On April 13, 2013, Luxembourg’s Prime Minister Jean-Claude Juncker announced the path that would be followed by the country in the coming years. It was no surprise for many financial institutions and private banks – notably the members of Luxembourg’s Association des Banques et Banquiers and the Private Banking Group. The Prime Minister announced that the country’s banks will automatically exchange information, defining a new framework for the financial sector and putting an end to the lack of fiscal transparency that came from the strict respect of banking secrecy.
Expected for a long time, this new framework aims to create a level playing field among EU members. It highlights the need for Luxembourg’s financial sector to speed up its adaption of reporting tools, its creation of specialised niches and its development of new markets in order to remain competitive – especially in its private banking activities.
This major change was met with mixed anticipation within the sector. Those players that do not adapt themselves to the new context may lack competitiveness and the relevant know-how – especially those still convinced their services are of sufficient quality or in their product ranges’ continued competitiveness. The new environment will oblige all players to not only be competitive in the Luxembourg market, but also in the local markets of our cross-border clients.
Fundamental change
Competences and various servicing models do exist, and the majority of the players have been transforming themselves for years. Nevertheless, it is common sense to understand that this decision will deeply impact the Luxembourg private banking world. There is little doubt to us that this fundamental change will lead to a consolidation within the private banking sector and to certain players leaving the market.
Considerable investments are required to continuously adapt to regulatory changes (FATCA, EU directives, etc.) and to the new needs of our clients, especially with regards to their reporting needs (e.g. tax certificates or consolidation tools). Foreign authorities also have increasing demands and require investment in this area. This is a significant burden, especially for the smaller players, who may lack the critical mass to make this a profitable investment.
Taking this into account (and noting the necessity of important investments), it is interesting to be part of a bigger structure in which synergies and economies of scale can be developed. If banks are to make their Luxembourg private banking activities viable in the long term, they must:
– Capitalise on being part of a larger group, and benefit from the lessons learned and sharing of best practices;
– Allocate the costs and benefits on different business lines, or even in different countries (e.g. tax reporting for non-residents);
– Take advantage of synergies at a local level and with other group entities;
– Question their service model and adapt it to their clients’ needs;
– Adopt a global client approach and an open architecture model, rather than confining themselves to a focused activity.
Competing in today’s environment
Luxembourg is a key market for ING and our presence includes all the business areas of a universal bank. With 800 employees, all activities are covered: ranging from an important domestic retail segment to private banking and commercial banking activities fully supported by our internal dealing room.
Today, ING Luxembourg is the main contributor to the group’s results after the Netherlands, Belgium and Germany. The ING brand is well known around the world (the group is present in more than 40 countries) and strongly associated with retail banking, corporate banking and insurance activities. In many countries nevertheless, private banking wealth management is not what characterises ING if asking people on the street.
Private banking is relatively new to Luxembourg. It was developed 15 years ago and, by the end of 2012, assets under management had reached $8bn. Over the last five years, ING Private Banking Luxembourg’s first-mover advantage, with regards to anticipating the evolution of the regulatory context, has helped it grow its client asset base. The drivers of this growth were a fundamental change of mindset and the recognition of the need to diversify revenue sources.
On the one hand, we have prepared our traditional client base for the new regulatory context by changing mindsets and creating individualised wealth plans. In order to cope with our clients’ needs, we have reinforced our wealth planning team, partnered with external experts and invested to develop our capability to deliver tax certificates for different markets (e.g. Belgium, France and the Netherlands).
These efforts were recognised with the Euromoney 2011 award Best Bank in Luxembourg in Terms of Tax Services, and by the fact that, for the last two years, we have maintained a stable EAB despite a difficult environment of continuously changing EU regulations. Continuous efforts to help clients comply with their home countries’ regulations have led to a great level of satisfaction, and long-term confidence and loyalty.
On the other hand, we have recognised the need to move beyond our traditional client base. Our strategy in this respect is articulated around three points: the development of new geographical markets (e.g. Russia, Romania, Morocco); the study and implementation of services for specific niches of clientele, such as ultra-high-net-worth individuals (UHNWI); and the creation and development of synergies within Luxembourg – mainly working with corporate banking in order to tackle the corporate and private wealth of our clients, but also with other group entities in Europe.
We are striving to be known as the centre of excellence for cross-border private banking services within the ING Group. To finance this strategy when there is pressure on costs and margins, we have an appointed revenue manager, and improved commercial discipline and operational efficiency.
As such, we were largely able to avoid unilateral fee increases at the expense of our existing clientele. Customer centricity and operational excellence are two pillars in achieving our vision of becoming the most recommended bank by 2015. In order to be able to assess our positioning, we have launched various ‘net promoter score’ surveys. Results have clearly indicated that we are at the forefront with regards to operational excellence, as compared to our direct competitors.
Service and organisational model
In order to serve our clientele efficiently and successfully, we have designed our commercial forces into a dual model. Our commercial forces work hand-in-hand with our internal team of experts in wealth and estate planning, and with our front office lending manager.
