Adrian Leuenberger, a member of the management board of Banque Internationale à Luxembourg, discusses the current challenges in private banking, consolidation in the industry and setting BIL apart as a boutique solution provider to clients.
I’m very pleased to be able to say congratulations to BIL and to yourself, of course, for winning two awards. The Private Bank of the Year and Innovation in Retail Banking in Luxembourg. And so many congratulations indeed. And your awards.
Thank you very much.
Excellent. We are very proud to receive this award. This is the first time. I hope actually we will have this award every year going forward. And many more to come. So again thank you very much, and we will cherish it for sure.
Thank you. I appreciate that.
So, Adrian, once again congratulations on the awards.
Thank you very much.
What are your plans to expand the footprint of services that BIL currently offers? For example, would you like to expand geographically? And if so, how do you set about that?
Well, we have actually expanded geographically quite some time ago. As our name says, Banque Internationale a Luxembourg, we are an international bank. As a matter of fact, the majority of our clients are not Luxembourg-based clients. They are international clients. We have started to expand. We have locations in Switzerland and Denmark and Belgium, in Singapore and now in Dubai, where we just opened about two months ago. But we have also decided that we have to focus. So in terms of further expansion, I think we will keep it with that footprint in terms of geographic expansion. But in terms of services and solutions for clients, of course, we are always looking for innovation, and this is a continuous process.
And that innovation is going beyond the day-to-day banking business. It’s about creating real value for your customers.
Correct. It is all about bringing solutions to clients. And we are not a…we are a universal bank, but we are not a huge bank. We are a good-sized bank. We see ourselves more as a boutique. So our strength is really to see what’s out there in the market in terms of innovation and bringing it through our bank, repackage it and actually bring it to our clients.
Now Luxembourg is kind of known as a global hub of private banking and wealth management. But how do you cater to the very diverse demands from across the world? As we become kind of more globalized and interconnected, have you found any kind of convergence of demand from the clients that you work with?
You know, it’s actually quite interesting. Originally I came from Switzerland, I came from Swiss private banking. And it’s quite interesting. We used to go out in the world. We used to sell our services and say, you know, “You have to bank with Switzerland. It’s in the center of Europe.” It’s not in the center of Europe. I apologize. It is not part of the EU. It is a triple A country, etc. And Luxembourg actually has a lot to offer as a financial center. It has an amazing amount of skilled workers. In some areas, much more than Switzerland to a certain degree. And it is not as well known worldwide with the ultra-high-net-worth segment as, for example, Switzerland. But exactly that’s what makes it very interesting. We opened up an office in Dubai not very long ago, and people there don’t really know where Luxembourg is. But if you explain the fact that it is the gateway to Europe. It’s a triple A country. It’s one of the largest fund administrators in the world. And people start listening. It’s actually quite interesting how you can sell the location Luxembourg.
And apart from the location, what do you think are the products and services that make those stand out from its competitors in the private-banking, wealth-management marketplace? How do you set yourself apart from the crowd?
I think we try to set ourselves apart from the crowd. One has to see that this is not an easy task to do. I mean you ask every bank, and every bank says that it has competitive advantages. However, we see ourselves as a boutique, as I mentioned earlier. We are not a product seller towards the clients; we are a solution provider for our clients. We have an area of specialists in terms of tax planning, wealth planning, setting up structures, corporations, etc. All different types of activities that we can bundle and basically provide the client with a solution. I think a lot of banks don’t do that. A lot of banks are basically selling their products. And we try to listen to the client and come up with a solution that fits in best.
Thinking about that kind of solution-based approach, one of the things I noticed is that young people get mentioned in terms of the people that you are focused on. Now give me an example of the kind of solutions that you offer for young people.
Well, for young people, I think…we focus on young people, of course, in our retail network in Luxembourg. Less on the private-banking side, obviously. So for the private-banking side, I don’t think we have a specific offer for young people.
But nonetheless thinking about the kind of journey from cradle to grave in terms of what you offer people.
Ah, OK, I think what we are focusing on…we are focusing on the next generation. If you look at the statistics in private banking—and this is worldwide, especially in the offshore private banking—the average age of the client is between probably 65 and 85. That is the reality. And we as a bank, we have to focus heavily on trying to capture the next generation, or even the generation thereafter. And this is not easy to do to a certain degree. Because the whole nature of our business has changed over the last years. Ways that we are doing it, of course, are with innovation and IT. We’re not the only ones out there. We have all the applets that you need nowadays. But also secondly what’s even more important is we have access to, direct access to, be it investment advisers, be it to ICIO, etc. So the young generation wants to be more involved. They can actually talk to investment professionals. Not just relationship managers, who in the past went for dining and wining, but really to people who know the markets, who know what’s going on out there. So we offer this access to those people. In a very personalized fashion.
And thinking about kind of the broader market in banking within Luxembourg itself, how do you expect it to develop over the next few years?
