PLACE FINANCIÈRE & MARCHÉS — Wealth management

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Private banking: what HNW and UHNW clients expect


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As banks face mergers, pressure to scale up, and shifts to digitalisation, these trends often run contrary to the needs of high-net-worth (HNW) and ultra-high-net-worth (UHNW) clients seeking tailor-made wealth management solutions. What do today’s HNW and UHNW clients need, and how can Luxembourg play a role?

In the past, HNW and UHNW clients were mostly concerned with making their financial assets more profitable, in other words: how should they invest? Today, however, their situations have become more complex due to a variety of factors. Because of increased globalisation and mobility, files are more and more transnational. Family members move abroad, get married, and assets get dispersed across many countries. When you consider that tax regimes in individual countries are prone to change, and that political instability can make formerly attractive banking systems no longer attractive, you begin to understand the complexity.

Luxembourg: an ideal place for wealth management

Because of the above-mentioned reasons, ultra-wealthy clients from across the Eurozone and Europe often turn to Luxembourg for wealth management. Among the most appealing features is the political and economic stability of the country, which receives AAA ratings from the major ratings agencies. The government is stable and does not have an adversarial approach to wealth, and legal retroactivity is not applied here. Also, Luxembourg contains a highly developed private banking ecosystem and attractive Life insurance and pension schemes enforcing strict conformity with international and EU standards, while providing an advanced and secure framework which guarantees customers maximum security.

Not all private banks are the same

Beyond finding the right location and ecosystem for wealth management, HNW and UHNW clients require other more specific and less quantifiable traits when choosing a private banking solution. In the face of pressure to merge, scale up, reduce costs, and implement ever more automation, many banks are doing so. Yet in this, they are making themselves less attractive to many HNW and UHNW clients who look to build trust with face-to-face interactions, and who also wish to deal with a well-established bank that has a real history of providing wealth management to a certain segment of society.

Today, if as a private bank you are focusing on high-net-worth and ultra-high-net-worth clients and you really want to be focused on your client, you need to offer the total package.
Kris De Souter

Kris De Souter,  Head of Private Banking,  Degroof Petercam Luxembourg

Also, many very wealthy clients do not want to be shuffled around enormous banks, dealing with various contact points who may be on different floors or in different offices altogether. These types of clients tend to prefer developing a relationship with a single private banker who, like an orchestra conductor, can draw on a team of specialists.

The tools of a private bank

When it comes to managing wealth, there are many tools available, and not every private bank offers them all. Yet for HNW and UHNW individuals, it is important to have at their disposal the widest range of tools, ideally in-house.

One important tool is investment banking and corporate finance. Imagine a family who owns a large business and wants to sell it, or that the family has been approached by a potential buyer. In this case, a client does not need to begin the long and uncertain search for another bank. The private banker can simply refer the client to the corporate finance department. HNW and UHNW clients are also increasingly attracted to investing in private equity because the returns in private markets are higher than in public markets, so a private bank geared to such clients should certainly offer private equity investments. Also, clients in this top-level segment often wish to buy and sell art, so private banks should also be able to advise them in this regard.

Because many HNW and UHNW clients are concerned with how to transmit their assets to future generations, a private bank should provide wealth structuring solutions and insurance options, ideally in open architecture and in collaboration with several counterparties. Another service that many very wealthy clients look for is financing, being able to extract liquidity on the basis of their financial assets or real estate (called Lombard loans), so a private bank should also be able to provide this. Lastly, despite the importance of human contact, HNW and UHNW clients also require the most advanced digital tools to give them access to secure communication and allow them to receive portfolio reports, for example.

ESG, more than just a buzzword

Another area that is increasingly in demand among HNW and UHNW clients is sustainable or socially responsible investment, often shortened to ESG. For many private banks, ESG is a buzzword or something to which they dedicate a few funds for reputational purposes. Ideally, however, a private bank should be able to demonstrate a successful track record in this area.

ESG is a philosophy, an approach, one that also involves philanthropy and impact investing. We approach ESG on many levels, and this is what clients want, especially younger generations who are more interested in being socially responsible .
Kris De Souter

Kris De Souter,  Head of Private Banking,  Degroof Petercam Luxembourg

A family office can be a vital tool

Because such clients have assets in the tens of millions of euros or more, they often heed the call to diversify, not only in their portfolio, but also in the number of banks that manage their wealth. While it makes sense at a certain level, it can also create some complications as not all banks have the same processes, charge fees in the same way, or provide information in the same manner. One tool in which many HNW and UHNW clients find great utility is a family office, which not all private banks provide. A family office is generally for clients who have at least €50 million in assets which may be spread across many banks. The family office helps to optimise the risk-reward balance, evaluates the quality of services and risk adjusted performances fees of all the service providers, consolidates and performs risk analyses and resolves inconsistencies between them.