The 2nd annual PBI Conference: London 2015 saw some of the leading experts in the private banking and wealth management industry come together on 3 June. Distinguished industry experts discussed a wide range of pivotal topics, including UK’s position as a global wealth hub and the integration of digital services in the industry. John Schaffer provides an overview
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In its second year, the Private Banker International Conference: London gave bankers and industry experts a forum to discuss the issues that are currently facing the private banking and wealth management industry. The conference took place on 3 June 2015 at the Waldorf Astoria. Being one of the most significant global wealth hubs, London was a fitting location for these discussions.
The conference was divided into four sessions that discussed the key themes of the day. Following presentations by leading industry experts, each session also hosted a panel discussions and Q&A sessions with the audience.
Session 1 – The UK Private Banking Landscape in 2015
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By GlobalDataKeynote speaker: Tracey Reddings, head of UK private wealth management, J.P. Morgan Private Bank
Speakers: Ton Kentgens, global business development, Ortec Finance
Panellists: Annamaria Koering, head of wealth management, C. Hoare & Co.
Christian Berchem, managing director, Barclays Wealth and Investment Management
Eric Barnett, CEO, Societe Generale Private Banking Hambros
Ton Kentgens, global business development, Ortec Finance
Chairperson: Meghna Mukerjee, editor, Private Banker International
Tracey Reddings of JP Morgan Private Bank opened the PBI conference with a concise overview of the UK private banking industry, citing the key issues that surround the UK market. She detailed the key trends and opportunities in the wealth market in 2015 alongside the challenges and pitfalls.
In particular, the growth of robo-advise was assessed as a challenger to the private banking and wealth management business model. She said the industry must be aware of the appeal of robo-advisers to clients and wealth managers must not be "complacent", even if the robo-advise is a $20bn industry in comparison to the "mammoth" $17bn business of the traditional wealth management and private banking market.
Reddings said the private banking industry has to concentrate on client centricity and servicing clients on all the issues surrounding wealth such as succession planning, protecting businesses and philanthropy.
Reddings suggested that UK’s regulatory environment provides a "layer of comfort" for clients, with the country being perceived as one of the most respected and robust financial centres in the world.
In the following presentation, Ton Kentgens of Ortec Finance continued the theme around the importance of a client-centric business model, where the strategy should be more goals-based rather than product-based. He also highlighted the significance of digital services being integrated into the business model, where there was a significant demand from clients especially if they were under 40 years.
The panel discussion during this first session further assessed the trends in the UK wealth market.
The resounding opinion from the panel was that one of the key reasons why the UK provides a favourable environment for the private banking industry is its regulatory climate.
Christian Berchem of Barclays Wealth and Investment Management said: "One advantage that we take for granted in the UK is our legal system".
Annamaria Koerling, head of wealth management at C. Hoare & Co. commented on the extra regulatory requirements that are imposed on the private banking industry, saying that "the extra reporting required can actually enhance the client experience", suggesting that it would allow clients to engage further via digital channels.
However, Eric Barnett, CEO at Societe Generale Private Banking Hambros, said that "Switzerland is still the strongest brand in the wealth management and private banking industry."
Berchem highlighted the differences between high net worth individuals’ (HNWIs) and ultra high net worth individuals’ (UHNWIs) needs.
"UHNW clients don’t just want access to the private bank; they want access to the overall services. That could be the corporate bank for an entrepreneur or the investment bank for a very complex lending transaction," he said.
The discussion examined the issue of client centricity in the private banking industry and Kentgens spoke about the advantages and challenges of adopting a goal-based approach over a product-based focus. However he noted that advisors would have to be re-educated in order for banks to become truly client centric.
An interesting Q&A session with the audience followed. One of the questions asked was around how regulation had impacted the brand image of banks since 2008.
Koerling felt that, even with increased regulation, the banking industry still needs to shed its "negative image". She said: "Four out of ten of the world’s most hated brands are banks and 70% of people would rather go to their dentist than their bank."
