Three insights for Luxembourg wealth and asset managers from the EY Global Wealth Survey

Since the last EY Global Wealth Report (2021), the world has undergone significant changes. Economic activity has been affected by tightened monetary policy and inflation, but Luxembourg managed to fare relatively well. Despite experiencing one of the lowest inflation rates in the EU, the salary indexation had a slight impact on margins for private banking and wealth managers based in Luxembourg. Nonetheless, the outlook is cautiously optimistic.

EY recently launched the 2023 EY Global Wealth Research report, which explores client wants, needs and expectations amidst market disruptions and rising complexities for achieving their financial goals. The biennial survey included over 2,600 investors in 27 geographies around the globe. Clients resident in Luxembourg formed part of the respondent pool.

In the analysis of the results, it came to light that despite the turbulence in the markets over the past two years, and the resultant uncertainty and complexity, clients in Luxembourg feel prepared to meet their financial goals. In parallel, however, we also observe Luxembourg clients requiring substantially more access to product and market specialists, portfolio reviews and investment advice, compared to their European and global counterparts. At the same time, Luxembourg clients are satisfied with the value for money considering  costs charged for the services delivered, but a minority are still concerned about hidden costs. Here are the top three insights from the research relevant to wealth and asset managers.

The full article featured as an addendum to the 2023 EY Global Wealth Report and can be accessed via our website.

1. Luxembourg clients feel more prepared to meet financial goals than the rest of Europe, despite perceived complexity

With the combination of political and economic shocks, the rise of new investment products and entry of new players, and the increasingly digitized world, there are varying degrees of financial complexity for all of us to navigate. Luxembourg clients feel this acutely, with 54% of respondents citing increased complexity, compared to 48% for Europe and 45% across the rest of the globe.

Even so, over two-thirds of Luxembourg clients feel either well prepared to meet or have already met their financial goals, of which protecting wealth has remained an unwavering top financial goal since 2019.

2. Luxembourg clients want more financial plan reviews and access to specialists

Almost all Luxembourg respondents changed their investment behavior due to a portfolio decline. Perhaps linked to this, Luxembourg clients expect regular performance reviews (mostly on a quarterly basis). They place an emphasis on accessing product specialists (87%) and market experts (98%), surpassing European client preferences. It is worth noting that clients associated with newer “emerging” investment types (e.g., crypto), sophisticated products (e.g., alternatives), or newer financial players (e.g., fintechs), are typically correlated with a stronger need for guidance.

Luxembourg clients also prefer virtual interactions with advisors more (72%) compared to European clients (49%) when it comes to receiving financial advice. Only 13% of clients in Luxembourg prefer in-person meetings, while it's 36% in Europe. Wealth managers who effectively use digital tools are therefore more likely to build long-term, valuable relationships with clients.

3. Traditional drivers for selecting a wealth manager prevail

The top driver of wealth manager selection in Luxembourg is competitive fees. Further, several years after the introduction of regulatory requirements around costs and charges disclosures (e.g., Markets in Financial Instruments Directive (MiFID), Packaged Retail Investment and Insurance Products (PRIIPS)), the level of understanding of costs, charges and transparency has significantly increased. A total of 93% of clients understand their charged fees in Luxembourg, compared to 73% globally. Additionally, 83% of Luxembourg clients trust their wealth managers to charge fairly for their services and the same 83% are satisfied with the value for their charged fees, while only around 70% in Europe share the same sentiments. However, there is room for improvement as one-third of clients are concerned about hidden costs (in Europe, this is a concern for approximately half of respondents). By introducing the "value for money" principle and enhancing cost disclosures, the EU Retail Investment Strategy directive is expected to address these concerns.

Considering the types of providers clients expect to use in the next three years, the “full-service institution” remains number one, however asset/fund managers and fintechs are increasingly attractive. Asset/fund managers and fintechs are more and more opting to co-/outsource non-core tasks in tax, risk, compliance, regulatory reporting, finance and beyond. This then frees up time and resources to expand on core, value-add activities that enhance the client experience, which investors may be unwittingly benefitting from.

Finally, a slight majority (60%+) of Luxembourg clients are satisfied with their investment performance. What is becoming more apparent is that clients are less satisfied with more innovative asset classes, including ESG, digital assets and alternative investments. This lower performance can be an explanation as to why ESG and sustainable investing options and advice are not highly important or a key selection driver for many clients.

Despite recent market turbulence and the resulting complexity and uncertainty, clients in Luxembourg feel well-prepared to achieve their financial goals. This confidence can be attributed to Luxembourg's robust and longstanding private banking, wealth and asset management industry, which is deeply ingrained in the country's DNA. With a comprehensive range of financial services provided by numerous banks, wealth managers, fund managers, advisors, and fintechs, clients in the Grand Duchy may feel more equipped to navigate market fluctuations. However, it is essential not to overlook the importance of meeting clients' priorities. Banks and asset managers that cater to these needs will cultivate a satisfied and loyal customer base, particularly during challenging periods.

How EY can help

EY Luxembourg has dedicated private banking and wealth and asset management sectors, which offer a broad selection of auditing, consulting and tax related services. If you would like to discuss how the findings of the report can be leveraged to support you in your client interactions, please reach out to any one of our expert contacts.