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February 2020

TAILOR-MADE SOLUTIONS FOR AN EVER MORE DEMANDING CLIENTELE

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AS INVESTORS ARE FORCED TO NAVIGATE THEIR WAY THROUGH AN ENVIRONMENT OF LOW INTEREST RATES AND HIGH VOLATILITY, WEALTH MANAGERS HAVE BEEN HARD AT WORK LOOKING BEYOND TRADITIONAL FINANCIAL PRODUCTS AND STEERING ASSETS INTO HIGHYIELD SOLUTIONS. LFF TALKED TO TWO LEADING PRIVATE BANKS IN LUXEMBOURG TO GET TO KNOW MORE ON HOW LUXEMBOURG’S ECOSYSTEM HELPS THEM CATER TO THE NEEDS OF A COMPLEX CLIENTELE.

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Today investors are looking for a wealth manager whose skill goes far beyond managing wealth or knowledge linked to a local market.

LUC RODESCH

LUC RODESCH

“Today investors are looking for a wealth manager whose skills goes far beyond managing wealth or knowledge linked to a local market. The needs of our clients are changing over time and this means that our advisors have to be proactive in terms of advisory solutions and more mobile because many of our clients expect their advisors to meet them in their country of residence,” explains Luc Rodesch, Member of the Management Committee and Head of Private Banking at Banque de Luxembourg. Set up in 1920, the bank has become one of the foremost wealth managers in Luxembourg.

With clients becoming increasingly mobile, wealth managers must grasp the complexity of an ever-changing crossborder industry. For private banks, standing out from the crowds requires a unique selling proposition that they can oer to an increasingly sophisticated international clientele. A view shared by Sven Holstenson, Head of Europe at Pictet Wealth Management.

“We are not only investment managers. We play a role in family governance, assets structuring or overall asset allocation, so it goes beyond the simple portfolio management. This is what creates our value.”

Pictet Wealth Management has been operating in Luxembourg for 30 years. “Luxembourg is our headquarter in the European Union for wealth management activities and a competence centre to serve our international clients, from wealthy individuals, families to entrepreneurs.”

Both banks have historically specialised in discretionary management services as a core part of their DNA. However, Holstenson notes the changing expectations of a new generation of clients who are willing to take a more hands-on approach to their wealth.

“We need to continuously adapt our services to respond to the needs of clients that are more connected than ever, and who are willing to make their own choices.”

STRONGER APPETITE FOR ILLIQUID ASSETS

“The private banking industry, just like the banking sector as a whole, is evolving in an environment of historically negative interest rates, and increased costs, due to the regulatory burden, which are putting pressure on margins,” adds Rodesch.

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European Directives, such as MiFID II and PRIIPS, weigh down on the process of investment advice.

LUC RODESCH

Regulatory pressure faced by banks is fundamentally changing the role of wealth managers and their service offering.

“European Directives, such as MiFID II and PRIIPS, weigh down on the process of investment advice. In order for the client to agree to pay for services, the advisor must demonstrate real added-value and a level of proactivity which requires heavy investment in terms of training and tools. However, this new regulatory framework gives us a better understanding of the expectations of our clients and oers them tailor-made solutions. Alternative asset classes such as private equity have also increasingly become a solution for sophisticated investors to navigate in this complex environment.”

“It’s been almost 30 years that we invest in alternative assets for our clients, especially private equity which has been a key contributor of our performance today. We’ve been working with leading international private assets managers to offer the best investments opportunities to our clients. This is a core offering for Pictet in Europe,” explains Holstenson.

Pictet Alternative Advisors, the Group’s alternative investment arm, is managing a total of 28 billion dollars. It has recently expanded its offering with the launch of a direct European real estate investment fund, aimed at investing in smart and gateway European cities.

“Europe is currently one of the most attractive markets for real estate investment on a risk-adjusted basis. It has stable cap rates due to continued low interest rates and has finally started seeing rental growth. Also, we expect the volatility in Europe in the coming years to provide an interesting entry point,” he adds.

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We play a role in family governance, assets structuring or overall asset allocation, so it goes beyond the simple portfolio. This is what creates our value.

