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Private Banking in the Era of “Digital Wealth”

by internationalbanker

OBJECTWAY - Peter SchrammeBy Peter Schramme, CEO of Objectway Financial Software NV



During the last decade, the shift to digitalization has had an increasingly strong impact on the financial-services industry, driven mostly by the retail-banking segment, while private banks have remained largely on the sidelines, as many researchers in this field have underlined.

Now the change is inevitable: financial institutions that will be able to better adapt their processes to the new “Digital Wealth” trend can count on its advantages, such as stronger client relationships, reduced operating costs and enhanced efficiency¹.

Nevertheless, the process of digitalization involves different aspects of a private bank’s environment, which any firm should take into account when transforming its organization and processes to face and overcome the competition.

One of the most important aspects is certainly clients’ behavior; their preferences for how they handle investment decisions are changing. On the one hand, the financial crisis has made clients question the quality of their financial advice and seek greater transparency. On the other hand, because many clients are in their 60s, there is often an assumption that a digital strategy is not relevant to them. On the contrary, private banks’ clients are tech-savvy and early adopters of digital technologies. And when worth passes into the HNW and UHNW next-generation’s hands, these people are part of the digital-native generation: technology-savvy, they want to be in charge of managing their own portfolios. Wealth firms thus have to provide customized financial solutions “at an affordable price that reflects their value”² anytime and anywhere their clients need them. More than ever, clients are focusing on performance and asking private bankers to justify their fees, to provide more risk metrics and to share information on investments through digital interactions, including websites, mobile apps, and social media.

The classic relationship-driven business model in private banking will not become obsolete, but there will be a shift from personal to digitalization-enabled client interactions: a “high-touch, high-tech”³ model.

As a consequence, private banks are progressively adopting different advisory models⁴ that could shape their businesses:

  • a traditional advisory model, based on face-to-face relationships, that continues to offer personalised services to clients who still seek to delegate their investment decisions to their advisors;
  • a fee-only and online-based advisory model, which caters to self-directed clients who seek lower costs and a more proactive role in their investment choices;
  • a hybrid advisory model, which operates seamlessly across online and traditional channels, providing the advantages of digital along with personalized services. This model pushes information to the clients and allows them to do their own research within the framework that the bank sets up. Face-to-face meetings remain part of the sales life cycle, but a prompt engagement through new digital channels represents an important complementary means of the “onboarding” process.

The traditional business model is expected to gradually lose market share, as more technology-enabled advisory services become popular, and could face substantial obstacles in acquiring more tech-savvy customers.

The self-directed model counts on already low margins that could further decrease, due to limited differentiation and scarce client loyalty.

The hybrid model, on the contrary, could become increasingly appealing both to self-directed clients — who prefer more tailored advice and specific information — and to traditional clients, as they gradually embrace digitalization to make their private-banking experiences more convenient or engaging. This model is coupled with the digitalization of the other components of the whole wealth management process, e.g., back- and middle-office activities, which are facing the same process of technological innovation and automation to reduce cost-to-serve and fulfill all risk and compliance requirements.

The use of multiple digital touch points of communication between advisors and clients leads private banks to implement the so-called “omni-channel” strategy: financial advisors must have the right technology-enabled tools to meet their clients’ growing demands for a differentiated experience⁵. Managing digital channels is becoming increasingly important as firms are broadening their target market, and the advisor role has evolved to be more proactive in the sales cycle.

But the amount of information gathered through omni-channel digital interactions can be overwhelming. Managing the quantity — and quality — of this data is a critical factor⁶. Private banks have to manage huge and ever-wider volumes of personal and market data coming from different sources and tools, analyse them to elaborate coherent investment proposals, and monitor any discrepancies to the objectives in order to adjust investment strategies promptly.

In order to address the demands of today’s marketplace, wealth firms need to adopt powerful business intelligence and data-analytic tools with a “platform approach”, where applications are managed centrally and coherently by a single point of contact.

Furthermore, the continuous evolution of country-specific and international regulations (e.g., MiFID, KYC and RDR) is guiding the wealth-management services delivery towards customer on the one hand, through an advisory approach that protects investor’s interests, and towards a leaner internal organization on the other hand, by applying stricter policies, audits and controls on the private banker’s distribution network.

Even though compliance has become synonymous with financial service transparency, the major challenge is to introduce it on a level that does not inhibit business operation and development. This means introducing systems that still allow the private banker to operate and effectively warn of potential breaches of policy without affecting the business flow.

Customer experience, omni-channel communication, effective data management and regulatory compliance are the main drivers for a private bank’s effective digital strategy. Customers expect modern technology solutions to give them efficiency, to ensure they remain compliant and to improve their experience; and they expect all to be delivered with equal priority and be addressed at the same time.

All these aspects are part of what is called “Digital Wealth”— a systematic, scalable process, using modern technology and communication channels, which leads to a highly efficient and superior client experience, all delivered within a compliant framework, through which customers are treated fairly, consistently and suitably.

Of course, each client segment will have different priorities, demands and needs. And the banks’ business objectives will drive their choice of digital and mobile technology, devices and solutions that best serve their needs, and those of their clients. How each bank deploys them will determine and shape its brand in the market.

Finally, the digital shift is leading customers to demand a closed-loop advisory and discretionary process — in other words, it is not enough to evaluate and agree on the client’s requirements, and advise or invest accordingly; those investments should be constantly monitored to ensure that they remain suitable; the client’s requirements should be regularly reviewed and updated; and the advice and investments checked to determine that they remain suitable and consistent, or modified accordingly.

Customers expect this process to be automated, to create an efficient workflow whereby, on a day-to-day basis, advisors have to deal only with exceptions. By optimizing daily activities, advisors can spend more time developing client relationships and give better and faster access to their portfolios, with better tools to manage them.

Objectway has a deep knowledge of the trajectory that private banks and wealth managers have to undertake towards a “Digital Wealth” business model. With Objectway’s Financial Suite platform, all processes within a bank are seamlessly integrated, from front to back offices, implementing an omni-channel wealth management environment, including data analytics and insights, cloud-based deployment models and social-engagement tools that strengthen customer relationships, reduce cost and operational risk, while complying with regulations. Objectway’s Financial Suite enables and unlocks the “Digital Wealth” strategy of private banks and wealth firms.


¹ Based on research from Accenture. Beyond Trust – Build lasting relationships and brand loyalty by delivering superior client experiences (2013); Booz&co. Taking wealth management digital (2013); and PricewaterhouseCoopers. The connected advisor – The rise of digital and social advice in wealth management (2013).
² Accenture. Beyond Trust – Build lasting relationships and brand loyalty by delivering superior client experiences (2013)
³ Booz&co. Taking wealth management digital (2013)
⁴ Booz&co. Taking wealth management digital (2013)
⁵ Accenture. Beyond Trust – Build lasting relationships and brand loyalty by delivering superior client experiences (2013)
⁶ Accenture. Beyond Trust – Build lasting relationships and brand loyalty by delivering superior client experiences (2013)

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