Private banking: change is the new reality
56% of the CEOs of Luxembourg private banks say their organisation is facing multiple and significant shifts due to industry, structural, regulatory and competitive trends. This figure is well above the average for CEOs worldwide (34%) in PwC’s latest Global Private Banking and Wealth Management Survey. This report concludes that, increasing client expectations, the impact of regulation and the need for greater efficiency are leading to performance challenges.
Standing still is no longer an option, because private banking clients are demanding better service and want to see clear value delivered. Adapting to this change requires more than just improving brochures and tools. According to the PwC study, clients are demanding that their relationships should be structured and managed in different ways.
There are reasons for this more cautious and less trusting attitude. During the latest financial crisis, clients found they had unexpectedly taken on large amounts of risk and could not reach a trusted advisor. As a result, wealth managers are concentrating on raising the quality of advice: over 70% of the 275 organisations in 67 countries that took part in the survey have strengthened the advisory process.
François Génaux is Advisory Market and Financial Services Leader at PwC Luxembourg. In his view Luxembourg remains an attractive place for wealth management. “In 2011, so called “new money” represents 40% of assets under management in Luxembourg. In our survey in 2007, it was only 23%. This shows that we have a very dynamic market. Private bankers, while producing yields for existing clients, have managed to attract a lot of new customers”.
Where do you come from?
Wealth management institutions are deploying resources in growth markets. In the PwC study, organisations were asked where they were targeting new clients. “47% of the banks are very likely to target Eastern Europe. 30% of Swiss banks will do so too and 23% from Hong Kong and Singapore. Russia, China and the Middle East are other markets for Luxembourg banks. It is interesting to see that none of the banks asked was interested to develop in Latin America.”
Francois Génaux adds that the nature of clients has changed over the last couple of years. Although 80% of Luxembourg private banking clients are to be found in the zero to one million dollar segment, more and more entrepreneurs are looking for advice in the Grand Duchy.
Rima Adas is Financial Services Market Leader at PwC Luxembourg. She emphasises that Luxembourg is moving up the wealth pyramid. “ The combined market share of the higher client segments, that is from five million dollars upwards, has gone up from 42% in 2009 to 54% in 2011. Nevertheless, the lower wealth segments are still a very important client group for Luxembourg private banks.”
Génaux and Adas from PwC Luxembourg believe that Luxembourg is particularly proactive when it comes to tackling the challenges the industry is facing. In response to tougher regulation, many banks in Luxembourg recently reviewed their risk management frameworks. 86% of Luxembourg banks have done so in the last six months, compared to only 47% of Swiss financial institutions.
“It is interesting to see that the regulatory burden is not necessarily a bad thing in the view of Luxembourg banks. They admit that the costs are high, but understand that all these rules are important. This attitude might explain the fact that Luxembourg has moved faster than a lot of its competitors when it comes to adapting to an ever changing environment”, Rima Adas summarises.
So what are the key points to keep in mind from PwC’s 2011 survey? That:
- reputation is key and must be protected;
- clients are looking for top quality, added value services;
- it is important to prepare the next client generation; and
- Luxembourg banks have a low cost income ratio and should take advantage of this to invest for the future. CW