Private banks are facing growing internal and external pressure. With so-called challenger banks pushing from the outside and legacy core systems threatening to burst their seams, these institutions are being forced to reassess their offerings and strategies. Technology may be able to provide some relief in this regard, but like retail banks, private banks will need to tread carefully when developing new products if they hope to hold onto a mercurial customer base.
A historical lack of investment in new technology and processes has left many private banks playing digital catch-up. In a survey carried out last year by securities consultancy Goodacre UK, respondents from the private banking sector said that operational efficiency was the biggest challenge facing them in the immediate future. Other challenges included competition from the likes of robo-advisors, and of course the ever-present cybersecurity threats.
MEETING THE RIGHT NEEDS
Private banks and wealth management companies operate in a particularly challenging customer space. The elusive high net worth individual (HWNI) and ultra-high net worth individual (UHNWI) cross a number of demographics, each with specific lifestyle and investment requirements.
FactSet, together with Scorpio Partnership, surveyed more than 1000 high and ultra-high net worth individuals in Singapore, Switzerland, the UK, and the US to better understand their expectations of wealth management and how they see this evolving over time. The results showed that these investors want their risk minimized, and are in favor of regulators playing a role to ensure that their rights are protected. Transparency and honesty were cited as priorities, as was having access to innovative products that are tailored to their needs.
In addition, HNW investors (especially from younger generations) were shown to be powerfully motivated by frequent digital communication. For example, they want investment updates on a weekly instead of just a monthly basis. According to Accenture, 87% of HNWIs prefer digital channels for using financial services.
KEEPING PACE WITH EMERGING TRENDS
As the fourth industrial revolution takes hold, HNW investors can expect artificial intelligence and smart machines to become part and parcel of investment management. The days of assuming that every HWNI fits neatly into the tennis-playing, cocktail-sipping old boys’ club are over; private banks need to prioritize digitalization and all the innovation that comes with a sharing economy if they wish to attract and retain their target customers.
These discerning investors will also expect their money to be invested in a socially responsible way, i.e. in companies whose decisions and actions can be monitored. Environmental impact studies, ethical reports and the like will be of great interest to the HNWI investor, and they will expect frequent, personalized updates on the undertakings they are invested in.
SECURING IT ALL
Establishing and optimizing digital operations will require a significant investment in technology from private banks. Their customer base is becoming more digitally adept, but, due to increased social media exposure, also more demanding of a personalized approach. More than ever, private banks need to provide a tailored product offering or risk losing their customers to new fintech companies, or even to Facebook, Amazon, or Google – all of which are stepping into the financial arena.
However, there is no point in launching new means of communication, new products and new ways to transact, unless the private bank can also guarantee rock-solid security. Among all the respondents to the FactSet survey, across region, age, and wealth level, technology that keeps their money safe was found to be the top consideration in choosing an investment institution.