The third Private Banker International London Conference took place on 15 June and professionals from the private banking and wealth management industry attended four sessions – complete with speaker presentations and expert panels – exploring and debating various issues currently impacting the industry. John Schaffer provides a detailed overview of the day
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Session One – The evolving private banking landscape
The conference began with an opening keynote speech presented by Jean- Francois Mazaud, head of Societe Generale Private Banking. Mazaud gave an overview of the current private banking landscape and honestly spoke of the “bleak” phase the industry experiencing. He said that there had been “an overall fall in productivity” in the industry, largely due to the added costs of regulatory burdens.
Mazaud frankly said that the industry is in a state of flux, needing to adapt to the requirements of the digitally savvy clientele. He said that private banks need to “reinvent their business equations” to move forward, adding that some players in the business were “doing the same thing and hoping for better times”.
Mazaud added: “Investment into new technology is the way forward if we want to achieve long term competitive advantage”. He added that being more agile would have to become the norm in the industry.
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By GlobalDataFocussing on the attitudes of HNWI clients, he said: “More than 50% of clients would move provider if the digital experience was not satisfactory”.
Mazaud said that the core focus of Societe Generale Private Banking (SGPB) would continue to be taking care of client needs, keeping a long term perspective through volatility, and also bet on opportunities created by instability.
Commenting on the outcome of the UK’s EU referendum on 23 June, Mazaud said: “Whatever the decision on Brexit, the UK will still remain the most important wealth market in Europe”. Earlier in June, SGPB closed the acquisition of Kleinwort Benson in the UK and Kleinwort Benson Channel Islands Holdings Limited from Oddo & Cie, which Mazaud also mentioned.
The second presentation came from Francisco Fernandez, group CEO at Avaloq. Fernandez spoke about the bridging of technology and business, continuing on the theme of client demand for digital services.
He said that though the next generation expect access to digital services all the time that demand for digital services is apparent amongst older generations as well, suggesting that “the generation above 60 years is as internet savvy as Gen Y and Z”.
Fernandez said that the financial services industry is experiencing disruption but most players are doing little about it. However, he added: “Banks that don't innovate could reduce by a third in size, and ones that do could grow by 45%.”
Fernandez said the FinTechs space is expected to grow exponentially in the enxt 10 years. He said that younger HNWIs currently have, on average, more than five banking relationships and they may even look to create their own financial platforms away from wealth managers and private banks.
Fernandez added that work needs to be done in relation to the user experience (UX) for digital wealth tools. According to him, gamification is a growing area in the wealth UX space.
However, Fernandez also pointed out some of the inadequacies of FinTech in provisions for the HNW clientele, saying it is incredibly difficult to perform more complex tasks, such as rebalancing of a portfolio, on a smartphone.
He further added that FinTechs have been “naïve” in their approach towards regulation.
Annamaria Koerling, head of wealth management at C. Hoare & Co., delivered the third presentation of the session. She spoke about the importance of rebuilding confidence and trust in the financial services sector, in support of economic growth. She said: “Trust takes years to grow and can burn down in an instant.”
Koerling said that technology is the most trusted industry in the UK, far surpassing financial services. She felt that this was both an opportunity and a threat for the private banks.
Koerling added that new entrants in the financial services industry were trusted more by the public, and that traditional players were suffering from “lots of baggage” through executive boards and regulation.
However, Koerling added that 77% of the UK public wanted more regulation of the finance industry and that banks needed to continue working on their public image.
“The era of spin is over, which is evident through the Panama Papers,” Koerling said. She added that banks need to think about how they deal with problems in order to foster clients’ trust. She said that actions that financial institutions take may be wholly legal and compliant, but they may not be deemed ethically correct. She added: “It’s often not the problem itself but how you deal with it that counts”.
Koerling added that private banks could also build trust through corporate social responsibility (CSR) programmes, adding that true success in CSR meant having the CEO involved.
Koerling also advocated the use of social media for private banks to build trust. She said: “Customers are far more trusting of a company if its CEO tweets regularly.”
The trust factor between client and advisor is clearly paramount in the private banking industry. However, Koerling added that employees themselves where not trusting of their institutions. According to Koerling, engaged and loyal staff are powerful advocates for banks and are important for understanding clients better.
