Private banking 4.0 is upon us. Digital technology and a highly focused business strategy – not so long ago “nice-to-haves” – are both expected to become “must-haves” in this world of discerning and demanding clients. Firms that lag behind could be seeing the results in depressed bottom lines.

This is the story to emerge from the initial results of Orbium’s C-level survey 2020 which will be published this spring. For this survey, we asked the C-suite at private banks of all sizes across Europe and Asia about their future ambitions on strategy, operations, performance, clients and staff. It revealed an interesting picture of the relationship between these areas and participants’ use of technology to drive profitability and growth.  

Initial results show that wealth managers expect continuing pressure on both revenues and costs.

When it comes to gross margins, 38 percent expect to see declines due to pressures on pricing, low interest rates and investor caution on risk and volatility. And an incredible two-thirds also expect costs to rise due to operational complexity and inefficiencies in the middle and back office.


Understanding the challenges

The surveyed executives’ views are being influenced by several key developments. Firstly, heightened uncertainty about the state of the global economy – thanks to the trade war between the US and China – has led to volatility and fluctuating markets across virtually all traditional asset classes. This has been compounded by low and even negative interest rates in Europe and the US. Taken together, this environment makes it harder for wealth managers to provide growth for their clients’ portfolios at a profit to themselves.

Secondly, uncertainty and low interest rates have triggered a discernable shift by some clients into newer asset classes like Environmental, Social, and Governance (ESG) funds and non-financial passion and lifestyle investments including cars, wine, art and property as they try to find safe havens for their wealth and look for growth. Many private banks admit to being unable to offer clients sufficient advice on, and access to, these assets.

Thirdly, retaining clients and signing up new ones to grow the business have become increasingly difficult. Competition has intensified due to new entrants and consolidation among existing players – as well as from the rise of the family office. In addition, next generations of family clients are not so loyal as their elders and have needs and demands that could be met profitably only with a modern, digital strategy. Faced with these challenges, many of the smaller players admit they do not have the right structure and strategy to grow.

Managing the paradox of personal data

Orbium’s survey reveals that to weather the storm created by today’s market dynamics, wealth managers are increasingly turning to technology to help them deliver comprehensive, client-centric multi-channel services. While today only 23 percent offer this, 76 percent of respondents expect to be able to do so by 2025.

But – there’s always a but – this will demand excellent data security and guardianship. Our survey shows that many respondents are concerned about “the paradox of personal data”. On the one hand, using data effectively has a huge potential to help them grow profitably and deliver the services clients want. But on the other, it presents major risks to the firm if it is not managed securely and in a regulatory compliant manner (e.g. GDPR in Europe). Many of those surveyed aren’t yet fully up to speed when it comes to addressing this. Only 33 percent currently make risk and security measures a top IT priority, although this will likely rise to 55 percent by 2025.

Strategy and structure as solutions

Our initial survey findings point towards an acknowledgement that wealth managers need to not just digitalize, but also to adopt business strategy, processes and structures appropriate to becoming a digital wealth management business. It’s about learning to use data as an asset, but also protecting it to avoid it becoming a liability. Many firms may still need to adjust their data approach and are seeking help to better meet the challenges ahead and to future-proof themselves for success.

The good news is, as we continue to analyze the responses from our survey, we will be able to provide some valuable insights on where firms need to adapt to be in line with the values and life goals influencing their clients’ wealth needs. Armed with this knowledge, wealth managers could make informed choices about how to develop more effective strategies to make focused and relevant investments to bring profitable growth. Watch this space for more results from our survey.

 

Submit a Comment

Your email address will not be published. Required fields are marked *