In the film “Jerry Maguire”, Rod Tidwell, an American football star played by Cuba Gooding Jr., explains to Jerry Maguire, his agent played by Tom Cruise, what “quan” is. He says that it is more than just “coin”; it’s about love, respect AND money. Later, in a television interview, Rod refers to his agent as his “ambassador of quan”. Perhaps, in order to remain relevant and in demand, this is the image any private bank, family office or wealth manager needs to achieve for their clients?
As anticipated in an interview last year, we can now see that the great generational wealth transfer is well underway. Over the next five to ten years, Generation X (Gen X) and Generation Y (millennials) will inherit an eye-boggling amount – estimated at over €60 trillion by some sources* – from their baby-boomer parents. However, according to a recent EY study**, when assets change generations, firms typically lose 70% to 80% of those assets. So, the pressure is on these institutions to attract the new generation and, if possible, retain them.
In order to remain profitable and relevant, the providers of private banking and wealth management products and services must reinvent themselves as part of their digital transformation journey.
Not so long ago, there was a strong focus on improving the efficiency of transactional aspects with a push to offer private banking and wealth management products deeper into the demographic pyramid by attracting the mass affluent. However, many aspects of the transactional side have since become commoditised. Offering VIP payment services and cards with fancy colours and all the frills or providing access to investments in capital markets is no longer the exclusive domain of the banks and brokers proposing private banking and wealth management. And, with the growing market for digital assets and the tokenisation of conventional assets, including alternative asset classes such as private equity (PE) and real estate (RE), this trend is only set to continue.
In order to remain profitable and relevant, the providers of private banking and wealth management products and services must reinvent themselves as part of their digital transformation journey. They need to leverage their trusted brand value and adopt new technology – while still offering a superior transactional experience – in order to shift their value proposition to one of a trusted advisor with an innovative range of products and services aligned with the objectives of the Gen X and Gen Y demographic.
The passion of the next generations for investing based on environmental, social and governance (ESG) criteria has certainly been a driver for the massive growth in ESG investment inflows. However, their goals go far beyond ESG. At all levels of wealth, the next generations are demonstrating a strong desire for a better balance across all aspects of life and society. When it came to finances, previous generations were much more preoccupied with alpha, i.e., performance or monetary gain. The new generation will often sacrifice some alpha in return for achieving personal aspirations, such as philanthropy, tackling climate change, greater flexibility in working hours and location, respect for diversity, better mental and physical health, etc.
Consequently, wealth and asset managers who supply millennials with holistic, value-based investment options will be strongly positioned to attract new assets to their firms, in addition to retaining the beneficiary millennial clients of the great wealth transfer. Indeed, there is an observable shift in the industry among institutions with the ambition to serve the wealthy next generation. While the number of so-called private banks seems to be dwindling, family offices appear to be on the rise. Some large institutions have even rebranded and created new divisions bringing together private banking, wealth management and a family office under one umbrella to promote the concept of products and services that are not solely about monetary return on investment.
The ability to transform a business model will greatly depend on the use of technology. Key to this is a highly performant core platform centred on an engine providing award-winning levels of front-to-back process automation and compliance based on platform-agnostic technology for flexible, cost-sensitive deployment models, e.g., on-premises or a cloud-based SaaS model.
The ability to transform a business model will greatly depend on the use of technology.
On top of this strong, reliable backbone, it must embrace open banking and fintech-ready APIs for seamless, agile integration of the latest expert and specialist systems that enhance both user and client experience. This might include, for example, integrating new sources of external data, such as ESG metrics, while also combining the institution’s own data with external big-data sources and an AI engine to derive life-event and propensity scores for the hyper-personalisation of products and services. Last but not least, since execution is just as important as the technology, the supplier must have credibility in terms of depth of experience and expertise, as well as a track record of successful implementations.
The digital transformation journey’s objective of profitable relevance must be premised on innovative value propositions in order to become the Ambassador of Quan for future generations of wealthy clients. Key to achieving this goal is taking some brave steps, just as Jerry Maguire did, such as being prepared to replace or upgrade legacy systems with the latest technology and/or challenge old business models and ways of operating.
*CNBC – Financial Advisor 100
** EY - Study: Sustainable investing: the millennial investor