Accelerating change shapes the management agenda
Private banking has been put to the test in 2020 as a result of the Covid-19 pandemic. The sharp but short-lived plunge in financial markets during March kept investors on their toes, while lockdowns challenged the industry’s traditional high-touch business models. Strong support from governments and central banks helped markets regain their footing and lifted investor confidence over the year. However this turbulent time has forced private banks to reflect on their strategic priorities and re-evaluate their target market positioning going forward.
The identified strategic challenges remain as relevant post-Covid-19 as they were before the pandemic. Looking ahead to the future of private banks in the years 2021 and after, a cautiously positive sector outlook was confirmed in our latest Private Banking Navigator survey, which covered more than 30 banks across 12 countries and four regions, holding around €15 trillion of assets. Two-thirds of the private banking professionals surveyed expect their industry to take less than two years to recover from the crisis, as buoyant asset prices offset margin pressure and support further growth. Yet while the outlook appears positive compared with other areas of the financial sector, the process of separating “winners” from those left behind is accelerating. Now is the time for private banks to reconfigure, take bold decisions and place big bets on their strategy.
Private banks are facing a major challenge now that competition is intensifying as leaders try to benefit from the latest market developments. Achieving growth in AUM in these conditions will be much more challenging than it has been in recent years and is most likely to come from acquiring market share.
Private banks need to develop a tailored approach to cost management that does not over-emphasize cost-cutting but instead identifies “smart fixes” to manage costs, e.g. digitization of back-office functions including compliance and finance, while continuing to invest in areas that are essential to growth and their ability to respond to uncertain market conditions.
Private banking clients are also undergoing significant change. As wealth is being transferred between generations, a new group of younger clients is appearing among the client base. This new generation is much more digitally savvy, more open to new propositions from challenger brands, and less instinctively loyal to the traditional private banking model.
Private banks are facing intensifying competition from multiple directions as large players seek to grow by taking market share, while fintechs and challenger banks continue to target all segments of the wealth management market.