Session 2 – Where is the wealth? European investment trends in 2015
Speakers: Charles Hoffman, managing director, HSBC Private Bank (UK)
Paul Hewitt, managing director growth markets, Christie’s
David Wilson, sales & marketing director, Objectway
Panellists: Charles Hoffman, managing director, HSBC Private Bank (UK)
Paul Hewitt, managing director growth markets, Christie’s
Paul Aitken, founder and CEO, Borro
Shaun Crowley, UK sales director, Objectway
Chairperson: Oliver Williams, head, WealthInsight
The second session of the day took a deeper look into the demographics of wealth management clients as well as European investment and client engagement trends.
The first presenter, Charles Hoffman of HSBC Private Bank, spoke about how the profile of wealthy clients was forecast to change in the coming years.
He noted that an aging population and low birth rates in developed countries were significant contributing factors to the private banking client base. Hoffmann said:
He added that emerging markets will fare much better over the next 10 to 20 years, and predicted that there will be an influx of new clients from Africa, due to consistent population growth.
The ageing population aspect influences the succession planning strategy of HNWIs and Hoffmann said that clients are "looking to hand over the wealth in their lifetimes".
In terms of client engagement, Hoffman said that "the hero RM is dead," suggesting that clients now expect consultation with a team of advisors rather than focus on getting sole concentration from one RM. He also highlighted the importance of giving clear advice to clients, saying: "A really good advisor can make the most complex idea clear and intelligible."
Hoffman was followed by Paul Hewitt of Christie’s. His presentation was about the art collection market and its relationship with HNW investors.
Hewitt highlighted the scarcity of old art and that sales of single works of art for $100m were not unheard of. However, he said what differentiates art from other asset classes is that the motivation behind purchasing art is passion, not speculation.
Hewitt’s talk drew comparisons between Christie’s business model and the inherent issues that the private banking industry faces, where the growth of HNWIs put similar demands on a "solutions and advice oriented type of business". He also talked about how digital channels – much like they have done in the wealth management industry -have created a new market and myriad opportunities for Christie’s.
The next presenter, David Wilson of Objectway, spoke about how client interaction is changing through digital channels. Wilson said that although the majority of private banking engagement is through face to face contact, leading to a "stickiness" with clients, digital channels are set to become far more commonplace and feature-rich with the inclusion of video services.
He said: "The use of video for client reporting as well as client servicing can be expected to be standard for private banks in two years."
Wilson highlighted the issue of consistency across channels, however, as he mentioned that there could be discrepancies between the interaction with an advisor and the information given by a digital channel. On the basis of a survey conducted by Objectway, 44% of private bankers were having problems receiving consistent information across channels, he added.
Wilson also highlighted the importance of user experience for clients, where there was the expectation of a slick channel experience that clients had been used to from the likes of Amazon and Apple.
The panel session discussed the challenges and opportunities faced by private banks entering new markets. Hoffmann HSBC private bank largely focussed on markets where the bank already had a corporate presence. Hewitt said that Christie’s business model was more focussed on individuals rather than new markets per se, but in general, there were "huge inherent risks" in entering into emerging markets, due to an unpredictable climate.
Shaun Crowley, Objectway, said that it is often difficult for software companies to enter new markets when the majority of regions already have incumbents. However, he said, the benefits can be beneficial.
During the audience Q&A session, Hewitt and Aitken were asked if the wealthy ever invested dispassionately, to which Hewitt answered that there was some speculative activity in the form of art funds, which represent investors who "purely do it with their heads rather than hearts". However, this was in the minority, Hewitt said.
Paul Aitken said that some of Borro’s agreed, saying: "We have clients with a trading mentality and they are buying to flip and make a quick dollar. However there is more of a scew towards passion when it comes to art. Passion equals collector, whereas the trading mentality is more of the opposite."
