While the market size in European Wealth Management, measured by bankable assets of millionaire households, is ever increasing, Wealth Managers are facing a constant decline in profitability. This emerging gap represents an innovation gap, as results of our analysis substantiate. Wealth Managers lack ambition of creating transformational changes to their core business model. Their innovation efforts can rather be classified as industrialisation (i.e. digitisation of existing processes and structures to reduce costs). Simultaneously, FinTechs - which are commonly presumed to transform the industry - focus rather on digitising existing Wealth Management offerings than striving for transformational innovations. The industry is thus in urgent need for a mind shift to open up towards new realities and foster divergent thinking.

A case for innovation

In recent years, profitability in Wealth Management has been in constant decline with profit margins falling by 40% between 2000 and 2015. The market size for Private Banking measured by the bankable assets of European millionaire households however has grown by more than 60% during the same period.

The emerging shift between profitability and market size indicates an innovation gap within the industry since industrialisation and M&A – the other two main strategic growth levers – have already been employed for years. As a result, Wealth Management has now reached a point where opening up the business model to transformational innovations has become essential.

Lacking ambitions

Wealth Management providers, however, focus their innovation attempts on process and structure related improvements, in order to reduce the costs of the traditional core business model of a highly integrated value chain. In turn, FinTechs either offer digital solutions to support Wealth Managers in their efforts (e.g software solutions for automation or CRM tools) or provide digital offerings (e.g. robo advisory services, digital family offices) to directly compete for digitally aware private clients. Therefore, it can be said that both Wealth Managers and FinTechs attempt to follow innovation opportunities rather as responses to existing business challenges than results of a thorough search for new ways to create value. In summary, this means that the innovation efforts of Wealth Managers primarily relate to industrialisation, while those of FinTechs can be categorised as disruption-focused. Both lack innovation that is necessary to embrace a change of the business model.

Innovations that can change the business model

A mind shift on the management level of the industry is needed in order to allow for transformational innovations. This, however, requires to formally embed innovation as a management discipline and to open up the corporate culture towards divergent thinking. These new structures will help Wealth Manager with the identification of transformational innovation opportunities. As a result, Wealth Managers can start re-designing instead of re-organising their infrastructure, deepening their understanding of client needs, identifying new sources of revenue and refreshing their brand.

Find out more

Read our key findings in English and German of our latest thought leadership “Innovation in Private Banking and Wealth Management: Embracing the Business Model Change”.

To further introduce and discuss the topic innovation, our Private Banking team is hosting an annual Private Banking and Wealth Management event, 7th March 2017, in Zurich. Please register here, if you wish to be part of a very interactive event with several well-known industry speakers.

Dr Daniel Kobler, Partner

Daniel is a partner and one of the leaders in Deloitte’s Switzerland banking practice where he is leading the Centre of Excellence in Private Banking/Wealth Management. Moreover, he is Deloitte’s Switzerland banking innovation leader. He has more than 17 years of experience in serving universal banks, private banks, and wealth and asset management companies.

Daniel is the lead author of several growth and innovation related insight reports in wealth management. His specialisation covers corporate and business strategy development, innovation and digital-enabled business model transformation, as well as design and corporate performance and risk management.

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Johannes Schlotmann, Manager

Johannes is a Manager within the Swiss Monitor Deloitte Strategy practice and co-author of the Deloitte studies “Innovation in Private Banking and Wealth Management”, “Swiss Banking Business Models of the Future” and “Growth in Banking”. He is an expert in the Private Banking and Wealth Management industry and focuses specifically on pricing and profitability as well as growth and innovation topics in this area.

Prior to joining Monitor Deloitte, Johannes worked for a Liechtenstein private bank as well as for a family office and private equity company.

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Sephan Zacke, Consultant

Stephan is a Consultant working in the Banking Transformation team. In his over 4 years of consulting experience in the banking industry, Stephan has supported banks in several European countries. His projects include large scale regulatory programs, risk analyses and process optimizations for regulatory KPIs as well as the development and implementation of a target operating model for regulatory processes.

Prior to joining Deloitte, Stephan has worked for a management consulting firm in Austria.

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