Innovation is flourishing in private banking at the moment and this is set to continue in 2020. How is the ancient art of wealth management going to embrace technology and change to further help its clients? Asena Degirmenci talks to the experts

Jürgen Vanhoenacker, Lombard International Assurance

2019 has seen persistent market volatility, growing social and environmental challenges and political uncertainty. Private banks and advisers to HNWIs are under continued pressure to remain profitable and relevant to their clients. According to McKinsey, two-thirds of European banks have experienced flat-line or negative growth in the last five years.

So, what does it takes to stay relevant in the future? In this environment, it has become increasingly important for advisers to HNWIs and their families to understand the changing demographics of modern wealth as it shifts to become more digital, more sustainably minded and more global, while its families become more complex.

In particular, with $30trn to be transferred to women and millennials in the next decade, private banks must ensure that they are able to meet the unique requirements of these individuals in order to future-proof their businesses.

Continuous innovation is crucial in that sense. However, innovation for innovation’s sake is a major pitfall, and advisers must respond to the specific needs of their clients with strategic and meaningful innovation that truly solves their challenges today and into the future.

While 2019 has seen interest in sustainable investing increase across all demographics, the desire to invest in alignment with values is particularly prominent among women and millennials – 95% of millennials and 84% of women express an interest in sustainable investing. Their advisers will need to keep pace with this new demand in order to provide solutions and opportunities that enable their clients to protect their wealth while achieving positive social and environmental impact.

Further, many millennial HNWIs are either digitally native or highly digitally literate, and with this comes new expectations towards their service providers – especially for both a customised digital and tailored personal customer service experience. Already, 62% of millennials want their wealth management platforms to actively use social media channels. With millennial wealth estimated to reach $24trn in 2020, wealth advisers will need to continue innovating and adapting to address the changing demands of modern wealth.

As the face of wealth diversifies, so do family dynamics. Managing the sensitivities and requirements of more complex family structures will be an important component of advisory services. Today’s family model is far less traditional, with fewer first-time marriages, an increase in divorces, same-sex marriages, and the dispersal of families across the globe. This greater level of complexity will require advisers to deliver strategies that are adaptable but still ensure that the holders’ wishes for succession and legacy planning are fulfilled.

Beyond specific demographics, wealth continues to globalise. More and more families are internationally mobile: 36% of wealthy individuals hold a second passport, and 48% of them are sending their children abroad to university, according to the latest Wealth Report from Knight Frank. Listening to individual needs and having the global expertise to provide unique, tailored solutions to match their internationally mobile lifestyles will be crucial for wealth advisers as their clients’ lives and interests are increasingly multi-jurisdictional.

To remain relevant and effective in 2020, private banks and the advisers to wealthy individuals will need to invest in really understanding these changing, nuanced needs of their clients, and deliver service excellence throughout their value chain: whether it is when supporting them to invest sustainably, innovating to offer enhanced digital capabilities, or providing the expertise and sensitivity to support globally mobile lifestyles and complex family dynamics.

Víctor Allende, CaixaBank

Recently, the great challenge facing the sector has been directly linked to the 2018 introduction of the European directive MIFID II, which develops new models of independent and non-independent advisory, enhancing transparency and investor protection. In this sense, future customers will demand, among others, greater cost transparency, which will create great differences between those with value-added advisory services and those without.

Big data and artificial intelligence will continue to play a key role in wealth management innovation, with sophisticated algorithms and modelling allowing for greater service-customisation. This is today used in tailoring investment solutions to match clients’ risk appetite, but its biggest potential lies in the delivery of more traditional services that rely on a deep understanding of individual circumstances and needs, such as inter-generational wealth transfers, succession planning and other life events.

For HNW families and individuals, this approach does not replace the value-adding role of an independent adviser, but complements it by giving the wealth managers of the future new tools to support and inform their advisory function. It is also contributing to a further professionalisation of the wealth management function, allowing the performance of wider tasks with the added benefit of giving a more bespoke feel.

For affluent clients just starting their wealth-creation journey, regardless of the demographic, the adoption of technology will continue apace. Clients are becoming more digitally proficient and require access to more sophisticated tools and services. So-called robo-advisory solutions that blend investment solutions with tailored offerings that take into account clients’ evolving personal and financial needs will continue to become more sophisticated and will help increase the size of the wealth management industry. CaixaBank’s Smart Money robo-adviser service attracted nearly €1bn ($1.1bn) in AuM in just over a year since its launch.

That being said, a human touch will always be necessary in all client interactions, especially with affluent customers who tend to demand a wider range of value-added services. In fact, although one of the key objectives of CaixaBank’s strategic plan 2019-2021 is to accelerate digital transformation, the transformation of the physical network to provide higher added value and the best customer service is equally a priority.

With the ongoing adoption of new technologies, branches will start to play a completely different role in the future. Physical branches continue to have an important role in terms of proximity, accessibility, but they are evolving into advisory and added-value hubs, a place where clients expect to be listened to, understood and taken care of by the best advisory professionals.

In this sense, far from being disrupted by technology, the wealth management industry can capitalise on the rise of technology through faster client acquisition, onboarding and servicing. This will free up more time and resources for bespoke and personalised client advisory services, and discretionary wealth management, creating a virtuous cycle of client service efficiency and high-quality advice as the cornerstones of a successful wealth management business.

Finally, one major trend that is going to grow in the coming years is what we call social-value-proposal. Clients are no longer only asking about the profitability of their investments from the financial point of view, but they also demand social commitment. They look for banks that help them channel their philanthropic projects, as part of a global service.

The CaixaBank Private Banking Social Value Project helps clients identify their own philanthropic project and find the most efficient way to make it happen, with specific and measurable results.