.

The second, which is linked also to reputation, has to do with the money laundering issues that might emerge. This remains a major issue for a private bank. So that's why compliance is so relevant. And I've been always say that regulatory compliance and risk management are prerequisite to growth. So unless you have compliance and risk management under control in your housing order, you cannot grow. And for me, the big challenge, but also the big opportunity is people. And I am very proud of the teams and EFG that we have been able over the last three, four, five years to have a core group of people like you and me that have been around for 20 years, but also to have a lot of new talents, a lot of new colleagues coming in and creating this melting pot, which is EFG, which is great with a unique culture, but always everyone brought something, different perspective, but we all, at the end, bought in into this vision and course that we were discussing before.

Moz Afzal:

No, absolutely. I think that the dynamic, certainly you and I have been in times of EFG 20, 30 years ago, in some cases, where EFG was unknown. It was very hard to attract the best. That certainly isn't a challenge anymore and long may continue. So Giorgio, thank you very much for joining the podcast. Thank you for your leadership. Thank you for steering the course over the last three or four years. We're looking for, in fact, since 2019, we're looking forward to the next three years, the new cycle, and long may continue.

Giorgio Pradelli:

Thank you, Moz.

 

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