Agefi Luxembourg - Janvier 2022

Janvier 2022 11 AGEFI Luxembourg Economie / Banques P rivate banking has been at the heart of the financial sector in Luxembourg for almost five de- cades. With a relentlessly growing private wealth management indus- try crossing in 2020 the psychologi- cal threshold of EUR500 billion assets under management (AuM), it’s one of the most renowned Euro- pean hubs in the world. During these years, Luxembourg private banking has, of course, gone through a large number of transformations, all headed towards enhancing the professionalization of the sector. This has, de facto, compelled the sector to raise the bar even higher in terms of product offe- rings, professional skills and competences, and cus- tomer experience. In light of the significant development of the sector and the various transformations that have taken place, the Luxembourg Bankers’ Association (ABBL) and KPMG Luxembourg have initiated a study assessing the development of the private banking industry inLuxembourg and the perform- ance of Luxembourg-based private banks. This re- search provides an analysis of 40 private banks on data ranging fromassets and liabilities distribution, income and cost structure, FTE allocation, service offering, operating model and sourcing to regula- tory key performance indicators (KPIs). Jean-Pascal Nepper (picture), Partner, Head of Banking & Insurance at KPMG Luxembourg ex- plains: “Over the years what is expected from the private banker and more generally the private banking sector has tremendously evolved – new needs, new products and positioning as well as new talents. While the sector is known as a tradi- tional bulwark against frivolous trends, I was happy to see bankers beingopen tonewtrends and innovation to better serve their existing and new clients. There is in Luxembourg a real breath of fresh air that will certainly sustain the competitive- ness of the market to put the country even further at the center of the private banking worldmap”. PierreEtienne, Chairmanof theABBLPrivateBank- ing Cluster remarks: “With the majority of private banks part of our Private Banking Cluster, we have a unique access to current data and trends. The ABBLconducts regular surveyswithmembers, and by monitoring this data closely and sharing the re- sultswithourmembers, theyare in thebest position to take decisions on future strategies and issues.” A consolidating private banking sector in Luxembourg The net number of private banks in Luxembourg — taking into account mergers, wind-downs and new entrants — decreased by 18% between 2015 and2020.While the total figure has been stable over the past two years, it is likely that this downward trend will continue in the future. The decrease can be explainedby a number of factors, all alignedand associated with the necessity for private banks to have a larger critical mass in terms of assets under management (AuM) and a leaner operatingmodel allowing for amore balanced cost-income ratio and, hence, a sounder financial performance. More than a decade of AuM growth and an accelerating trend As a result of 12 consecutive years of growth, the Luxembourg private bankingAuMreached a total of EUR508 billion at the end of 2020 —more than double their 2008 level. Luxembourg private banks have been accelerating their transformation processes and have heavily restructured their go- to-market capabilities, including upskilling and/or engaging more highly skilled front office staff with an enhanced sales mindset in order to reach a different, wealthier category of (U)HNWIs. In addition, as a result of Brexit, Luxembourg emerged as one of the favored locations of UK- based private banks. This concentration of the best private banks in Luxembourg gives a real credi- bility to the financial center: the best attracts the best and clients feel all the more secure. The Luxembourg private banks put to the test A new skills-led approach needed Luxembourg attracts an active, mobile and de- manding international clientele. To satisfy these clients, private bankers need to dis- play awide range of skills that goes beyond the mere provision of in- vestment advice. Aside from this, private banksmust also attract the right talent. As the search for top talent becomes increasingly com- petitive and job seekers havemuch more control, employers have no choice but to stand out from the competition. Today’s workers are looking for more from their jobs: they are looking for a way to make a mark on society. A shift in the invest- ment service offering The industry has been shifting towards a fee-based model, where private banks charge clients directly for investment advice. This trend hasn’t yet showed its full potential, as a large proportion of 2020AuM still remained in cash or execution-only services. Furthermore, integrating private equity invest- ments into private banks’ offering has become es- sential to meet clients’ changing needs and expectations. Private equity investments represent a unique opportunity for private bankers to fur- ther enhance the added value they offer their cus- tomers. Customers’ demands have also changed over the last few years, with sustainable and ethi- cal investments, and investments focused on very specific sectors or startup companies, increasingly being requested. Importance of digitalization and ESG on the rise Bankingprofessionals have put sustainable finance at the top of their agendas and are now moving fromdefining their environmental, social and gov- ernance (ESG) ambitions to the operational process. Since the 10 March 2021 entry into force of SFDR Level 1—the first step in the rollout of the Sustain- able Finance Disclosure Regulation (SFDR) — there’s an increasing demand from customers for sustainable and responsible financial products. Overall, the main challenges will lie in dealing with the flow of non-financial information and having to implement a strong ESG data manage- ment system, along with the related governance. There will be a need to understand clients’ de- mands and to translate them into concrete invest- ment decisions. Last but not least, faced with an unprecedented crisis over the past 18 months, private banks have been compelled to accelerate some of their digital projects that were quietlywaiting in their drawers. However, aswe all know, private banking remains an activity very much centered on people and re- lationship management. Although digital can undoubtedly help, human interactions will remainmore important than ever tomaintain a customer experience of high quality, thereby ensuring strong client loyalty and advo- cacy in the long run. More on the results of the survey : https://home.kpmg/lu/en/home/insights/2021/12/private-banking- report-2021.html Private banks put to the test to adopt future trends to maintain strong grip in Luxembourg