Scenarios for wealth management in 2030 – an executive perspective - Banking blog

10a

As we saw in our last blog, the Future of Banking and Wealth Management is complex and full of uncertainties. So how can banks best anticipate change and confidently navigate the unknown? In an attempt to create more clarity, we recently hosted ‘scenario thinking’ workshops for CEOs, business development heads and chief strategists of Swiss private banks, in which we explored what the industry might be like in 2030. Below, we describe four scenarios these executives, collectively responsible for more than CHF 2 trillion of assets under management, came up with.

Scenarios

1. Family office ecosystem

In this scenario, open architecture simplifies collaboration between different providers across the value chain enabling wealth managers to provide their clients with the best product experts, financial planners and tax experts from within their internal and external network. In turn, basic banking services, including custody, become a low-cost commodity which will be sourced from the most cost-efficient provider. As a consequence, wealth managers exit parts of the value chain and focus on high-quality tailored advice, leveraging strong networks of internal and external experts. This shifting focus, and the competition for differentiation, lead to family-office-like offerings, even for lower-end clients. While clients are willing to pay for high-value, human-centered and holistic advice, client loyalty erodes if service quality is not met.

2. Wealth management marketplace

Digital interfaces and open platforms enable clients choose their wealth management services from various suppliers along the value chain according to their specific needs and preferences, with very low switching costs. Excellent customer experience as well as pricing and performance of digital services are the key differentiating factors in this scenario, and many digital native players such as BigTechs successfully gain market share. Winning wealth managers re-invent themselves as modular integrators of services to reduce complexity for their clients, drawing together services offered by other participants in the ecosystem.

3. Digital islands

Driven by shifting client preferences, virtual interfaces are the main channel for client interactions and the delivery of standardised, yet sophisticated, products and services. Banks and wealth managers are able to respond to new competition from Big Techs due to their clients’ lack of trust in tech players, in particular with respect to data sharing. The industry consolidates progressively around the largest and financially strongest incumbents that invested heavily in technology early on. Superior digital client experience, scale and cost efficiency are the primary factors for success. This leads to a small number of closed ecosystems dominated by (private) banking giants, with a number of niche players serving one or several of them as specialist providers. Usually, clients stick with one ecosystem, due to high switching costs.

4. Club feeling

Incumbent players exercise tight control over the entire value chain, and interactions with clients are human-centred. Clients look for high-quality offerings and superior services for which they are ready to pay a premium. Some incumbents establish themselves as leading players that leverage their strong brand and differentiated services to remain ahead of the competition. Similar to a members-only club, these players retain clients by offering unique experiences and a feeling of exclusivity. Top players command margins that are higher than today, but the industry also faces limited opportunities for cost reduction compared to other scenarios, due to limited inter-operability across the value chain and the human-centred service model. This scenario is vulnerable to shifting client preferences and the emergence of disruptive competitors.

So which of these four scenarios could it be?

Asked about their vision for the future, workshop participants voted for the “family office ecosystem” scenario. However, when we asked the same questions to the participants at a conference not exclusively targeted at private banks, the “wealth management marketplace” received the most votes. We can’t predict the future, but we can make ourselves responsive to the changes going on around us, impacting wealth management clients and the value chain. Scenario thinking is a tool that supports us in doing so. Looking beyond our own client base and across industry borders is another helpful approach. Winning organizations succeed by creating shared narratives about their visions for the future to drive internal change, while constantly monitoring developments in their business environment to remain flexible in the event a different future materializes.

 

P.Spiller Photo

Patrik Spiller - Partner, Head of Monitor Deloitte Strategy Consulting

Patrik is the Partner leading the Swiss Financial Services Strategy Practice, with over 17 years banking industry experience. He supported many of the leading international wealth and asset managers in the development of commercial excellence, pricing and innovation strategies,  major restructuring and transformational strategies, strategic cost reduction initiatives, and M&A assessments. Patrik focuses on operating model optimization and commercial excellence, improving bank’s revenue and cost base and delivery capability. He managed projects for most of the leading global banks, developing expertise in areas such as corporate strategy, IT strategy, organisational design, cost reduction, and offshoring strategies.

Email 

Stefan bucherer_bblog

Dr. Stefan Bucherer - Senior Manager, Zurich

Stefan is a Senior Manager in the Monitor Deloitte Financial Services Practices Zurich with more than 6 years experience in Strategy Consulting. He is co-leading the Enterprise Model Design service offering and specialises in complex strategic business model transformations in banking. His main expertise is in retail and private banking. He is publishing regular insights into areas such as the future of banking, industrialisation in banking and is co-author of the Deloitte Wealth Management Centre Ranking.

Email

Thuy-Linh Uong _2

Thuy-Linh Uong - Consultant, Monitor Deloitte, Zurich

Thuy-Linh is a strategy consultant in the Monitor Deloitte practice in Zurich, currently focusing on strategy design for financial services and more particularly on the topic of Future of Private Banking and Wealth Management. Prior to joining Monitor Deloitte, Thuy-Linh gained valuable experience in both banking (product and investment management) and private equity (Fund of Funds investment) industries.

Email

Comments

  • Thank you for your comment. Indeed, the four scenarios we describe may indeed develop in parallel for different client segments over time – although we would expect that ultimately for a given segment a scenario will emerge as the prevalent one. As a private bank, you would need to understand how the preferences of your target clients evolve and how your competitive landscape and value chain develops to make your bets.

    Regarding your comment on brand: In a world of commoditised products, brand will become indeed more important and is already today one of the key selection criteria for private banking clients. We may consider diving into this topic further in a later publication.

    Posted by: on June 11, 2019 at 10:56

  • Interesting reading. I quite like this blog 8-) Thanks for writing it. As this is a topic that took up quite some of my time over the last couple of years, I would like to add two angles:

    1. Especially if we look at Swiss Banking we should also look at demographics i.e. especially age. How will wealth distribution be in 2030? Is there a main customer from an age perspective?

    2. Why should there only be one predominant model? As there will not only be one type of client, there will also not be only one need. And the way I look at above four models, I don't think they address the same individual client needs.

    So overall.. I believe there will be several models in 2030, some from the same players, some from other players.. which also raises the question about how important brands will be in wealth management. Maybe something for a future blog - how will trust into brands evolve until 2030?

    Posted by: on June 5, 2019 at 10:23

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Categories