Private Banker International’s European round table show ended its journey in the German financial hot spot of Frankfurt. The event took place in the elegant Westin Hotel with a select group of industry leaders to discuss the latest developments in the digital sphere and how new regulations will be impacting the German market, with MiFID II on the horizon.
The first intervention from Marien van Riessen, vice president of Capgemini Consulting, was focused on the digital transformation in private banking. As in the previous event in Stockholm, the topic of digital and technology innovation was well received, but also raised some eyebrows. The digital shift continues to be a hard hitting topic among private bankers especially when it comes to costs and client’s effective engagement. Needless to say, it has led to detailed discussions about the role of relationship managers and the importance of maintaining a continued client-focused relationship, especially in a traditional private banking hub as Germany.
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Riessen stressed on the growing importance of digitalisation in the industry and the need for players to define or re-define their ‘relevance’ in the customer’s journey to digital. He suggested that banks need to create a ‘wow moment’ for their clients, a unique digital experience played on emotions.
Ullrich Hartmann, partner at PwC Financial Services Risk & Regulation, ended the conversation on regulation, with a remark on MiFID II and how this will impact Germany in the coming months. Expected at the end of 2016, beginning of 2017, Hartmann said MiFID II will change the market dramatically.
One thing is certain; many banks are going to change their business models. He talked about the oldest German players, Berenberg and Metzler Bank, arguing that they could choose independent advisors as an option. Hartmann also said the major impact of MiFID II will be on investment advisory divisions and IT systems.
Participants in Stockholm and Sweden said they forcast more regulation, as many players disappear in Europe and private banks pass from an advisory to a discretionary business model. This view was also backed in Frankfurt, as speakers highlighted the increasing possibility of continued consolidation within the industry.
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By GlobalData| Frank Klose, head of Financial Planning SEB |
| Stephan Kempf, head of Product Management & Marketing Santander |
| Markus Wallenberg, head of Family office-MD Citi Private Bank |
| Stephan Lanz, director Citi Private Bank |
| Ullrich Hartmann, partner PwC Financial Services Risk & Regulation |
| Marien van Riessen, vice president Capgemini Consulting |
| Ronald Janssen, MD Private Wealth Management Ortec Finance |
| Ton Kentgens, Global business development, Ortec Finance |
Private Banker International: How do you produce a ‘wow factor’ for clients when regulation is becoming tedious?
Marien van Riessen: Being there in the digital world is essential. Measuring data in the private banking area is very important to track clients, for example. Also, being ‘relevant’ means you have to outperform and play on emotions. For you as a provider its important to know where to be relevant and where to create your wow moment.
Stephan Kempf: It depends which segment you are looking at and at what stage. As we are still building digital capabilities in the German market, I would say our wow moment is included in the experience of the products rather than the service side.
Ronald Janssen: Just think where you can impress your client and how you can preserve the dialogue and communication to create one or more wow moments. These are moments of truth. Whatever the client needs, I think you have to create a wow moment, especially before he becomes your client. I don’t think private banks are offering enough to fascinate and wonder the client.
Ton Kentgens: You see clients shifting the way they communicate with you. The next thing private clients want is to manage their portfolio themselves and we are not only talking about trading platforms.
Frank Klose: It is not a question related on how to deliver a service enough to get new clients. The question is always what is the extra value we can deliver, this cannot be the service or the product, it can only be the person who is there and the actual adviser who gives real value outside questions about the portfolio. All our private clients, they have our questions which are normally passed to a lawyer or others. If we can provide extra information or solution to this, and not based on the portfolio, than you have the wow moment.
If you focus too much on the digital you will lose contact with the client. To retain a client we have to develop a relationship though the years and you cannot substitute this with digital solutions.
Marien van Riessen: Its not about substituting the relationship, but making it richer and creating more points of communication.
Frank Klose: If you are talking about the kind of private banking of reduced to portfolio management I agree with you. But if we talk about traditional German private banking there is much more. It is not so important if you get additional information on your portfolio, it is important if you have someone you can trust also in crisis.
Marien van Riessen: Traditional private banking is shifting from an asset base to a need base. You need to be aware of the needs of private clients and do more analysis in the digital world. So you should look at your current client base, see what they are interested in, and then focus on creating more ‘wow moments’. The game we are playing right now is moving from selling to converting.
Private Banker International: Do you all have a digital strategy in place?
Stephan Lanz: The implementation of new, digital products and services is a long term process and one that will continue to change and adapt over time. Of course, digital doesn’t work for everyone but it does work for many of our clients and we are receiving a positive response not only from next generation but also our private banking clients aged 60 and over.
Frank Klose: This would be our future but only a part of our business. We got a digital strategy on our asset management division and this is also what a direct bank can offer. I think next generation will ask ‘Do I need advice’? or ‘Can I manage my portfolio by myself?’. Why should I go to a private bank if I get the same from a direct bank?
Stephan Kempf: Every bank has its digitalisation but you will have to manage the shifting from the traditional branch base model. People focus more on the multi- channel management and this is what I think you need to manage.
Private Banker International: Are you encountering any resistance in digitalisation from your clients?
Stephan Lanz: Every new tool costs money. It’s a long term process. Of course if you have old private banking clients, aged 60 and older, then you won’t invest in digital because maybe in 20 years time you won’t have the same needs from these clients.
Frank Klose: If we talk about different strategies, when you’re small like Meztler Bank the focus is not digital banking because this costs money and there is no return if you have around 1,000 customers. With a small budget, if you want to get the same amount of clients I think the costs are much higher. If you are a smaller player you look more towards another kind of strategy, like relationship banking (not digital).
Ton Kentgens: But don’t you all agree that this digital shift is also shifting in the industry because investing in digital costs a lot of money. In Germany, for example, there are some small banks, like one of them said to me about mobile solutions: Meine Kunden brauchen das nicht (My clients don’t need it). So what he said is ‘I don’t understand it’, ‘I don’t want to invest in it’, ‘I don’t have the money to invest’.
Private Banker International: How is regulation, namely the upcoming MIFID II, impacting Germany and its private banking industry?
Ullrich Hartmann: A lot of banks in Germany are discussing whether they will need investment advice for their private clients. Investor protection will be key in Europe and Germany. It is very high on the agenda at the moment especially in the political area in Germany. Transparency was a miss goal during the financial crisis. Information reporting would be key and Bafin feels consumer clients are not informed enough about the cost of risk in financial instruments. A ban of inducements in Germany, especially in the asset management space, will have much more impact.
Frank Klose: For me the clear message is that 2017 will be different. Advisors will have to decide what their function is.
Ullrich Hartmann: Two years ago would have been ideal for banks to start impact assessments. Our expectation for big banks would be in 1.5/2 years to implement it. If you start this year you’ll have enough time. We are expecting a very strong impact on the IT system.
Some institutions will disappear from the market. Consolidation will continue. We won’t just see regulatory bodies in Europe but also supervisory bodies in Europe for investment advice.
Frank Klose: There is a clear message on what it will happen for these banks offering private banking in Germany. Will it be too much for the smaller private advisors?
Stephan Kempf: Some of these people could be forced out of business because the complexity of implementing it is far too costly. This is good news for the established and bigger banks, because, once again, size matters, you need a certain size to allow consistence, trainings, and product measures. We’ll see some countermeasures, within the credit unions from bottom towards the top. They are seeing a lot of European supervision as well in their business model. But, interestingly, structurally the market will unfortunately not change.
Frank Klose: Banks which are too big to die and too small to be profitable will merge. But the question is: what is the correct size of a bank?