I think we will see a consolidation with various banks. You see, a lot of larger places in Luxembourg are potentially divesting certain businesses, also in private banking. So I think there will be a consolidation. In terms of a financial center, I think Luxembourg will remain being very strong, especially on the fund-administration side. But also on the private-banking side. And the reason is quite simple. You have a country with roughly not quite 500,000 to 550,000 inhabitants with a high dependency on the financial-services industry. So that concentration you don’t see in other countries. You have a regulator who is very close to the business. You have a government who is very close to the business and very accessible. I was just at the opening of our Dubai branch, and the finance minister was there for a press conference. So I think it is the speed of making decisions. It’s the access to the regulator. If you launch new products or new solutions, and you need to have regulatory approval, you can do this in a very fast and efficient way. And I think this is important in today’s world with everything changing in the regulatory environment.
And thinking of the kind of environment over the last few years since the challenges that we’ve had, how has the bank dealt with those in Luxembourg? And how has Luxembourg itself dealt with that kind of development from the very difficult times that we had?
Well, I think Luxembourg, not just Luxembourg, but Luxembourg being one of these traditional off-shore banking places, same as Switzerland to a certain degree, Monaco, or Gibraltar and also London to a certain extent. I think over the last years there has been a shift in terms of, a shift of clients, to a certain degree. In the past, there has been…one of the purposes to have money in offshore places was probably to avoid taxation to a certain degree. I think those times are 100 percent over. It doesn’t exist any more. But this cost a big shift in the way the bank had to be operated. In the past the bank did not have to be too efficient because the margins were very high. And also here it’s not just a regulatory environment that has changed, but it’s also the financial markets with record-low interest rates. I always talk about the perfect storm that the private-banking industry is in. You have record-low interest rates that hurts the profitability. On the other hand, you have a shifting client base. And to make things even worse, you actually have less revenues from the client. So within this process, I think you have to become very efficient and smart. You have to become…you have to outsource certain functions. You have to ensure that your IT systems are very efficient. But at the end of the day, clients still are asking for service, and even more service, so you have to add costs in terms of foreign-tax regulations, tax consulting and all these aspects. They were not necessary in the past. But nowadays they are necessary. So it is a very difficult time for banks. And I have to say, though, that BIL is faring very well .We have managed over the last couple of years to increase our profits nicely. Our business is growing. We actually gain in client assets every year. So it’s actually a nice picture for us.
In thinking about, you mentioned Dubai, and the new office opening there, are you looking to expand into some more niche areas? For example, the whole area of Sharia banking. Is that an opportunity that you’re looking at?
Well, I mentioned earlier that we look at our business as a boutique approach. A solution provider. And, yes, we do. We’re talking to clients in the Middle East, and if there’s a need for a Sharia-compliant investment vehicle, we can provide this. And we will provide it. But at the end of the day, it’s all a matter of scalability. You have to specialize, focus, but if you want to be a solution provider, you just have to make sure that you get the right components. You don’t want to manufacture every little widget for your product. So here again it’s finding the right balance. And we just formed a couple of months ago a new unit called Product Management. It’s within a new division that is called Products and Services that I established about a year ago. And within this, we have a product-management unit. We have the specific task to provide solutions, bundled solutions, for clients. Now listen to clients, listen to client advisers, listen to our financial specialists. Looking out in the market, and also looking at market trends. And come up with ideas and solutions. And it could be a Sharia-compliant product, or whatever is out there that makes sense.
But again that’s the challenge, isn’t it, between the kind of, if you like, the electronic, technological solutions and the face-to-face advice. Packaging things up, customizing things. How will this affect private banking, that balance between those two in particular?
You know, there are a lot of books written about this. And I think you have to…let’s start with retail. I think the retail’s all about the digital revolution. In my opinion, in the future, you will not go to a retail outlet. You will do it all online. With private banking, I have a different opinion. I use myself as an example. I used to have a trading account with one of the large online traders. I thought to myself, I don’t need any help. Everything is in there. You go on. You have nice research, you have everything. But there is still the human behavior side to it. And the average person is not a good investor. He is not self-driven. He may need access in terms of accounts to do payments. But to get financial advice by the Internet, I think we still have a long way to go. I think people need and people want the human interaction. If they buy into a stock, and the stock is not moving in the right direction, if they just look at the computer screen, they may need a trader to push the button and sell it at the wrong time. But if they can talk to somebody, get advice…sometimes you get comfort or get rationale behind it. I think this is a service that will continue to be very important in our industry.
In terms of wealth management, the other big issue facing the whole sector is regulation. Any views on where you see the regulatory spotlight falling over the next year or so?
Well, I hope it’s not going to increase even more. I think over the last years, maybe also due to Lehman’s collapse, Madoff, I think the regulators started bringing out new regulations on a regular basis. At the end of the day, these regulations hurt the client. They don’t necessarily hurt the bank. For us it’s a matter of implementation. It’s a matter of IT. It’s costly. But at the end of the day, I believe that the client is hurt because it limits the choices the client has. The client is more and more burdened with that administration. We are obliged to ask him much more background information on his financial needs, etc. So clients don’t like this. So I believe that we have maybe not reached a pinnacle, but there has to be a little bit of liberalization going forward in terms of regulation.
