The private banking sector is undergoing a broad shift as the digital revolution slowly takes hold and tougher regulation begins to bite.
As banks continue to deleverage, pulling out of international markets and scrapping the global bank model, the private banking landscape is being irrevocably altered — shaping the future of the way wealth managers operate and how customers bank.
As lenders move away from more risky investment banking activities, wealth management has emerged as a powerhouse among the likes of UBS, Deutsche Bank and Credit Suisse. Private banks have sought to recruit talent as they expand wealth management divisions to service wealthy Asian clients.
For private bankers, personal relationships remain key to success. “We aim at being the reference for relationship private banking,” says Jean François Mazaud, head of Société Générale Private Banking, in an interview with BusinessBecause.
Private banks have long offered customers a personal experience based on meetings, but the rise of digital is altering the way wealth managers service their clients.
Customers have developed new habits and expectations. “They want us to provide them [with] easy access to all our products and services, anywhere, anytime,” says Jean François at Société Générale, which is the corporate program sponsor of the MSc in Corporate Finance & Banking at EDHEC Business School.
A number of new private banks are launching, with slick IT systems and digital interfaces. This has put pressure on large private banks, and has spurred them to innovate.
Patrick Lecomte, executive director for the advanced Master in Financial Techniques at ESSEC Business School, says digital tools are affecting the transaction based model of private banking in particular — transaction costs for clients are lower but so are the profits for banks.
“For private banks, the threat is to miss the boat and be outdistanced by competitors who would be more efficient at adapting their model to these new trends,” says Société Général’s Jean François.
The French bank launched an ambitious three-year transformation for its private bank’s technological environment, to help it cope with digital advances.
Where digital tools are most effective is in the so-called advice gap. A number of new, online wealth managers are emerging to plug the hole left by private banks. The likes of Wealth Horizon, LearnVest and Nutmeg — founded by a Stanford MBA graduate — are luring customers away from the biggest private banks, often with cheaper rates.
Christelle Cuenin, assistant director of corporate partnership development at INSEAD, a global business school, says there are career opportunities with smaller players, but the digital revolution is still in its early stages. The private banking market is controlled by about 20% of brands who hold 80% of wealth management money globally.
As such, large full-service banks including Morgan Stanley and JPMorgan Chase are recruiting the most wealth managers, and they tend to run programs dedicated to MBAs, say careers directors.
Melanie Alciati, assistant director at INSEAD’s Career Development Centre in Singapore, says there is high demand for wealth managers in mainland China, Hong Kong and Singapore in particular.
“[Private bank] offices are looking to cater to the non-resident Indian population, and aim to have access to a stream of talent to address that market,” she says.
The number of billionaires has risen 7% to 2,325 — a record, according to the annual billionaire survey compiled last year by Wealth-X and UBS. Beijing and Singapore are gaining on western heartlands like New York, while Hong Kong’s richest have roughly 40% more net worth than those in London.
Wealth management recruitment is focused on regions with notable private wealth growth, such as Asia, according to Tony Somers, director of the Career Management Centre at the business school HEC Paris.
“We have seen that wealth management has more hiring potential than investment banking,” he says.
This shift comes as the wealth management units of both UBS and Credit Suisse, for example, have outperformed their investment banks. BNY Mellon has opened eight new private banking offices in the past four years, and has increased its number of portfolio managers and private bankers by 6%, the US based bank said.
Yet regional banks are rising in Asia to claim more market share as western lenders move out — owing to the difficulties of high costs, regulation and elusive clients.
Private banking has in recent years hit the headlines for the wrong reasons — the tax scandal this year at HSBC’s Swiss private bank is chief among them. The issue of banking offshore or onshore has thus been thrust into the spotlight.
Regulators such as the Financial Conduct Authority also want private banks to prove they are delivering satisfactory customer outcomes, while the fees wealth managers charge their clients is a longstanding area of controversy.
“Regulatory and compliance issues are high priority,” says Pauline Ma, senior MBA career coach at GWU School of Business, for private bank recruitment.
The regulatory and economic environment has pushed global banks to focus their activities on their most profitable areas, says Société Générale’s Jean Francois.
There have been several recent high-profile purchases and mergers in the private banking space. For example, Asian lender DBS bought Société Générale’s private bank businesses in Singapore and Hong Kong; and Swiss private bank Julius Baer bought Bank of America Merrill Lynch’s non-US private banking operations.
The flurry of M&A activity is driven by a need for smaller private banks to increase their assets under management, says ESSEC’s Patrick. “As regulations make business development more cumbersome, it is important to gather more assets to make private banking operations profitable.”
Barclays of the UK meanwhile has folded its wealth business into its retail units, triggering an exodus of private bankers.
Smaller boutique banks are stepping into the breach left by western lenders as they retrench from international markets.
“There are opportunities with small, boutique firms,” says Paula Quinton-Jones, director of career services at Hult International Business School, which value niche experience and regional familiarity.
“However, they tend not to recruit on campus and so networking and referrals through head-hunters are better routes to market,” she says.
One tactic private banks are using is to hire talent from other banks who come with readymade connections.
“An existing network of clients or an ability to business develop effectively is an essential component to being successful within private banking,” says Paul Schoonenberg, head of MBA careers at Aston Business School.
But experts warn it’s a misconception that private banks hire people just for their contact books. “Rather, they are looking for people who know how to create connections, build networks and then leverage their contacts,” says Hult International’s Paula.
Nonetheless, relationship managers are the most sought after hires currently at private banks, says Christelle at INSEAD, while demand for investment professionals is steady.
Aside from the pay, bankers are often lured to wealth management by a better work life balance compared with what has come to be expected of public markets roles. “Private banking roles are traditionally less exposed to financial markets than those in front office positions,” says ESSEC’s Patrick.
But he adds that Asian clients are keen on trading as they seek out higher returns — private bankers often have to work with trading and financial product structuring teams. “They are never very far from the markets,” he says.
Private bank clients are adjusting their portfolios by buying short-term debt, and are looking at other asset classes, including hedge funds and currencies.
“There has been an increasing demand for sophisticated financial solutions,” says Elisa Zagami, head of career development at MIP Politecnico di Milano, a leading Italian business school.
She adds that private bankers are becoming increasingly independent, as private bank clients seek custom investment solutions.
“The role of the wealth manager is increasingly detached from the single bank, requiring a consultancy approach to help clients customize and get the most out of their portfolio,” she says.