A new private banking business model for a changing world

in Europe, the environment has evolved with the passage of the MiFID II legislation, which will end the practice of ‘free’ advice actually paid for by transaction commissions and bring new transparency to the relationship between advisers and their clients.

Clients are less inclined than in the past to consider management of their assets in isolation, and more likely to have ideas about how to use their money that extend beyond simple financial returns. They are also exposed to a broader range of financial information, and are accustomed to using diverse channels for communication and transaction in their financial activities, just as in most other aspects of their lives. 

Clients’ investment preferences may be based as much on socio-economic as financial criteria – for instance, they may look to channel money into innovative start-ups, socially responsible businesses or organisations tackling global issues such as climate change. 

The basis of private banking – the relationship between the client and their banker– remains very valuable, clients say, but they want the bank to demonstrate a proactive rather than reactive attitude. Relationship bankers should no longer be vendors of investment products but, rather, providers of services and solutions, and they should offer clients the benefits of a range of skills the bank can offer that do not necessarily relate directly to investment. 

Perhaps most importantly, the relationship is likely to be more spontaneous and less structured, resting not on a calendar of formal office-based meetings and long, minutely detailed financial plans, but a spontaneous, flexible interaction based on the client’s evolving circumstances, priorities and aspirations. 

It’s up to private banking providers to respond to these changes. It is worth for the Private Banking industry to launch new advisory services that will better meet the expectations, aspirations and needs of today’s clients, as well as positioning the bank for the new regulatory environment to be ushered in by MiFID II. 

At ING Luxembourg Private Banking we work hard on designing a service that aims to bring together holistically the various services available to clients, including investment solutions, obviously, but also tax and related issues, wealth planning and succession issues, services such as lending, and a reporting service that enables clients to assess their complete financial situation at a glance. It also encompasses ‘softer’ aspects of the bank-client relationship, including regular face-to-face meetings, seminars and presentations on economic and financial issues, and other social or cultural events that broaden mutual understanding and personal ties. 

This is a fundamental shift away from transactions and products toward an ongoing advisory relationship, and remuneration directly and transparently recurring fees. This implies also a shift from a standardised, one-size-fits-all structure to a personalised approach based on comprehensive knowledge of the client, their personal as well as financial situation and ambitions for the future.

The clients of today and tomorrow are unlikely to be particularly concerned with the detailed stipulations of MiFID II. What they do want is their private bank to offer solutions to the challenges they face, rather than sell them products, using all the technological tools they are comfortable.

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