And Europe, of course, sits at the heart of a lot of that regulation. And we’re still recovering from the worldwide financial crisis. What’s BIL’s view about the economic outlook for 2015, particularly in terms of investments that might do well?
Well, I’m not the CEO of BIL, unfortunately, but I think if I look at the current situation, especially potentially running it in a different deflationary environment with ever record-low interest rates…amazingly, the United States seems to be on a path of recovery, which is quite interesting. I’m not too optimistic for Europe in 2015. I think if it goes through vast structural changes, the quantitative easing that is ongoing as we talk, potentially it will put even more pressure on the euro. So I don’t have a crystal ball in front of me, but I would say that it will not be the easiest year.
You’re in banking. How did your career actually begin in banking in the first place?
Well, actually, I didn’t start my career in banking, as a matter of fact. I started my career with the largest food company in the world, with Nestle, in marketing in Japan. But I draw a lot of similarities to private banking to a certain degree. Now this may sound totally ludicrous, but I always tell people, if you know how to sell a Chinese housewife a coffee, you can actually promote financial solutions to ultra-high-net-worth individuals. At the end of the day, it’s the same process. So I know a lot about marketing product management, how to create a need for something, how to advertise it to a certain degree, and especially how to be efficient. If you look at these large consumer-goods companies, they are absolutely amazing. They are efficient. They have to be. Because they have big margins. If you look at banks in the past, there’s no industrialization, there’s no efficiency. Because there never had to be. But right now we’re in a period of change, and the banks have to become more efficient. So I can draw actually a lot from that experience in my earlier days.
And do you think that experience has helped you particularly on the client focus that you bring to your current role?
Probably less on the client focus. After my consumer-goods experience, I went to business school and worked in private equity and in corporate finance, investment banking, in New York and partly in Switzerland. And I think that helped me a lot. I gained a lot of know-how. Especially now if I talk to clients. I talk to ultra-high-net-worth. I talk to family offices or family-owned companies. I know how to speak their language. I know what their problems are. I can talk about other things than just the stock market and the bond market. I can talk about corporate-finance transactions, potential needs. And I think that helped me quite a bit. In addition I’ve lived on several continents. Our clients are not Luxembourg clients. They come from pretty much every country of the world. It’s also great experience having lived and worked outside Europe for a significant number of years. It actually helps me quite a bit in dealing with clients.
With that kind of experience and that background and that insight as well, what were the major challenges that you found when you arrived at the bank itself?
Well, the major challenges to a certain degree—challenge is a strong word, I guess—the interesting thing is, if you look at BIL, a very large part of our bank is private banking. A very large part of our clients are non-Luxembourg clients. They are international clients. But the bank thought of itself as a Luxembourg, pure Luxembourg bank. So the biggest challenge is really to bring in a little more of the international side to the business. And this is quite interesting to see now. I hired…I changed the entire organization over the last year and a half. A new organization. Hired a lot of new people. Of course, promoted also some people who have been with the company for a long time. So for the first time we really have a mix of new people. And it’s interesting to see the new dynamic, the way we discuss, the way we approach issues. And I think bringing in new people but also empowering people who have been with the bank for a long time, having that healthy mix, is the biggest challenge.
And thinking about bringing in new people, what are the values you are looking for? When you are trying to get people to support change and innovation and development, what are the values you seek out?
I think what’s important for me is…I always tell my people, we don’t have to become friends at work. I respect everyone’s private life. But there are a couple of principles that I would like people to follow. I would like people to take responsibility; I want people to make decisions; I want people to be accountable for their decisions; I want people to make mistakes—just not big mistakes—but make mistakes and learn from mistakes. And I want transparency. See these are all the little buzz words that I’m repeating on a constant basis. You need to have an environment where people can openly talk. You need an environment where people can make mistakes and learn from mistakes. I want people to make decisions, which I think is not always that easy. Because a lot of people are afraid of making decisions because it may be the wrong position, the wrong decision. So this is really a cultural change. And I think this is the biggest challenge for sure.
And in conclusion, what new private-banking and wealth-management services will you offer clients and customers over the next year?
I think there is a lot of innovation out there. I don’t have a specific example. But as I mentioned, we’re setting up this product-management group. And I talked to the guy who’s running the Products and Services unit. I told them, “I think we really should be innovative; we should come up with ideas”. I want to have ideas. I want to have solutions for clients that nobody knows about. I don’t want to be at the bleeding edge of technology, but on the leading edge. And I think it’s quite exciting. This little bank in Luxembourg in the center of Europe carrying an international name but having some locations outside. But if we manage to bring intelligence into the game and provide solutions that are innovative, of course, and generate performance. I mean, without performance, I don’t think clients are happy. I think you will hopefully hear quite a bit about that in the future because that’s where we’re investing in quite heavily.
Well, we look forward to watching that story evolve over the next year or so. Thank you very much for your time.