LUXEMBOURG’S WEALTH MANAGEMENT ECOSYSTEM
We are living through a time of rapid and comprehensive change. The Covid-19 crisis, the digital revolution, existential threats like climate change are transforming the way we live. Wealth management is not immune to these trends. Wealth management, with its emphasis on long-term and bespoke investment advice for wealthy private individuals, must understand and get to grips with the new circumstances as swiftly as possible.
Among the immediate key challenges for the wealth management industry are market volatility, heightened operational risk and increased reliance on digital channels. Many features of this “distance economy”, emphasizing remote working, omni-channel customer service, and digital interaction, are likely to become permanent. Digitalisation permits the development of more customized advice and services. It also creates cost savings, which can in turn be ploughed into investments in productivity and process optimisation.
It is true, there are many challenges for the Private Banking sector. There are, however, just as many opportunities. Private banks have to continue to develop new products, particularly in the field of sustainable finance, and the digitalisation of services will continue to accelerate. With our AAA rating, our exemplary compliance with regulations and our highly qualified international workforce, the future of private banking remains bright.
LUXEMBOURG, THE EU’S WEALTH MANAGEMENT HUB
In the 1980s, Luxembourg-based banks began offering wealth management services to private clients. Over time this developed into a complete wealth management ecosystem, bringing together investment advice, asset management, wealth planning, real estate management, succession planning and philanthropy.
Luxembourg today acts as a centre of excellence for multi-jurisdictional wealth management. Many banking groups have set up their intra-group competence centres in Luxembourg in order to cater to the needs of such clients. This particular role in the value chain of international wealth management has been significantly reinforced by the decision of major financial institutions, including JP Morgan and Bank of Singapore, to set up their post-Brexit EU wealth management operations in Luxembourg.
The reputation of a reliable and stable financial centre is grounded in Luxembourg’s political stability and strong economic performance. With growth rates above the EU average and low public debt, Luxembourg is consistently rated AAA by the three major credit-rating agencies. This is an important factor because individuals and families pay, not only close attention to the political, legal and financial environment of their country of residence, but also to that of the one where their estate is managed.
Over the last decade, a shift toward a 360-degree servicing model for international clients has emerged. Such demanding and discerning customers often have highly complex requirements and need to spread their wealth across several jurisdictions to diversify risks.
The ability to meet the needs of clients with business ventures and property in several countries, children studying abroad, as well as diverse leisure, cultural, and philanthropic interests, is what makes the Luxembourg wealth management industry unique.
Luxembourg private banking entities are often designated as EU centres of excellence for wealth management within their own corporate group. The specialised skills that Luxembourg has developed over the years make it a prime location for such intragroup competence centres. The financial ecosystem that Luxembourg has built up over the years, attracts players from outside and inside the EU. The largest group of foreign institutions come from inside the EU – French and German banks for instance have adopted this model. Non-EU banks from Switzerland, the US and Canada use Luxembourg as a gateway to the EU market for wealth management, capital market, treasury and other financial services.
Since the implementation of MiFID II private banks have increasingly focused on their wealthier clients. In 2018, clients with assets of more than EUR20 million represented 56 percent of total AuM, further proof of Luxembourg’s attractions for an international, mobile, sophisticated and demanding clientele.
Such clients benefit from Luxembourg’s a triple-A credit rating and its comprehensive “toolbox” of instruments, providing precise solutions crafted for each unique cross-border financial and estate management need.
We have deliberately made a decision to be with our Private Bank in Luxembourg. We see the country developing as a European, even as a global wealth management hub. Our own platform is a reflection of the European and global footprint of our clients and will continue to grow that way. Luxembourg is a strong supporter of the FinTech scene. Citi, across the Commercial Bank as well as the Private Bank, has a specific focus on servicing the technology eco system and it is an important source of widening our relationships. Luxembourg and the Private Bank are also aligned when it comes to sustainable and impact investing. We share Luxembourg’s strong ambitions in this field as it is close to the heart of our clients.
FAMILY OFFICE SERVICES: INDEPENDENT SOLUTIONS
FOR CROSS-BORDER WEALTH
Entrepreneurs or families dealing with complex financial circumstances often have a greater need for support services. In this situation, a family office can assume the day-to-day administration and comprehensive management of a family’s assets. Whether wealthy individuals have their personal wealth management and business banking handled under one roof, or whether they decide to keep their personal and business banking apart, Luxembourg’s ecosystem offers a large pool of professionals with the skills and ability to craft holistic and multidisciplinary solutions for such clients.
A UNIQUE REGULATED ENVIRONMENT FOR MULTI-FAMILY OFFICES
Luxembourg passed a law in 2012 to regulate multi-family offices, helping to position the Grand Duchy as one of the few countries in the world with comprehensive rules to ensure a high level of service and investor protection.
- Only certain professionals and institutions can become regulated multi-family offices. These include banks, investment advisers or managers, domiciliation agents, lawyers or notaries, auditors or chartered accountants, as well as other qualified and regulated financial sector professionals.
- Remuneration transparency: Family offices must inform clients if they receive commission from service providers. Therefore, many offices provide services on a client-fee basis only.
- Transactions must comply with national and international rules against money laundering and terrorism financing.
- Consumer protection is enhanced by the fact that the regulator must confirm that the family office is able to provide a quality service and to keep client data confidential.