As the private banking industry constantly evolves, particularly with changes to the regulatory framework and the digital revolution, the adviser’s expertise, stability and relationship of trust are more important than ever to private clients. Video interview with Luc Rodesch, Head of Private Banking and Member of the Executive Committee of Banque de Luxembourg, in Paperjam’s Grand Dossier feature on private banking.
The private banking industry is facing some major changes. Some of these are directly related to clients’ expectations.
Our world is changing and so are the demands of our clients: environmental and social concerns are becoming increasingly important. In terms of investment solutions, the context of very low interest rates has led to a shift away from traditional asset classes towards private equity and real estate. Luc Rodesch, Head of Private Banking and Member of the Executive Committee of Banque de Luxembourg
Clients are also increasingly international, in their private and professional life, and need access to specialists for their cross-border projects.
Increasingly complex services
The regulatory context has also evolved and makes the provision of financial services more difficult. In this increasingly complex environment, supporting clients with their projects is a real challenge and it is essential to strengthen the expertise of our staff. "I see this as an opportunity because clients are keen to meet a specialist who can navigate through the intricacies. This is an added value that they appreciate.”
Negative interest rates and the requirements of the MiFID II regulation have undermined the profitability of private banks. Compliance with regulations and offering secure, efficient digital tools require significant investments. This raises an important question about the critical size of a private bank. "If it doesn’t have a minimum of €10-15 billion in assets, how can it make the vital investments to maintain a competitive value proposition and implement digital solutions?” Some institutions won’t be able to reach this critical size and may eventually have to join a large group, give up their banking licence, merge with a bank or be taken over. The consolidation process already evident in the market could continue or even accelerate.
Essential factors for remaining competitive
The clients of private banks – the vast majority of whom are European, wealthy and entrepreneurial – are intent on preserving their assets and making them grow as much as possible and they want guidance for their projects. So they are looking for three essential elements, chief among them being a stable environment. "This is embodied as much in the political, economic and social stability of the country and the marketplace as in the regulatory and legislative framework and the stability of the bank itself.”
Private clients also want the benefits of expertise, sound investment performance, and resilience in times of crisis. "They want access to personalised, value-added advice, on the one hand with a generalist who can guide them through the range of solutions available, and on the other a specialist in investment or financing for example. The challenge for banks is therefore to attract, retain and train talented employees.”
In this context, the relationship of trust and transparency between the banker and client is crucial. It is built over time. "Governance that ensures that the advice offered is based on the customer's long-term needs rather than the bank's short-term profitability targets is absolutely essential.”
Complementary human and digital components
In a fast-changing environment, only those private banks that are willing and able to adapt their range of services and employ competent and motivated advisers will be able to meet the various challenges, such as digital development. The crisis has been an opportunity for some private banks to use technological possibilities like videoconferencing tools and electronic transactions to gain in operational efficiency. "To meet the expectations of clients, especially younger ones, it is essential to keep investing in the client experience. It is also important to facilitate the adviser's life by automating certain tasks so that he or she can devote more time to the client relationship. As well as the importance of technological advances, the current crisis has also demonstrated the need to maintain high quality human relationships.
Personalised support from the same adviser over a long period of time will continue to make a real difference. Luc Rodesch, Head of Private Banking and Member of the Executive Committee of Banque de Luxembourg
One of the challenges is to succeed in adapting the bank’s offer in terms of investment solutions and client support services. "Wealth management guided by the principles of prudence and high-quality investments is the key. The long-term vision allows us to stay the course, even in troubled times, and this is what private clients are looking for above all."