The fourth presentation for session one came from Imre Rokob, business development director at Dorsum. Rokob spoke about unlocking the potential of the Y and Z generation in wealth management.
Rokob said that millennials are 2.5 times more likely to be early adopters of technology. “For millennials, digital sophistication is the third most popular factor in choosing a wealth manager,” he said. However, he also suggested that millennials still turn to human advice at the point of investing.
Rokob said that millennials are active in researching their investment decisions. He noted that 70% of European millennials are comfortable with roboadvisers, but that a hybrid advisory model would be the solution going forward for the wealth management industry.
Rokob explained how the wealth management industry should approach innovation: “Innovation needs a defined scope, needs to use the latest technology, have a dedicated team, be agile and be tested on end clients.”
Session two: New Horizons for Investment and Philanthropy
The second session was opened by Oliver Gregson, head of investment services & product solutions UK & CI, HSBC Private Bank (UK), exploring investment rends in 2016 and beyond.
Gregson said that “clients are not going to have the same stickiness as before” and that the industry would need to find more personalised approaches to gain and retain clients. “The days of the vanilla balanced portfolio are behind us, clients don’t want off the shelf solutions.” He added: “The days of the hero RM (relationship manager) are gone; clients want advice from a team of experts.”
In terms of products, Gregson said that exchange traded products would double in size to $1trn by 2019. Gregson also said that fixed income would be an area of growth, with assets forecast to grow by 20%-25% per year.
Gregson also spoke about greater access to products for retail investors. He said: “The rise of UCITS liquid alternatives is enabling access to hedge fund strategies for retail clients.”
The second presentation of the session came from Ton Kentgens, global business development, private wealth management at Ortec Finance, who spoke about adding value to investment advice by using digital and compliance.
Kentgens spoke about some of the regulatory issues facing the private banking industry. He said: “People think that MiFID I is behind us and that we should focus on MiFID II, but MiFID I is still a major issue.”
Kentgens went on to critique the assessment of clients’ willingness to take risk, suggesting that it is “not accurate”. He said: “We need to know whether a client would be prepared to lose 10% of their portfolio, not just in the first year but in years two and three as well, in order to form an accurate risk profile.”
He added that many clients’ portfolios would be markedly more conservative if they were properly made aware of the risks of making losses in subsequent years.
Kentgens added: “You should not set a risk profile for a client if you cannot monitor their portfolio every day.”
Kentgens went on to speak about how private banks could add value through digital channels. He said that “clients want to have the same experience with an advisor, online”. He added that the industry was performing poorly in understanding its clients, suggesting that only 61% of younger HNWIs feel that their advisors understand their needs.
Kentgens said that although the robo-advisory industry could reach $2.2trn by 2020, it still would only account for 10% of the wealth management market.
The third presentation came from Russell Prior, head of philanthropy, HSBC Private Bank (UK). Prior spoke about blurring the lines between philanthropy and investment. Prior said: “Investment is driven by reason, but philanthropy is driven by passion.”
Prior spoke about a growing trend among private clients to integrate philanthropic conversations not just want towards later stages of their lives but throughout their lifetimes. Prior added that 89% of successful entrepreneurs were involved in philanthropy in 2015 and that 15% of all will requests would be left to charity, generating a massive pool of $30trn.
Prior went on to speak about how philanthropy and investment could be integrated to create “blended returns” – meeting in the middle of creating social value and financial value. He explained that investments with a socially responsible lilt would be important for the next generation of investors, saying that “Gen Y entrepreneurs are driven by purpose”.
Prior also spoke about the philanthropy ecosystem, delving into the different avenues for sustainable investment. He said: “The terminology in the philanthropy ecosystem is confusing for clients”, and that this area could benefit from greater clarity.
He added that as the distinction between philanthropy and investment starts to become blurred, the requirement for regulation becomes greater.
The philanthropic theme continued with the fourth presentation of the session from Emma Turner, head of client philanthropy, Barclays Wealth and Investment Management. Turner focused on the growing philanthropic trend amongst entrepreneurs. She said: “As business people look at philanthropy, the effectiveness of their giving needs to be looked at.”
