One central step in preparing for the unknown is to identify key uncertainties, i.e. trends whose realisation remains highly uncertain, but whose impact could be critical for industry players. During our recent sessions with executives (CEOs, head business development, chief strategists, etc.) from leading private banks to discuss the future of wealth management, we jointly reviewed more than 50 individual industry drivers to distil these into six key uncertainties for private banking and wealth management in 2030.
1. Client interaction model
While new technologies have allowed for significant efficiency gains in back-office activities, their impact on client interactions remains difficult to predict. While 59 per cent of surveyed HNWIs prefer an in-person meeting with their relationship manager to make important investment decisions1, 67 per cent of millenials say they prefer robo advisory compared to 30 per cent of Gen X and Babyboomers2. Will digital native millenials adapt their expectations as they accumulate wealth and face more difficult investment decisions or will they remain comfortable interacting mainly with a machine or via digital channels?
2. Value creation by wealth management
Even activist investor par excellence Warren Buffet advises investors to invest 90 per cent of their wealth into a passive instrument on a broad index and 10 per cent in short-term bonds3. Indeed, in order to confidently identify a portfolio manager who generates superior returns, we would need to observe his yearly returns for more than 100 years3. So, to what extent will clients perceive the services of a wealth manager as more value-adding than those of other providers such as asset managers, retail banks or challengers?
3. Transformation of the value chain
We believe that wealth managers of the future are assembled – not built. The uncertainty nonetheless resides in the extent to which wealth managers are still able to control their own “assemblage”: will relationships with external providers remain controlled and managed, or will banks entertain a much more open relationship to their ecosystem, that is actually controlled and orchestrated by the client? While 58% of recently surveyed Swiss banks aspire to remain orchestrators of their ecosystem4, it is clear that only a few (if any) will be able to control an ecosystem. And with the advent of distributed ledger technologies, to what extent will the traditional banking value chain remain relevant at all?
4. Ownership of client relationships
As ecosystems become more important, the ownership of client relationships may slowly shift away from private banks. Indeed, client experience becomes the new loyalty (see previous blog). To make the point: 45% of millenials would regularly switch to alternative solutions in search for the best option5. And only 38 per cent of HNWI clients in Switzerland are very satisfied with their bank1. For how long will financial stability, good reputation and the high-touch service by banks’ relationship managers give private banks an edge over emerging alternative providers?
5. Ability to monetize data
Banks have recently realised the value of insightful client data they possess – yet, what to do with it? 75% of consumers across continents said they are willing to share (sensitive) data in exchange for products or services they value and a brand they trust6. Indeed, the majority of surveyed banks will leverage client data to enhance their products and services. However, they are reluctant in exchanging data with third parties even if this would enable them to personalise services even further4. To what extent and how quickly this might change depends on the willingness of private banking clients to grant access to their personal data and the ability of ecosystem players to protect privacy. Will privacy and security concerns prevail over increased convenience?
6. Competitiveness of Switzerland in the international environment
Global shifts towards fast growing and high potential markets in Asia, global isolation tendency, as well as the recent trend in the European Union to grant market access only in exchange of adopting equivalent regulations, are challenging Switzerland’s position as an international banking hub. The business model of most Swiss private banks relies on access to foreign markets. Without the relevant agreements, these banks have to focus on the saturated and limited domestic market, respectively establishing costly local presences. Will Switzerland be able to maintain multiple agreements with geopolitically competing jurisdictions simultaneously? Will the Swiss business environment remain competitive given the progress of other countries and slow decision making by the Swiss policy makers (e.g., institutional agreement, tax reform, wage protection, pension system)?
Identifying the uncertainties (and the certainties) is only a first step towards developing future-proof businesses. While the private banking executives raised a number of uncertainties which might impact private banking in Switzerland significantly, they were also optimistic that private banks remain relevant to their core clients if they focus on what they really need. Detailed and rich scenarios help to understand these future needs. In a forthcoming blog we will describe the different scenarios that we have developed with the Swiss private banking executives.
1 LGT Private Banking Report (2018)
2 Wealthadviser (2016)
3 NZZ “Dieses mathematische Rätsel kann fast niemand lösen, …” (2019)
4 Deloitte/ BEI Study “Ecosystems 2021” (2019)
5 Facebook IQ “ Millenials + money: The unfiltered journey” (2016)
6 Columbia Business School “What is the Future of Data Sharing” (2015)