08 Nov 2011

Does the private banking sector really look after the client demand ?

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I attended yesterday a luncheon organised by Amcham (the American Chamber of Commerce in Luxembourg) where a CEO of a large Luxembourg-based foreign bank exposed his view on the on-going “Paradigm Shift in Wealth Management”.

In a 20 to 30 min. speech, he explained why a paradigm shift is necessary in the banking industry.

He started off with presenting 6 major changes in progress today :

  • Volatility: according the speaker, the large up-and-downs in stock prices will keep on being the day-to-day of the investors at least over 2 to 3 years.
  • Client performance : as a result of the upper item, the performance will suffer from the instability of the financial markets. Since then ,the clients seem to have now a lower demand in term of financial performance.
  • Diversification : what has been observed over the last 5 years around, is an increasing segmentation of the investment offer vs. clients expectation. The diversifcation is any longer an arbitrage between asset classes only (bond, shares; etc …). Nowadays, it includes new selection criteria such as countries. Advising clients becomes more and more complex and demanding in this point of view.
  • Investment protection : the clients tend to issue more complaints regarding the advices they have received from their private banker. In addition, the financial regulation elsewhere raise up significantly their requirements, in order to prevent from further damages among the investors.
  • Regulatory pressure : linked with the last question
  • Banking secrecy : while it is supposed to disappear quite soon, advices and products are more and more picked up anywhere. It means for big players to be able to follow their clients where they live or go on holiday, for instance … Such strategy is called the “cross-border business”. Collaboration between entities in a same group are vital.

He closed his speech by listing 5 recommendations for the private baking industry in order to prepare properly for the future.
He stated that it is needed to go from :

  • market performance to client performance (as the markets fall, the customers are looking for niches and products where they can put their money and have a positive return).
  • asset gatherers to invest managers (bespoke services are required to attract money. The converse does not work …)
  • a position of local niche player to global reach player (according to the speaker, the concept of “boutique” is suffering, because of not being backed by a large structure that provides the knowledge and capacities to adapt)
  • banking without limits to efficiency focused set-up. The race to assets is partially over. If banks want to survive, they need to save their commercial margin and sources of profit. The profitability of the client is becoming more and more important
  • a flexible working environment to a better regulated one. While the financial products and sevices are increasingly complex, various controls ex-ante/ex-post have to be done more frequently.

In order to stay optimistic, the speaker concludes with saying that Luxembourg is an unequal place in the word, where the funds capabilities and the structuring offer have been working for a long time hand-in-hand.

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