Turner said that UK clients were “remarkably trusting” of charities, and that the destination of their generosity needed to be scrutinised. She said that entrepreneurs can sometimes completely disregard their business acumen when making philanthropic decisions.
She added that in the UK, there was a growing trend amongst clients towards domestic charitable giving – adopting more of a “charity begins at home” attitude. She said that this was not exclusive to giving to charitable organisations, and often extended to helping family members pay for education, for instance.
Turner further said that philanthropy is an opportunity for institutions to build relationships with clients – an opportunity that is often missed. Turner gave an example of how a conversation regarding philanthropy had appeased a fraught relationship with a Barclays client and explained how philanthropy gave banks an opportunity to foster more personalised relationships with clients. However, she said that the approach has to shift: “You have to take off your hard-nosed business hat when it comes to philanthropy.”
Session 3: Enhancing client and advisor relationships
The third session’s opening presentation came from Chris Andrew, managing director at Hearsay Social Europe. Andrew spoke about enhancing client relationships with digital, with a specific concentration on social media.
Andrew said that “wealth managers suffer from social media stage fright”, but suggested that it could be a valuable channel for building relationships. Andrew used an example of an advisor from a bank building a client relationship worth $1bn on Linkedin (an illegal channel for said bank).
Andrew also promoted the use of content across social media sites to build client engagement. He added: “If you are only engaging with your clients a few times a year, you can understand why they leave.”
Andrew moved on to how the industry was using data. He spoke about “dark data” – information that an institution has but doesn’t know what to do with. Andrew said that Banks need to harness the data that they already have at a local level, and not just concentrate on big data.
The second speaker of the session, Frederic Lamotte, global head of market and investment solutions at Indosuez Wealth Management, spoke about the increasingly mobile and international client base.
Lamotte said that the client base of private banks is becoming more international and more entrepreneurial. In terms of investment appetite, Lamotte said that clients want to diversify internationally “both for geopolitical reasons and to access products not available in their jurastiction”.
Lamotte added that private equity is providing opportunities for Indosuez in the wealth management space. However, he felt that regulation preventing older clients from investing in longer term/ illiquid investments such as private equity is misplaced. “Private equity is a multi-generational investment and should not be disallowed if a client is 80 or above”, Lamotte said.
Lamotte added that “liquidity is disappearing from the portfolios of our clients” – especially if they seek to attain above benchmark returns.
On the topic of digital channels, Lamotte said that although he thought they are significant, digital channels are not the most significant concern for his clientele:
The third presentation of the session came from René Hürlimann, head of sales EMEA at Appway, who spoke about the advantages of automation in client on-boarding to boost efficiency, assure legal and tax compliance and improve client satisfaction.
Hürlimann said that private banks need to “operationalise their journeys”.
“In traditional wealth management, you serve the client inside out. The new way is based on self-service.”
However, Hürlimann added that the e-banking community in private banking and wealth management is only 5%-10% of the client base, and therefore completely digitising the process won’t work. He added that advisors should sit with their clients with an iPad to guide through the process. He said: “The more you automate on-boarding, the more you enable RMs”.
Session 4: Future Perspectives – Building a roadmap beyond 2016
Arne Hassel, CIO, Barclays Wealth and Investment Management, opened the fourth session by speaking about the future of asset allocations in private banking.
Hassel said that clients with lower risk preferences are opting for absolute return strategies – thus suggesting a preference towards passive management. However, Hassel said that “some passive strategies are becoming more expensive than active management strategies”.
He added: “If a client has a higher belief in the skill level of their advisor, they will go for active management.”
Hassel said that the larger firms have a competitive advantage in the active management space, suggesting that “less mature firms do not have individual asset class expertise”.
The second presentation came from Alexandra Altinger, CEO of multi family office Sandaire, who explored the future developments in private wealth.
Altinger said that “client relationships are no longer the only crucial pillar in private wealth”, adding that the service offering in the future needs to incorporate tools for entrepreneurs, focus on sustainable investment, and concentrate on services for women in business.
Altinger noted the importance of keeping expense ratios low is paramount in a low interest rate environment.