SVEN HOLSTENSON

SVEN HOLSTENSON

CROSSOVER WITH THE FUND INDUSTRY

There are synergies with Luxembourg’s role as a major international investment fund centre and the services offered by wealth managers. “Investment funds are the preferred instruments for our portfolio management. They have the double advantage of allowing great diversification in terms of assets and geographies as well as benefiting from a moderate cost structure,” says Rodesch. As the sector has entered an unprecedented area of transparency, investors are increasingly turning towards globally recognised funds such as UCITS or RAIF. “European clients want to focus on recognised jurisdictions that are stable and transparent. To us, tailor-made wrappers such as UCITS, SIF or RAIF are an added-value to structure our clients’ wealth. If you are a large family with many members, a fund gives you a way to have one single wrapper to manage the entire wealth and then distribute it through shares to the different family members,” explains Holstenson.

Both banks administer a range of their own funds so as to offer innovative and tailor-made solutions that meet the complex needs of their clientele.

“Having in-house expertise enables you to tailor funds to meet specific jurisdictional requirements or constraints,” explains Rodesch. Funds held by clients of Banque de Luxembourg are primarily managed by BLI – Banque de Luxembourg Investments – the bank’s specialist asset management company that is active in equities, bonds and multi-asset strategies.

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Most of our clients, regardless of their nationality or country of residence, consider that long-term value is only possible by taking into account sustainable development.

LUC RODESCH

INVESTING WITH A CONSCIENCE

“Banque de Luxembourg has been a pioneer in sustainable investing in the Grand Duchy. In 2007, when we launched our first SRI fund, our clientele from Belgium, the Netherlands and the Nordic countries had the greatest appetite for responsible investment solutions. Today, most of our clients, regardless of their nationality or country of residence, consider that long-term value is only possible by taking into account sustainable development,” says Rodesch.

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European clients want to focus on recognised jurisdictions that are stable and transparent.

SVEN HOLSTENSON

ESG investing — or strategies that take a company’s environmental, social and governance factors into consideration — grew to more than 30 trillion dollars in 2018, according to the Global Sustainable Investment Alliance. This is projected to grow exponentially, with the younger generation and millennials leading the way.

Sustainable investments are showing increasing importance as investors look to be more selective in navigating volatile markets. Private banks have been quick to adapt their product offering to their clients’ growing interest in aligning their investments with their personal values.

Since its first SRI fund launched 10 years ago, Banque de Luxembourg has strengthened its offering with additional microfinance funds and a new SRI fund launched in 2018 as well as an investment mandate that integrates third-party managers.

The urgency of global issues has challenged HNWIs to consider how they can leave a legacy greater than just financial security to the next generation.

“Our clients are looking to play a more active role as responsible global citizens,” notes Holstenson.

“In the field of portfolio management, we were early pioneers in sustainable investment funds and funds with an environmental aspect. In 2000 we launched a strategy that invests in water, the first of its kind. By embedding responsible investing aspects at every stage of our value chain, we give our clients a thorough understanding of sustainable issues surrounding the management of their wealth.”

DIGITALISATION AS AN ENABLER

“Digitalisation of services has become a key challenge for banks. The expectations of our clients are changing. Many of them now want to extend their online banking experience,” explains Rodesch.

Banque de Luxembourg has been fast in grasping changing expectations by modernising its digital tools with mobile banking and front-office interfaces in order to offer a seamless experience, real-time activity monitoring and new features with the highest possible level of security.

Back-office operations are where private banks can benefit the most from digitalisation.

“The impacts linked to the fall in interest rates decided by the European Central Bank as well as regulatory constraints greatly increase the pressure on the margins of all banking players. To limit as much as possible the impact of these drops in income on our customers, we automate many tasks and back-office operations and thus make our organisation more efficient.”

While digitalisation continues to have a significant impact on the business and operating models of financial institutions worldwide, the industry agrees that wealth management will remain a “people business”, with the digital component acting as an enabler to serve clients better, rather than completely replacing relationship managers.

“While more digitalisation is inevitable, that does not mean that we are putting the human dimension aside. On the contrary, client relationship, trust and proximity are the foundation of the industry and contribute to creating a long-lasting relation that cannot be shaken by the digital revolution,” adds Rodesch.

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Clients still expect personal face-to-face interaction and personal advice from their advisors and a robot cannot replace this sort of interaction

SVEN HOLSTENSON

Holstenson explains: “Wealth managers are not as impacted by digitalisation as is the case for retail banks, because we are serving the complex needs of sophisticated clients, crafting a unique solution for each family’s individual needs. They still expect personal face-to-face interaction and personal advice from their advisors and a robot cannot replace this sort of interaction,” concludes Holstenson.