The era of the private client comfortably installed in a hushed lounge to consult his bank account statement under the benevolent eyes of the banker, seems to be well and truly over, Charles-Henry Monchau writes in an essay on finews.first.
This article has been published on finews.first, a forum for authors specializing in economic and financial topics.
In the space of two decades, the needs of customers have changed considerably. It is now a question of being able to access one's account 24/7, in real-time and via an intuitive digital interface. The content of information and recommendations must match their preferences and risk profile.
Without completely abandoning discretionary management, many clients want to have control over their investment decisions. They are becoming skeptical about the soundness of the financial advice given by their bankers. Ikea paved the way for the «do-it-yourself» and now the same concept applies to the banking world, as the customer becomes a «consumer actor» of his/her bank and wants to consciously use its services.
«Customers tend to evaluate risk in terms of drawdown rather than volatility»
Market data and comments do not come solely from the bank as the amount of information available on social networks is limitless. Customers tend to evaluate risk in terms of drawdown rather than volatility. It is about accessing the most sophisticated products and strategies previously reserved for institutional clients. Finally, management performance and fees charged must be fully transparent and compete with non-traditional players.
Faced with these challenges, private banks are gradually evolving their customer experience. The digitalization of processes has become essential. Customer satisfaction requires a digital interface that is as efficient as possible and available 24/7. The aim is to move towards a hybrid advisor model – half robot, half human. Standard services are delivered via a digital interface, while the most complex advice is provided by human experts.
Investment advice and products are becoming more and more targeted to the specific needs of each client. It is also about providing access to innovative and institutional quality strategies that would otherwise be unavailable.
«Fintechs are now part of the traditional banking ecosystem as legitimate value creators»
Traditional services such as standardized discretionary management and simple recommendation lists can be offered at very competitive fees. On the other hand, more sophisticated solutions such as illiquid strategies, limited capacity hedge funds, differentiated thematic offerings, secure crypto asset custody and trading, tailored advice and so forth are among the offerings which can help a banking institution to further differentiate itself.
Since a bank cannot be the leader in all these services on its own, it needs strategic partnerships for the sourcing, research, and management of these products. While fintechs, crypto specialists, asset managers and independent asset managers were once seen as competitors, they are now part of the traditional banking ecosystem as legitimate value creators.
«High-net-worth clients are increasingly turning to a family office»
But changing customer needs are not the only challenge facing banks. Regulatory pressure is driving operating costs higher. Disruptive business models and new entrants (fintech, robo-advisors, etc.) increase competitive pressure. The rise of artificial intelligence, «big data» and blockchain is transforming the financial industry and leading to new ecosystems. A new generation of investors thinks differently about advice, and banks need to adapt.
It is also a question of banks positioning themselves to recover some of the added value lost over the years to non-bank players. Indeed, part of the products and services offered is no longer the prerogative of traditional banks. High-net-worth clients are increasingly turning to a family office for strategic asset allocation, financial planning, and specific advice.
«Differentiation and «tailoring» are the two magic words»
They use asset management specialists when it comes to investing in illiquid strategies such as venture capital or real estate. For traditional discretionary management, private clients no longer hesitate to use the services of a robo-advisor to lower management fees.
As far as «execution-only» is concerned, click-and-trade offered by online brokers is on the rise, as well as platforms and wallets hosting crypto assets. For payments and credit cards, fintechs such as Revolut are even attractive to high-net-worth clients. Crowdfunding platforms are also popular with the latter. Incumbent banks are content to offer traditional and low-margin services such as deposits, loans, or discretionary management.
In terms of research content and investment themes, differentiation and «tailoring» are the two magic words. The sources of advice are multiple: internal, external, experts and social media. The use of digital marketing strategies (blog, newsletter, emails) enables the implementation of a «freemium» model. Many prospects around the world hear about the brand and can judge the quality of the content and user experience without any obligation.
«Billing based on assets under management of a client is going to be replaced»
When these prospects want to become customers, a banker can then convert the trial and start the relationship. In paid services, the matching of content to customer preferences can be fine-tuned through big data analysis and the use of software that enables targeted content delivery.
Finally, pricing is also evolving. Billing based on assets under management is sometimes replaced by a fixed cost or billable hours of service – as with lawyers.
I remain convinced that private banking 2.0 must be nourished by the innovation brought by new entrants. The security offered by a private bank and a service offering that meets the new demands of clients is, in my view, the winning combination for the decades to come.
Charles-Henry Monchau is the Chief Investment Officer (CIO) of Bank Syz. He joined the firm in early 2021 from FlowBank, where he was CIO and Chief Commercial Officer. Prior to this, he had been CIO of Al Mal Capital (Dubai Investments), Head of the Asset Allocation Team for the EMEA region at Deutsche Bank and held various C-level positions in Geneva, Zurich, Dubai, Nassau and Paris. He has an Executive MBA from IE Business School and an MSc in Finance from HEC Geneva. He is also a CFA, CMT, CAIA and CIIA charter holder.
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