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“The Great Generational Digital Wealth Transfer”


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Private Banking is facing perhaps its greatest challenge. It is estimated that Gen X and Gen Y will inherit €8 trillion from their Baby Boomer parents over the next 10 years. Private Banks need to be, and remain, profitably relevant. Alan Goodrich, at ERI, explores the critical success factors.

The Private Banking industry is facing perhaps its greatest challenge since it all began in the 18th century. According to a GlobalData report published in August 2019, it is estimated that Generation X (Gen X) and Generation Y (millennials) will inherit €8 trillion from their baby-boomer parents over the next five to ten years. The big threat, but also opportunity, for Private Banks is to be – and more importantly remain – profitably relevant. Alan Goodrich, Regional Sales Manager at ERI, explores the critical success factors.

The Private Banking sector has become an important participant in the post-trade world of securities settlement and clearing – a domain that is also on the verge of its own transformation, thanks to the introduction of blockchain technology for transaction processing and safe custody, together with the tokenisation of the securities under management.

The Private Banking sector has become an important participant in the post-trade world of securities settlement and clearing.
Alan Goodrich

Alan Goodrich,  Regional Sales Manager,  ERI Bancaire

The flows of business, measured in trillions of euros, generated by Private Banks as a result of managing and growing wealth through investments in securities and funds play a strategic role. However, the great-generational, digital wealth transfer has the potential to alter the Private Banking landscape dramatically. CEOs of Private Banks are, no doubt, kept awake at night wondering how to remain profitably relevant in the future. The following describes five of the main challenges taxing the brains of these Private Bankers:

- Cost effectively addressing an ever-increasing burden of regulatory compliance and corporate governance;

- Achieving operational efficiency in the face of more complex instruments, products and services, as well as enhanced, ultra-personalised client interactions across digital channels;

- Establishing new sources of revenue replacing the evaporating streams of transaction fees and interest income, while embracing the shift towards advisory and performance-based fees;

- Adapting to the shift in customer demographics and behaviour. The focus of future generations will move from a purely financial purpose towards a more holistic life-planning approach that includes impact investing, education and healthcare, as well as possibly restructuring existing debt in tax-efficient ways;

- Tackling the competition presented by big tech (the GAFAs and their Chinese or Japanese counterparts) as well as other non-banking or neo-bank challengers that are making ever-deeper inroads into offering financial services to the younger generations.

There is light at the end of the tunnel. Despite the financial crises making a dent in consumer confidence, the established Private Banking institutions still have the advantage of brand trust, for now, over the neo-players. The key to avoiding becoming disenfranchised will be to re-establish, or reinforce, the cradle-to-grave style of trusted relationship that is the bedrock upon which the industry was originally built.

Despite the financial crises making a dent in consumer confidence, the established Private Banking institutions still have the advantage of brand trust, for now, over the neo-players.
Alan Goodrich

Alan Goodrich,  Regional Sales Manager,  ERI Bancaire

For baby boomers, a Private Bank is a trusted advisor and custodian of physical assets, i.e. cash and securities. However, both cash and securities are becoming increasingly dematerialised, or digital, and their safe custody is about to become an entirely commoditised service built on distributed ledger technology (DLT) and blockchain. Therefore, for Private Banks to continue to enjoy profitable, long-lasting relationships with Gen Xers and millennials, as well as their Gen Z and Gen Alpha children, reinventing and recreating this trusted status is the only option.

Fortunately, times have changed. The younger generations are far more comfortable with new technology, digital delivery of products and services and – even more importantly – virtual relationships – a phenomenon that should be in the industry’s favour. If established Private Banking institutions were to attempt to rebuild a trusted relationship using the traditional one-to-one, human-to-human paradigm, then the operational expense would simply be too great. However, the behavioural characteristics of the younger generations provide these institutions with the opportunity to leverage their trusted brands and use new digital technology to cost-effectively achieve the equivalent highly personalised customer experience and service that their parents and grandparents valued.

So, whether a Private Banking institution is adopting a strategy of organic business transformation or is the result of creating a green-field entity to fast-track itself into the new digital age, at the core of the ability to transform will be the use of technology. A core platform that embraces open banking and fintech-ready APIs and that allows seamless, agile integration of the latest expert systems is key. This might include, for example, enabling the combination of the institution’s own data with external big-data sources and an AI engine to derive life-event and propensity scores that allow hyper-personalisation of products and services. Equally critical are award-winning levels of front-to-back process automation and compliance, as well as platform-agnostic technology that permits flexible deployment models, e.g. on premises or a cloud-based SaaS model. Last but not least, the supplier must have credibility in terms of depth of experience and expertise in the Private Banking sector, as well as a track record of successful implementations.

For the digital journey to achieve its objective, i.e. profitable relevance to future generations of wealthy clients, a return to the values of the past – namely trust and a personal service built on digital foundations using the latest technology innovations – holds the key to a successful transformation.