ING Luxembourg has developed a two-layer segmentation model. The first one is dedicated to the residence country of our clientele, the second segment being based on the assets under management. Since its creation, the upper segment of UHNWI clientele has represented one third of our total private banking assets and approximately 200 clients. It is currently the fastest growing segment. Nevertheless, the model is not relevant if each segment does not benefit from a specific service and product offering. That is why – if all clients make use of the expertise of our wealth planners, who focus on civil, tax and succession planning issues – UHNWI can also benefit from the expertise of our lending manager, especially in terms of cross-border real estate financing and yacht financing.
Expected for a long time, this new framework aims to create a level playing field among the EU members
UHNWI also need convenient banking services. Playing its role as a universal bank, ING was a first mover among the local universal banks when it came to online banking. My ING is our online banking service, which enables our clients to check the balance of their accounts and cards at any time and from any computer or smartphone.
ING Private Banking Luxembourg covers Luxembourg, Belgium, France and The Netherlands, through dedicated desks. At the same time, we focus on the development of new markets through our international desk, currently covering Romania and Russia, which translates our clear focus on the East European countries. We also specifically serve UK residents or UK residents non-domiciled, German, Spanish, Italian and Moroccan clients. The idea behind the development is to leverage potential synergies with other ING Group entities in these countries in a business-to-business approach, providing them with our securities platform and booking centre services. Alternatively, this can be done in a classic business-to-consumer approach with dedicated teams consisting of private bankers and relationship managers.
ING Private Banking Luxembourg can also count on the expertise of its portfolio management team, responsible for providing discretionary and advisory management services. Portfolio managers have on average more than 17 years of experience in their field and are supported in their daily work by risk managers, middle officers and IT specialists. Each portfolio manager has specific responsibilities in the follow-up of equities, bonds or funds.
The philosophy behind this service model is also directly linked to the three pillars of the ING Group: customer centricity, operational excellence and top employer. In order to achieve this and to become the most recommended private bank by 2015, we also focus on the ongoing training and up-scaling of the competences of our people. All our private bankers, have – on top of their academic degrees – followed complementary high level certifying programmes in tax or wealth planning and finance. Our dedicated team for UHNWI are CFA charter holders or have other highly valued certifications.
Open architecture
ING Luxembourg has developed an enlarged service model in addition to its existing portfolio of management services. Our new approach also includes patrimonium and wealth management.
As such, a dedicated team of jurists specialised in cross-border issues has been developed internally – in order to cope with various client needs related to topics such as applicable civil laws, fiscal law and succession planning. The main objective is of course not to replace the legal opinion provided by law firms, but to be able to assess the situation of a particular individual and to help them in finding the most appropriate solution/structure in an open architecture model (in case of re-composed families, protection of heirs, cross-border successions, structuring of private and professional wealth).
There is little doubt to us that this fundamental change will lead to a consolidation within the private banking sector and to certain players leaving the market
Such an open architecture model also exists with regards to the financial assets management services. Our model is indeed open to external asset management companies, external funds (through ALTIS SA, a Luxembourg-based ING subsidiary and specialised in third party funds selection) and family offices.
Consequently, ING Private Banking Luxembourg, in close collaboration with our corporate and institutional segment, is able to plug our securities and reporting platform directly to the IT system of the external service provider. This allows them to have direct access to the markets and to develop global reporting tools for the clientele.
Although we have not currently developed a specific internal service offering dedicated philanthropy expertise, we have actively sensitised our private bankers to philanthropy services (in order to be able to understand our clients’ needs and to provide them with appropriate solutions). We have decided to work in an open architecture model capitalising on the expertise of renowned actors on the field such as The Luxembourg Foundation and the Fondation Roi Baudouin in Belgium.
Brand recognition
In order to develop our image and to convince people that it is worthwhile working with ING Private Banking Luxembourg, we clearly focus on the development of our network of professionals, capitalising on our strong technical expertise, our open model and our integrated value chain. We sponsor dedicated events – not only in Luxembourg but also internationally – focusing on UHNWI/HNWI passions such as art, polo (sponsorship of the Polo Club de Chantilly in France), or classic cars. The creation of the brand name itself, ING Private Banking, also inspires our clients with confidence.
Regarding brand recognition, private banking has the ambition to develop a sub-brand to ING that clearly wants to put forward the complementary added value with the ING trademark that is very often reframed to retail.
Accessibility is all about capitalising on the ING know-how to create a more modern no-nonsense private bank, which uses modern technology at the disposal of our clients at any moment. It is also about pro-activity and anticipation in our client approach.
Last but not least, we spend a very meaningful amount of money and days to enable our private banking staff to be trained in hard and soft skills. We are known for our competences and the quality of our advice. In order to create this, we want our people to follow predefined courses with exams and a reward system if they succeed, but also to be replaced if they don’t. These high standards are fully recognised by the clients and by our competitors. It also means that our compliance behaviour is on top of the market, but we believe that this is the only way forward for sustainable growth.
We may say that our environment is changing and that we want to lead this change. We have the fiduciary duty to our clients to protect and manage their wealth in a responsible way.
Taking into account the fast-changing environment, our stakeholders, clients, shareholders and partners expect a capability to transform, expand and generate the private bankers of tomorrow, while implementing new tools and integrating new technologies in order to be able to meet their expectations. In our opinion, the key success factor for a universal bank is to generate a competitive edge compared to the boutiques or mono-private banking players. It is vital for a bank to put in place dedicated specialised teams with a clear vision of focusing on internal synergies between the different business lines.