Session 3 – Future Focus: Digital Distribution in the Private Banking Industry
Speakers: Tim Tate, director of client experience and innovation, Citi Private Bank
Francisco Fernandez, group CEO, Avaloq
Renata Stein, business development consultant, Dorsum
Panellists: Graham Aikin, CEO, HNW Social Media Solutions
Simon Cadbury, head of strategy & innovation, Intelligent Environments
Rene Hurlimann, director – EMEA & APAC, Appway
Francisco Fernandez, group CEO, Avaloq
Tim Tate, director of client experience and innovation, Citi Private Bank
Chairperson: Douglas Blakey, group editor consumer finance titles, Timetric
The third session of the day concentrated on the digital trends in private banking.
Tim Tate of Citi private bank discussed some of the digital themes that had been resonating throughout the day in his presentation. Tate’s talk concentrated on the importance of user experience, saying that private banks have to "simplify as much as possible" when providing digital services. He said that clients expect the ease of use from digital channels: "The days of looking at a spinning wheel of death is unacceptable on a tablet."
Tate’s talk focused on how the private banking industry could learn from companies such as AirBnB where "design is key". He illustrated how companies from other industries had significantly improved their client engagement by changing a few select design elements, resulting in an increased profit margin.
The following talk of the session was by Francisco Fernandez of Avaloq. Fernandez spoke about technology being the most significant factor for driving change in the banking industry and that the sector must set aside capital for innovation to survive.
"Approximately 53% of CEOs made it absolutely clear that implementing a digital strategy for banks and wealth managers is their number one priority above improving customer segmentation, cutting costs and responding to regulatory requirements," he said.
Fernandez focused his presentation on digital disruption and gave examples from other industries where a traditional business model had been destroyed rapidly with the introduction of a technology innovation. He cited examples of video rental business, Blockbuster, being eradicated by Netflix and the music industry being morphed by the success of the iTunes store.
However Fernandez said that digital disruption should not only be viewed in a negative context.
"The internet can create longer value chains in an extremely efficient mode, allowing the participants of the value chain to specialise more and not lose when changing from one vendor to the next.
"The opposite is also a speciality of the internet. It can cut down or shorten value chains by leaving out one or two chain members that are overpriced or inefficient," he said.
Fernandez added that in terms of the banking value chain, the traditional financial market architechture was open to "serious competition".
Renata Stein of Dorsum also looked at how the industry was being affected by the digital wave.
She said: "Clients want to be able to look at their portfolio performance at any point in time." Stein added that investing in good quality user experience provisions was imperative, and that it "improves ROI".
The panel discussion delved further into the issues presented by digital in the private banking sphere. The industry’s adoption of social media was also discussed. Graham Aikin of HNW Social Media Solutions said that private banking was "one of the slowest industries to get to grips with social media, due to issues surrounding compliance and confidentiality."
Aikin also promoted the use of YouTube as an educational tool for clients, providing information that would improve the relationship with clients.
Rene Hurlimann, Appway, commented that digital was not only significant when it comes to client experience but "if you want to have better processing times and efficiency, you need to have digital".
The discussion moved on to how smaller ’boutique’ banks could implement digital strategies. Simon Cadbury of Intelligent Environments said the smaller banks had a tougher challenge than the larger institutions. He emphasised that the wealth division at a large bank can leverage the wider banking infrastructure. Whereas a smaller, boutique private wealth institution needs to define its path much more carefully, "and the room for error is higher as well".
However, chairperson, Douglas Blakey, said that although the smaller institutions do not have the "deep pockets" like the larger counterparts, they can move quickly and do not have the issues of operating in multiple regions.
During the Q&A session, questions around how private banks are approaching data and analytics came up, to which Fernandez said that "private banks are absolutely nowhere when it comes to big data".
Session 4 – Building a Roadmap for 2015 and Beyond
Speakers: Russell Prior, head of philanthropy, HSBC Private Bank (UK)
Maya Prabhu, managing director, Coutts Institute
Panellists: Akshaya Bhargava, CEO, Barclays Wealth and Investment Management
James Fleming, CEO, Arbuthnot Latham
Russell Prior, head of philanthropy, HSBC Private Bank (UK)
Maya Prabhu, managing director, Coutts Institute
Chairperson, Meghna Mukerjee, editor, Private Banker International
The final session started with discussions around philanthropy and the opportunities that it provides the private banking industry.
