Evolving millennial and iGen client expectations are paving a new path for private banking
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This year’s WealthTech Forum in Geneva had a clear message for Australian wealth managers: it’s time for change.
The reality is that wealth management and private banking across the world has not yet started focusing on millennials or iGen clients who will completely transform the business model needed.
The changing landscape for tech-focused private banking services is an excellent opportunity for Australian providers who are increasingly stepping up to the plate to compete directly with Swiss and other private banking institutions.
Australian mid-to-high income families have significantly increased their wealth over the past 30 years and the desire to preserve that wealth for generations to come is more relevant than ever. Personalised and trusted relationships coupled with access to all asset classes across all global regions are key to long term wealth management.
For example, it is standard practice for a Swiss private bank to offer its clients accounts in five to 10 currencies with the investments held in those underlying currencies being managed as a natural hedge whilst taking advantage of the underlying economic conditions in the various regions. Australian private banks have taken notice and it’s only a matter of time before they follow suit.
Per capita Australia is one of the wealthiest countries in the world and there are a total of $26 billion in assets under management by private capital funds in Australia, the latest Australian Private Equity and Venture Capital Activity report figures show.
With 1,596,000 people in the top 1 per cent of global wealth holders, Australia has the fourth highest proportion of representation with those with wealth above US$100,000 – at 67% – while being home to just 0.4% of the world’s adult population.
Out of these, Capgemini found Australia had a total of 278,000 high net worth individuals, who had investable assets of US$1 million or more. What’s more, figures from Credit Suisse show average wealth per adult across Australia totalled US$411,060 last year – the second-highest in the world after Switzerland.
And yet the reality is that in 2017, just seven per cent of Australian high net worth individuals were found to have had a private banker. This poses a stern challenge for our domestic crop of private banks but the underlying reason is no secret: our investors are increasingly focusing their attention abroad.
As a result, private banks all around the world are adapting to service the global investment needs of this burgeoning class of high-net worth individuals.
One key trend that we have seen emerge in Australia over the last few years has been the rise of neobanks in the retail banking sector that have catered for an increased consumer appetite for instant financial access and visibility by providing bespoke digital solutions aimed at capturing the traditional incumbents’ market share of millennial customers.
The successes of Volt, Xinja, and 86400 all point to the appetite there is for contemporary digital banking services in Australia. There is no reason why many of the solutions these neobanks provide can’t be adapted to the high net worth segment and rolled out as digital private banks, servicing their customers in increasingly personal ways by using data and machine learning to determine patterns in investment behaviours to then interact based on what customers value most in real time.
We could see the development of multi-currency and multi asset-class digital offerings providing access to truly global investment services which would allow high net worth Australians to unlock investment opportunities in emerging and established markets far beyond our shores.
Coupled with portfolio optimisation tools driven by artificial intelligence, blockchain-based products and tools and other WealthTech innovations, the opportunity for a re-engineering of banking for younger high net worth individuals is on our doorstep.
The coming generations, both millennials and to an even larger extent iGen, will place far less importance on face-to-face personal relationships. They are much more likely to interact through electronic means and place their trust in peer opinions rather than having direct contact with a specific person.
These shifts in the individual traits, the demographics and personal preferences of these clients – who are due to become the two wealthiest generations in history – means they are now expecting very different things from their private banking and need to be communicated with in a different way.
Australian private banking recognises the challenges the industry is faced with and is well-placed to adapt. Advancing towards the level of sophistication that clients have been trending towards requires a strong commitment to innovation, particularly as industry participants eagerly look to capture the interests of this growing swathe of high net worth individuals.
We need to be developing strategies centred on communicating with private clients in a sophisticated, digital way – leading with a forward-thinking approach towards meeting the changing expectations and personalised financial needs of a burgeoning millennial and iGen customer base. Only then can we hope to retain the services of such an integral part of our growing investment community.