Moving with the times

The world of private banking and wealth management has had to cope with significant technological changes and major demographic shifts. Both developments are helping to create a more sustainable industry

The year ahead is likely to see the continuation of long-term shifts that have been taking place in the private banking space for some time. The sector has changed markedly over the last few years, notably in terms of customer expectations and digital transformation. One of the things that private banks and wealth management firms must stay abreast of is the rise of a new type of high-net-worth individual (HNWI), for whom simply making money is not enough. Increasingly, investments must be underpinned by ethical principles, with environmental, social and governance (ESG) factors playing a more prominent role in many individuals’ portfolios.

In addition, private banks must be particularly cognisant of macroeconomic factors in these turbulent times. At the start of the year, a pervading sense of optimism persisted, with many markets enjoying steady, if unspectacular, growth. The COVID-19 pandemic means that, like all industries, the banking sector is currently navigating its way through uncharted territory. Only the most shrewd banks are likely to make it through the crisis unscathed.

The ones that do will benefit from sensible investments in new technologies. Artificial intelligence (AI), reinforced by better data analytics, will enable banks to improve the onboarding process and develop stronger relationships with their clients. Open application programming interfaces, robotic process automation and collaborative endeavours with financial and regulatory technology firms will also prove fruitful.

As financial institutions adopt these new digital innovations, they must tread carefully, even as they making bold decisions. In 2020, private banks will need to find the right balance in an uncertain economic environment. The ones that can walk this fine line are the organisations we have honoured in this year’s World Finance Private Banking Awards.

A lot to consider Far from being purely profit-driven, today’s HNWIs care deeply about where their money is being invested and what it is funding. Private banks and wealth management firms must be aware of this if they are to meet client needs. According to a recent FTSE Russell survey, more than half of all asset owners globally are currently implementing or evaluating ESG considerations in their investment strategy. Sustainable assets are no longer simply nice additions to tack on to a portfolio – they are essential.

A new cohort of investors is partly responsible for the uptake in assets that display good ESG credentials. Millennials, who are making up an increasing proportion of HNWIs, tend to place more emphasis on the social impact of their investment than the general population, which is driving up the popularity of ESG funds considerably.

Another change that private banks must be mindful of is a desire for an omnichannel experience. Younger clients in particular are likely to be in possession of several bank accounts, which they access via a multitude of methods. They expect their bank to be able to collect and assimilate information from disparate sources before delivering holistic customer service. FIS’ PACE Report 2019 found that 97 percent of consumers consider a smooth, easy customer experience to be an important factor when choosing a bank.

Of course, with so much data flying about, it isn’t always easy for private banks to deliver an omnichannel experience. Sometimes, a back-to-basics approach can help. In Singapore, for example, United Overseas Bank has integrated its online and branch services into a single wealth creation journey, boosting client confidence.

Though catering to customer needs is important, private banks cannot afford to neglect wider macroeconomic developments. Thus far, 2020 has been a year of economic turbulence, and this will undoubtedly be felt by HNWIs. What once seemed like a sound investment may have suddenly plummeted in value, as was the case with crude oil, which hit negative prices for the first time in history in April (see Fig 2). The best private banks do not allow themselves to suffer from myopia: client needs are important, as are regional developments, but staying in touch with national and international trends is just as essential.

Appreciate the individual One of the biggest shifts that has taken place in the private banking world is a demographic one. Customers are increasingly likely to be digital natives, which has implications for the kinds of products and services they expect from their bank. Over the next 10 years, a predicted $8.6trn of wealth will change hands, much of it finding its way into the bank accounts of younger individuals. Private banks and wealth management firms may be comfortable managing the expectations of Baby Boomers, but they will now have to do the same for Millennials and Generation Z.

But not all of them are up to the task. Research conducted by Fenergo, a leading provider of client life cycle management solutions, found that 90 percent of wealth management firms remain without a digital client self-service channel for onboarding. As a result, robo-advisors are set to revolutionise private banking firms throughout 2020 and beyond. They will provide algorithm-led financial planning for HNWIs, offering efficiency benefits for banks and clients alike. By 2025, the robo-advisory market is expected to manage $7trn of assets.

Ironically, however, even as AI-powered bank advice becomes increasingly important, customers will demand higher levels of personalisation. While technology can help with this, particularly regarding data collection, human members of staff will remain essential. Last year, JPMorgan Chase and Bank of America each opened some 400 new branches in the US. Particularly when large sums of money are being discussed, individuals may still prefer speaking to a wealth manager face to face.

Nevertheless, technology will continue to prove useful for improving the relationship between private banks and their clients. The 2019 Global Financial Services Consumer Study by Accenture broadly identified four core customer personas: pioneers, pragmatists, sceptics and traditionalists. Banks can use these definitions as bases from which to develop their products and services, without erroneously thinking that any single client will fit neatly into these groups.

Ultimately, private banks need to see individuals as unique. The World Finance Private Banking Awards highlight the private banks that are doing just that – delivering a personalised service that still takes into account wider social, economic and technological developments.