Russell Prior of HSBC Private Bank illustrated how philanthropy was different from consultations with advisors based upon financial expectations. Philanthropy, rather, is an aspect of clients’ wider goal planning strategy and an extension of their beliefs, he said.
Prior said that, although families that had under $5m in wealth gave on average between 1-3% percent of their wealth to philanthropic causes, wealthy families above the $50m level could give "anything up to 40%".
Prior added that there is a significant demand from clients for advise on philanthropy: "Research with clients suggests that 90% of clients feel that a discussion about philanthropy should take place within the first three meetings, and a third of them say this should be upfront in the first meeting."
The interest in philanthropy from the next generation of clients was also highlighted. Prior said that the next generation "care much more about society; they have a totally different view of the world and what can be done in the world through philanthropy."
Continuing on the same theme, Maya Prabhu of Coutts Institute spoke about the impact of philanthropy on wealthy families.
Prahbu’s talk included a focus on philanthropy as a key element in the process of succession planning and how it can impart a sense of responsibility and a way of leaving behind a legacy. She said that, for her clients, "wealth is more than money" and that they are concerned about having a significant social impact with their wealth.
Prahbu said the Coutts Million Dollar Donors Report results indicated that there was a significant trend for clients to use philanthropy as a part of the inter-generational transfer of wealth.
Prahbu added that wealth is a taboo subject in many cultures, including the UK. Families often want to withhold the details of their wealth and philanthropy provides a forum to introduce the topic wealth to their children in a balanced manner.
The final panel discussion provided a roundup of the issues that face the UK as a private banking and wealth management centre. Joining the panel were James Fleming of Arbuthnot Latham and Akshaya Bhargava of Barclays Wealth and Investment Management.
Fleming echoed previous comments from the day, as he felt the UK is a strong player in the wealth management industry across the globe, saying:
"I do think London has got stronger post the financial crisis and I think the core reasons for that remain the same as they always do. We have a very strong and transparent legal system, we have a very good regulatory system, and we have a good positioning geographically, the language issues are very easy for international clients to adapt to.
"There is a further inflow of international wealth managers coming into the UK to position their businesses, not least the family office community where family offices seem to be almost setting up weekly in London."
Bhargava expanded upon this point saying that the wealthy private banking client base ultimately had limitless choices as they could go "anywhere in the world". He said: "If the UK was just a good place to live, clients would live here but the money would go somewhere else. A good regulatory environment provides the essential ingredients that allow an industry to grow faster and I think London is benefiting from that."
Fleming raised the issue of particularly servicing the mass affluent segment and part of the HNW section from a wealth management standpoint. While technology companies are attempting to capitalise on servicing these segments, Fleming said that this segment was "almost too expensive to serve". However, he added that although some clients will move over to technology based solutions, there is still no substitute for human interaction.
The discussion moved to improving the cost income ratio of the wealth management industry on the whole. Bhargava felt that there was a large scope for improvement here. He added: "This is a business that has negligible risk assets, it has a wide portfolio of products and services accompanied by sticky client relationships. Wealth management should be a high return business for any institution to own and manage."
Bhargava said that too much focus on the front-end of the business as opposed to the back-end engineering is the source of the problem.
However, Fleming said, "if it was that easy to drive down the cost income ratio, we’d all be doing it".
Fleming said that one strategy that would solve some of the industry’s problems was consolidation. The panel discussion drew to a close with a conversation around trust in the industry. Everyone agreed that a closing of the trust deficit was the need of the hour for the successful future of the private banking industry.
During the audience Q&A session, a question came up around how private banks are servicing wealthy clients outside of London, and whether or not they were looking to be less "London centric". Both Fleming and Bhargava said their respective banks are concentrating on regions in the UK beyond London to support prospering local wealth.
