Cross-border private banking:
high hopes, multiple challenges
By Etienne Hirsch et Erwan Floch, Ernst & Young, Luxembourg
The majority of private banks in Luxembourg consider an active cross-border distribution of their services as top priority to develop their business in the years to come (1). The explanation is twofold.
First, if Europe is still in pole position for managing international wealth, its primacy is increasingly questioned by the development of regional wealth management hubs such as Singapore and Hong Kong in Asia.
Moreover, most Luxembourg private banks acknowledge that the recent tax developments have led to the progressive attrition of the historical affluent client segment mostly constituted of residents from neighboring countries.
Consequently, most Luxembourg private banks are currently striving to adapt their value proposition in order to provide agile wealth management solutions targeting the needs of international wealthier clients. The ambition is there however its implementation raises multiple challenges.
A first difficulty is reaching out for these new clients since many banks historically relied on group referrals and mostly focused their acquisition efforts on neighboring countries. The development of tomorrow’s customer base requires private banks not only to sharpen their knowledge to understand their target markets but also to revisit their acquisition channels and distribution network. From a human resources perspective, this has also accelerated the race for relationship managers from the targeted client residence countries.
A second major challenge relates to the competences and skill set required to efficiently serve these new clients. There is a consensus among Luxembourg private banks on the need for strong relationship managers training efforts to be carried on top of the on-going recruitment campaigns. However this will not be sufficient if solution specialists do not efficiently support this new batch of relationship managers to design wealth management solutions tailored to the client’s needs. This requires private banks to review their existing servicing models, to set-up new specialist functions such financial planners and wealth engineers and of course to overhaul their solution offering.
Last but not least is the challenge of the quality and reliability of the distribution processes. Compared to its closest competitors, Luxembourg is rather perceived as a regional specialist than a global centre. This emphasizes the necessity for Luxembourg private banks to excel in cross-border distribution of differentiating wealth management solutions. On the other hand, Luxembourg has an edge to strengthen its positioning as European Union’s wealth management hub through the Free Provision of Services. Luxembourg banks cannot afford to compromise this advantage by a poor distribution of their solutions. Beyond the understanding of cross-border distribution rules they have to set-up a sharp governance framework around their multi-jurisdictional commercial approach.
These are compelling challenges which will strongly contribute to the reshaping of the Luxembourg financial centre. These are also sound opportunities for players able to rapidly clarify their positioning as a private bank on the market and within their group.
(1)Study carried out with the support of the Luxembourg Private Banking Group in May 2011.
By Etienne Hirsch, Executive Director, Ernst & Young Business Advisory Services, private banking
and Erwan Floch, Senior Manager, Ernst & Young Business Advisory Services, private banking