In a previous blog on the Future of Private Banking and Wealth Management we introduced four possible scenarios for the wealth management in 2030, which we developed with senior executives of leading private banks in Switzerland. In this blog, we discuss the implications for private banks, their clients and possible challengers in each of these four scenarios.

1. Family office ecosystem

Re-cap of scenario:

• Collaboration of specialised providers in an ecosystem centred around client needs
• Tailored, family office-like offerings

What it means for…

…clients:

• Highly relevant and individual solutions for everyone
• Premium fees for high quality services

…private banks:

• Re-invention of business models
• Focus on specific parts of the value chain
• Investments in connectivity and collaboration

…challengers:

• Entry opportunity for lower-end “family offices”
• Market entry by asset managers as suppliers
• Competition for highly skilled private banking talent

Only players that master the ecosystem (either as orchestrator, niche producer or infrastructure provider) will succeed in this scenario. The client interface will be won by those who have the deepest understanding of client needs (across all wealth bands and life circumstances) beyond investment management. Value is generated by joint efforts of specialist providers to deliver solutions that fit. Clients are willing to pay premiums for such tailored services – if the quality meets their (high) expectations. Seemless digital and ‘offline’ integration of different services will be a key differentiator. 

2. Wealth management marketplace

Re-cap of scenario:

• Digital first client interfaces and open platforms with reduced switching barrier
• Speed, price and convenience as winning factors

What it means for…

…clients:

• Low cost, low touch
• Large variety of outstanding digital service offerings to choose from
• Low switching costs

…private banks:

• Loss of control over clients and value chain
• Marginalised without state-of-the-art digital client experience
• Integration into (digital) ecosystems critical for meaningful service offering

…challengers:

• Low market entry barriers allow for easy access
• Opportunity for BigTechs to succeed in the wealth management market by creating scalable platforms
• Short life for innovations

The open environment in this scenario allows new, especially technologically advanced, players to enter the market successfully if they raise the client experience to a new heights. A few “marketplace” platforms will emerge that require incumbents to collaborate more closely with external parties via APIs and find their place in the resulting (digital) ecosystem(s). As client interactions take place increasingly via digital channels and are often automated, fewer but more technological savvy client advisors are required. Success in 2030 is also determined by players’ ability to innovate continually to improve the convenience and speed of their services. This is also the only scenario where price leadership constitutes a true differentiating factor.

3. Digital islands

Re-cap of scenario:

• Clients mainly served digitally by monolithic ecosystems
• Bi-furcation of industry: Few very large incumbent players dominating their respective ecosystem and many small ones

What it means for…

…clients:

• Limited human contact with providers
• Satisfied by security of incumbents instead of by choice from alternative players
• Stuck with one ecosystem due to limited inter-operability

…private banks:

• Largest, financially strong and most technology-savvy players dominate
• Save-to-invest necessary to finance enormous investments in technology, platforms and innovation
• Medium-sized players without state-of-the-art digital platform or killer products struggle

…challengers:

• Relatively high barriers to enter the market
• Existing customer base required to build wealth management offering on top

In this world, large and financially sound incumbents develop their own monolithic ecosystems based on tightly controlled, monolithic platforms. Their key activities evolve around offering a superior client interface and guaranteeing the quality of services and data protection. Services are either provided by themselves or by carefully selected ecosystem participants. Prudential regulations, which aim at preventing the creation of institutions too big to fail, and regional protectionism allow several ecosystems to co-exist. In this scenario, large incumbents need to invest heavily in technology to become attractive platforms and not all of them will succeed. Smaller players focus on specific products and services and maintain a relationship with one or several of the emerging ecosystems.

4. Club feeling

Re-cap of scenario:

• Incumbent players tightly control value chain
• Players with strong brands offering high-touch premium services

What it means for…

…clients:

• Highly personal service
• Premium fees for services from trusted and prestigious brands

…private banks:

• Brand and reputation is everything
• High cost base

…challengers:

• High barriers to entry (e.g. brand building, investment into talent)
• Exclusive luxury brand to build on a prerequisite
• Hiring of talented relationship managers from incumbents

In this scenario, mainly established incumbents inheriting a strong brand and able to heavily invest in a clear USP will survive. As a result, newcomers – probably lacking one or both of these characteristics – have a hard time entering the market. Disrupting players such as FinTechs or BigTechs are not a real threat: for incumbents, it is all about standing out from the current crowd. For private banks today, preparing for a “Club Feeling” world of tomorrow would require building a premium brand and investing in client retention via service quality, a differentiated offering and unique client experiences. Players with a lack of focus will suffer from a high cost base.

Conclusion

While some strategic actions will be common for all scenarios, distinct measures might be required, depending on the scenario that will materialise. Private banks should therefore define their core strategy as well as contingent strategies which they could implement once clarity has been obtained about the direction in which the industry is heading.

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.

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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.

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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.

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