Private Banking: Reimagining the Meaning of Wealth
Private banks were founded during the European Renaissance to manage the personal finance of noble Venetian families, firmly fusing a reputation of wealth, power and secrecy to the profession.
But illustrious five hundred year histories have not necessarily equipped private banks to deal with changes currently sweeping the industry.
These traditional, sometimes out-of-touch institutions are in the throes of wooing the next generation of investors- a group of hyper-connected, socially-conscious individuals. Individuals with a strong culture of immediacy and ability to shakeup financial markets from the confines of Reddit.
What’s more, they are about to receive the largest inheritance in recent history. The World Economic Forum predicts a $41tn wealth transfer from baby boomers (who currently hold 60% of the world’s wealth) to millennials over the next 40 years. To add to the mix, one third of financial advisors are approaching retirement age, with a decreasing number entering the career pipeline. There is an emerging chasm between financial advisors and ultra high net worth individuals (U/HNWI). It’s something that Switzerland’s preeminent private bank, Pictet, is grappling with as outlined in a recent editorial by Bloomberg.
“Pictet is in between two worlds. They are in the old world of Geneva private bankers, and the new world of globalized finance, where they want to be present internationally, they want to grow, they want to present themselves as modern, but not too much. Two worlds that are on a collision course.”
Are private banks’ elite fees and network-driven image of these institutions a turn-off for the younger generation of wealthy investors?
Maybe, but the answer isn't clear-cut when challenger private banks are also struggling to make a breakthrough. Though the days of owning and showing an embossed faux-parchment cheque have long gone, there will always be a premium attached to bespoke service. Something heritage brands have nailed. The supremely discrete client relationships. The round-the-clock concierge. And, of course, the cachet of the brand itself. The names Coutts, Hoares and Swiss behemoths Pictet and Julius Baer continue to command a certain prestige.
There is no guarantee in loyalty
Next gen investors are thinking much harder about where to put their savings. It’s no secret that as banks across the board lower their interest rates, customers are having to think about how to make their wealth work harder. 60% of millennials claim to hold no loyalty to their wealth management firms. The prestige of having an account with a three hundred year old Swiss bank doesn’t hold quite the allure when you’re being charged to store your money in it.
This along with investment strategies that prize diversification has meant many savvy UHNW/HNWs are open to new opportunities for maximising their wealth - from passion assets to impact investing to dipping into more volatile markets such as crypto.
Banks are being forced to rethink their strategies. Slowly but surely next-gen engagement is less a lifeless liaison in succession planning, but a way to reimagine the meaning of wealth in a world of social purpose and digital disruption. Some are opting for a rebrand - Coutts’ fresh-faced image is a clear steer away from the prosaic, corporate tones typical to the industry - as others embark on restructuring teams. Over the course of 2019 Pictet saw “a dozen of their notoriously insular, long-tenured relationship managers depart the firm” (Bloomberg).
There seem to be two key trends emerging;
1. It’s not ok to be ‘idly rich’
The culture around wealth in the West has changed for many - it is no longer OK to be ‘idly rich’. Emerging U/HNW invest to blend profit and purpose.
For banks, the aim is to go beyond offering financial advice, partnering with clients in building their careers and training them for future leadership, and also to plug into the sorts of subjects they’re most likely to be passionate about, which these days often means investing with a social or environmental impact.
Take Weatherbys Private Bank for example. It’s now in its third year of Creating The Future Conference. A series of forums attended by global leaders - think Paul Polman, CEO of Unilever for 10 years and directors of the UN Climate Change Conference in Glasgow. Or Hoare’s emphasis on philanthropy, which is so long standing and genuine that it attracts people of all ages who respect this integral part of the bank’s culture.
Some banks are reimagining experiences to reshape investors’ views of the world. Globalance Bank, which focuses on sustainable investing, launched Globalance World, an interactive globe that monitors sustainable investments. Through it, users can monitor 6,000 listed companies and stock indices and understand their impact on ESG (environmental, social, and governance), climate change, and other macrotrends.
2. Digital competency is a given
One-click access to banking is now a given. It’s less that emerging HNW seek purely digitised services, rather the convenience associated with the ubiquity and speed of mobile communication today. This is far from a digital native trend. The self-serve ‘Amazon Prime’ individual cemented by the pandemic spans generations.
The challenge for many heritage banks will be to play digital catch-up in a credible, authentic way. They ought to shift their mindset away from treating technology as a surface-level perk that makes their bank seem techy or cool. Rather a means to deliver ultra-convenience. Internally many banks continue to use outdated banking systems. It’s about optimising and automating often fragmented processes. Private banking should slot into the lives of time-poor, globally connected individuals.
Goldman Sachs has steadily built its online bank Marcus to attract the mass-affluent, along with a pipeline of financial services to serve them. It’s poised to eventually expand up-market and offer next-gen digital private banking solutions to its next generation customers;
Goldman Sachs has launched Marcus, an online savings account, signing up 250,000 savers with $8 billion, in an attempt to create not only an online proposition, but also a youthful brand that distances itself from the Goldman Sachs brand that was known to baby boomers and Gen X.
It's about benefiting from the latest technological improvements in order to deliver agile, efficient services and bespoke customer experience.
It’s a balancing act
Incumbent banks are struggling to appear relevant to younger audiences, and that’s partly because of a fear of alienating their core, more traditional audiences. It is perhaps too easy to place binary distinctions between the needs of different generations while ignoring the golden thread that unites them.
Equally important as technological convenience are the human faces behind the brand. We heard from Mark Slaviero, Marketing Director at Weatherbys Private Bank, that this is far from a generational nuance. A post-pandemic customer research project at the bank revealed under fifties wanted more human contact throughout the year than any other age group. Perhaps because these human interactions are no longer the norm (remember the average person didn’t know their bank manager long before the pandemic), it’s one of the signs of a more exclusive, premium service.
Plus, there is a greater degree of discretion and confidentiality that comes from dealing with a private bank versus a retail bank. Fundamentally, discretion is linked to a heightened sense of personal service and trust - a dedicated person to listen to your needs. Something especially important when dealing with vast sums of wealth and those in the public eye.
If personal service is what private banks boil down to, then naturally the individuals delivering that personal touch are crucial to a bank’s longevity. Fostering the right kind of talent that feels relevant and engaging for the new HNW can facilitate the all important competitive advantage.
A diverse and inclusive workforce is probably a high-performing one. Take a look at Gareth Southgate’s management team that led England to the Euro’s football final for one example. It’s about empowering individuals to be disruptors, client companions, and not exclusively a network of individuals who look and talk in the same way, all with perfectly tailored suits.
The great wealth transfer is upon us and next generation investors are evidently open to alternatives. They seek a financial solution which is personal, accessible, high-tech and high-touch - but they're not yet finding a service that meets all these needs.
There is an opportunity to win over traditional private banking customers by actively challenging what private banks are failing at. Here are our key takeaways:
Banks need to demonstrate they are well set-up for the needs of younger generations of HNWIs whilst also appearing trustworthy/ reputable. Innovate without alienating.
Given that it’s no longer ok to be idly rich, banks can foster intimate relationships with clients through meaningful philanthropic endeavours. Don’t pay lip service but actively help people to put their money to good use.
Banks should consider from the outset how its digital experience will cater to different demographics to ensure longevity of relationships. How might WhatsApp strengthen channels of communication?
A diverse team can speak to diverse audiences. It’s as simple as that.
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