“Matching clients’ and private bankers’ benefits”

There is great potential ahead for private banking. Research shows that the global population of UHNWIs is set to grow by 27% over the next 5 years, whilst the number of HNWIs is forecast to rise by 41%. Yet, if one takes a closer look, it is not all bright and shiny for the industry.

Behind this positive demographic outlook lie significant challenges and structural trends that are transforming the private banking landscape. Global wealth is reshaping at a fast pace. The next generations of wealthy individuals are driven by a new vision and have different expectations for how their wealth should grow, be used and passed on. The ever-changing and evolving geopolitical environment have also generated new headaches and concerns for wealthy families. In a recent study by UBS, 81% of HNW investor respondents affirm that a sense of fear will remain for a long time, also suggesting a change in risk appetite.

The next generations of wealthy individuals are driven by a new vision and have different expectations for how their wealth should grow, be used and passed on.

Jurgen Vanhoenacker, Executive Director, Business Development and Wealth Structuring, Europe, Lombard International Assurance S.A.

When asked about their biggest wealth creation and preservation worries for 2021, UHNWIs mention ‘disruption by Covid-19’ (80%), ‘domestic government policy’ (49%), ‘tax issues’ (42%), ‘geopolitics’ (35%) and ‘wealth transfer to the next generation’ (28%). Noticeably, our recent shows that their concerns are aligned with those of their advisers, who identify ‘regulation’ (27%) and ‘market conditions’ (13%) as the top challenges for the wealth management industry.

The wealth succession challenge has therefore now climbed higher up the agenda, and wealth advisers have reported a rise in enquiries from HNW clients to re-examine the most efficient ways to pass on and protect wealth. 60% of wealth professionals recently surveyed by Knight Frank affirm that their clients have reassessed their attitudes to succession planning in light of Covid-19. A real boon for the private banking industry as clients will require more guidance and expert advice.

This trend is also bringing new challenges for wealth professionals who must cope with the intricacies of ever-complex modern family dynamics and aspirations, including an increasing attention to the impact of wealth. Interestingly, whilst ESG considerations were the least of the wealthy’s considerations in previous economic upheaval, the current environment has brought them to the fore. 40% of UHNWIs say that they are more interested in ESG-focused investment than 12 months ago.

Interestingly, whilst ESG considerations were the least of the wealthy’s considerations in previous economic upheaval, the current environment has brought them to the fore.

Jurgen Vanhoenacker, Executive Director, Business Development and Wealth Structuring, Europe, Lombard International Assurance S.A.

On top of this, the demand for international mobility and portfolio diversification with alternative asset classes is surging. Whilst bespoke wealth planning solutions adapted to the individual HNW requirements are becoming the norm, private banks are tasking their providers with offering innovative and agile wealth planning solutions that facilitate flexible investment portfolios with the widest range of assets. It is also vital that these solutions comply with evolving regulatory requirements over the long term, together with the highest level of transparency in terms of administration and fees.

Sitting at the intersection of asset management, private banking and insurance, the wealth assurance sector is gaining traction in such environment. More than half of European-based wealth professionals (54%) predict growth of the Unit-Linked life insurance market over the next five years, with one in five (21%) saying that its growth is likely to be substantial. Insurance-based wealth planning solutions are internationally recognised and can be tailored to the most complex of situations. They are comprehensive, compliant and proven, highly flexible, portable and adaptable to evolving lifestyles stretching across multiple jurisdictions and asset classes.

And the benefits of the solution also extend to private bankers. 53% of wealth professionals consider the ‘asset stickiness’ effect of Unit-Linked life insurance as being a clear benefit and private bankers identify ‘client retention’ as third in terms of their key motivations for using it. Unit-Linked life insurance helps them to safeguard their revenue streams for the long term, deepen the client relationship, attract additional assets and enhance operational efficiency and profitability.

Although recent reports have chronicled the resilience and vigour of the wealth industry, the increasingly sophisticated requirements of the wealthy mean that they expect boutique and bespoke expertise. Does that mean that private banks may face choppier waters? For sure, but the past 12 months have shown how agile, innovative and reactive the private banking industry and their providers could be.

Developing strong partnerships with innovative wealth solutions providers capable of enhancing their advice and expertise will be a strong differentiator for private banks. At the most fundamental level, service excellence remains key for client retention and acquisition. The pandemic has created a new paradigm for business practices and client engagement. Providing digitally enabled services blended with human interaction and broad geographic reach is a must-have to stay relevant. And with ESG considerations being top of mind, private bankers have a real opportunity to take centre stage to support their clients in reconsidering the ‘purpose’ of their wealth and align their assets with their non-financial goals.