Excellent financial literacy needed to meet demanding customers
The Luxembourg financial centre needs to prepare for some major changes that are in sight. In the area of asset management, the trend is towards a more affluent and demanding clientele.There is a second major trend identified in a study conducted by Edouard Franklin, an international executive search boutique: some small private banking players in Luxembourg will disappear, while large structures will expand.
For this second edition of the study, all the wealth management actors in Luxembourg were consulted: private banking institutions, asset management companies and family offices. Edward Franklin's goal was twofold: to obtain a better understanding of the market in which the consulting firm operates and to draw up a panorama of the year 2009.
We are currently going through a period of upheaval. Nevertheless, Pascal Meier, Managing Partner of Edward Franklin Luxembourg, is optimistic. In his opinion, the partial lifting of banking secrecy is even beneficial for Luxembourg because it has galvanised everyone and thrown open the window to fresh air. "We are very responsive in Luxembourg and we quickly find solutions”, he adds.
Besides the traditional assets such as political stability and multilingualism, Pascal Meier sees other arguments that can tip the scales in favour of Luxembourg: "There is fiscal and financial engineering and the power and expertise of the fund industry that will strengthen Luxembourg’s position."
Pascal Meier believes that one has to take advantage of the fund industry’s attractiveness. "One can clearly see the potential leverage between private banking and investment funds. Large private banks use a lot of vehicles such as specialised investment funds (SIF) to attract customers with several dozen million Euros to invest."
Customers further off and markets more exotic
Of the 330 billion Euros under management in private banking in Luxembourg, the three traditional markets (France, Belgium and Germany) represent 56% of assets and Europe as a whole 87%. According to forecasts by Edouard Franklin, interest in emerging markets is increasing while new business from traditional markets is likely to decrease.
"Banks are not only looking for clientele in our three neighbouring countries, but are beginning to look at other more exotic markets. In continental Europe, banks are targeting countries in Eastern Europe, and beyond Europe, South America and the Middle East."
According to Pascal Meier, the trend is towards a more affluent clientele who are looking for onshore banking services and will be offered products and financial vehicles made in Luxembourg. In his opinion, this is Luxembourg’s greatest asset.
He considers that Luxembourg is already equipped in terms of regulation, products and services to attract tomorrow’s customers. "Transparency is increasingly a key factor in the relationship between banks and their customers. Banks are ready to make the change and are already operating in a post-banking secrecy market".
However this is not the case for all banks in Luxembourg. While small outfits continue to operate in the former scenario, the big private banking players will expand.This change can be seen in the creation of desks beyond Europe, the strengthening of training and the recruitment of financial engineers.
The need for a wealth management culture
With customers increasingly coming from far away, bankers’ profiles become increasingly exotic too. "It is certainly not a Luxembourgish, French or Belgian banker who will be able to look after a customer from Brazil. We should look for candidates from competing markets like Geneva and London as well as expertise from Frankfurt, Brussels and Paris.
Pascal Meier emphasises that banks need seriously qualified staff if they want to meet this strategic change. They will face a more demanding clientele. Edouard Franklin’s managing partner believes that some employees are not yet ready for this challenge.
Sometimes the customer feels he is not being adequately looked after by a private bank. A wealthy person prefers to have a single, competent contact person who takes responsibility and is up to the job. As a result, some will turn to a management company or a family office instead. But private banks are also reorganising themselves internally in order to have a single contact point for clients or create a family office.
Edouard Franklin forecasts the creation of several management companies and family offices in coming years to address this problem. In 2011 he expects higher turnover with the departure of several bankers to work for management companies and family offices. Currently there are 320 wealth managers in Luxembourg, but still very few management companies.