In its 25th anniversary year, the PBI Global Wealth Summit introduced ‘FutureVision’ sessions with three industry leaders who are well-known in the private banking world. These sessions, dotted throughout the day, were conducted in form of one-on-one, on-stage interviews. They gave the audience an in-depth understanding of these individuals’ visions about the future of wealth management and also presented opportunities for insightful interactions. Xiou Ann Lim reports
FutureVision Sessions 1: Bassam Salem – Chief Executive Officer – Asia-Pacific, Citi Private Bank
Bassam Salem envisaged a future in private banking in which a robo-advisor with artificial intelligence could profile a client by asking questions about the person’s risk appetite. Using the film Her as an example – in which the protagonist, Theodore, develops a close relationship with his operating system (OS), Samantha – Salem posed the question of whether the industry will have real or digital private bankers in the future. "I don’t have the answer. But one thing’s for sure, the technology is here," he added.
According to Salem, disruption will not come from within the industry as technology has traditionally been used to enhance – rather than disrupt – what private banks do. He said: "If someone is going to disrupt us, he’s going to come and get rid of us – starting with our most expensive item, which is our bankers."
He illustrated how private banks can have as many ‘Samanthas’ as they want and how that will cost next to nothing: "She has neither salary nor title. She’ll never go on strike and she works on weekends."
Will the employment of robo-advisors then significantly improve private banks’ cost-to-income ratios? Perhaps, said Salem.
"In 1980, you needed to have $1m to open an account with a private bank. But $1m these days isn’t the same as $1m back then. Hence, the revenue is not there," he said. However the cost remains, he cautioned, especially the cost of operations. "The average published cost-to-income ratio is 80 to 85 while ours is 56 to 58," he revealed.
Private bankers themselves make up a significant portion of the cost and Salem said that the constant move of RMs from one bank to another alongside the inflation of their job titles was private banks’ own doing – "because they have nothing else to offer these bankers". "Many people want to be in the industry but they are struggling to find what is so unique in what they do," Salem observed, before adding that Citi Private Bank’s unique selling proposition is in their brand, the quality of their people, their balance sheet and the breadth of their offering in terms of what they can do on the corporate and investment banking side.
"You have to address the needs of the clients, leveraging what you have within the institution, from the retail to the corporate and investment banking side," he added.
Salem, who is a firm believer in adding value to clients’ lives and charging for it, further explained: "Our charges are a function of our cost and the quality of the services that we provide."
FutureVision Sessions 2: Dr Thomas Meier – Member of Executive Board, Region Head Asia-Pacific, Bank Julius Baer
With the influx of changes that have been happening within the private banking space over the last decade, Dr Thomas Meier noted that the most significant one was the global financial crisis in 2008 – which led to what he terms as "a massive wealth destruction amongst institutions and clients". He said it destroyed not just wealth but also trust in institutions and bankers.
However, Meier believes that the next 10 years will not be managed in the same way as things were managed in the previous decade. According to him, what will remain the same is the expectation of successful portfolio performance for clients, which will be created through active engagement with wealthy customers.
"Banking is all about data management. You need to be able to aggregate that data for a client and engage them in meaningful conversations. This will be a driving factor in the success of banks," he said. Meier also clarified that this does not mean that the FinTechs will take over that process, "but FinTechs will need to support it".
Apart from better data management and improving the front-end technology through the development of a multichannel model, he added that it is important to make sure that there is a robust backbone in place as well as the capacity to process information.
Bank Julius Baer has traditionally been focused on pure-play private wealth management. "We want to be in an unbiased position when offering advice to our clients," Meier explained. Pointing out that although there are other institutions that carry the full range of products internally, he reveals that Bank Julius Baer has no interest in being a retail, investment or commercial bank. He further added: "When you’re focused, you’re simply quicker to respond to market challenges."
Bank Julius Baer has also acquired other businesses in certain geographies for growth and scale, one of the most notable ones being the international wealth management business of Merrill Lynch outside of the US.
Through this acquisition, Bank Julius Baer finally opened for business in India in September 2015, at a time when several global private banking players are exiting that specific market. Meier explained:
"India is a fragmented market and it is in a nascent stage of development. This is why it took us two-and-a-half years to onboard the business in India as compared to the rest of Asia, which took us one-and-a-half years."
That being said, Meier is positive about Asia’s overall wealth growth – especially in China. "China has overtaken the US in terms of the number of billionaires and that number is still growing, despite its economic slowdown," he observed.
Julius Baer being a Switzerland-headquartered bank, and with Meier soon returning to Europe after a long stint in Asia, he explained that the market dynamics in Asia are completely different in comparison to the Swiss private banking sector. In conclusion he said that Singapore, in fact, has a unique advantage of connecting the growing wealth in China with the rest of the world, with Shanghai being the "competitor to watch".
FutureVision Sessions 3: Jean-François Mazaud – Global Head, Societe Generale Private Banking
In the changing landscape of private banking across the globe, institutions are facing multiple challenges that are impeding the speed of their growth. Keeping the current climate in mind, Jean-François Mazaud shared that his three key challenges, going forward, for the private banking industry include client satisfaction, technological change, and regulation.
The first two, he pointed out, are tied to the emerging disruptors within the market – clients are expecting more from private banks and technology is also an aspect that institutions need to think about in terms of integration with existing services provided to offer clients a holistic experience.
How is Societe Generale Private Banking tackling these challenges? Mazaud revealed that they are taking advantage of the locations in which they currently have a foothold. "We are a strong brand with a strong position in the markets in which we operate. There are plenty of opportunities with our existing clients," he said. Mazaud also shared that the private bank is leveraging upon the synergies within the entire Societe Generale group.
"We have a wide range of activities within the business, so we are connecting our internal employees with each other and also to clients as well as to the business that they represent," he added. Internally, he said the firm is beginning to reinvest’ in its people as well as its technological infrastructure.
It is a complex equilibrium, Mazaud said, to balance personal relationships in banking with new technology. But he firmly believes that private banking will remain reliant on the human touch for a large portion of the relationships with clients.
To illustrate his point, he shared his findings from discussions that he has had with a group of next-generation ultra-high-net-worth individuals who were between the ages of 15 years and 38 years, from all over the world. When asked about how they would want to interact with their bankers, most of them replied that they actually prefer direct human contact. He disclosed that while these next-gen UHNWIs find the technological tools to be important, they actually place greater value on direct contact with their private bankers.
"The difficulty will be for bankers to maximise the touchpoints with the clients," Mazaud observed. According to him, it is imperative for private banks to think about the client journey and where to position their bankers to enable the biggest impact.
Mazaud believes that the cost-to-income ratio is another challenge, particularly for private banks operating in Asia. He thinks that there are definite advantages in being a bigger outfit – despite the ability for smaller firms to gain scale through an open architecture.
Additionally, debates revolving around serving clients correctly and at a cost that is sustainable through the long term are also important elements for private banks to consider, according to Mazaud.
"Moving forward, I think there is room for a very distinctive franchise that is not necessarily of a huge size but that delivers outstanding service in specific areas. The future is bleak for those who neither have a critical size, a distinctive proposition, nor an ability to run the business at a lower cost," he concluded.