Tech revolution accelerates private banking evolution

Yuri Bender: When clients look to choose a wealth manager, do they look at the breadth of technological services, including apps, interfaces, video conferencing, online trading and access to research, which are on offer from various providers?

Amin Rajan If I’m one of those clients, I would be looking for ease of accessing the information that I need. I want accurate, timely information. It’s amazing how many clients don’t receive this, because the technology systems in operation over the last 10 to 15 years are really old systems and many managers still use the old spreadsheet-type systems.

The second thing they want is education and guidance tools, which can really prevent them from making various common mistakes. And the third thing is help in terms of building portfolios and finding out the effects of different decisions they might make.

So there is definite interest in this area. But we’re talking about a nascent phenomenon, still in an early phase. Our research compared asset managers and wealth managers and wealth managers were further ahead, but both of them are really going into the digital age with what I call baby-steps rather than giant leaps.

Nicolas Commerot Digital transformation is not just aimed at clients, but also applies to staff; we have one philosophy at Société Générale Private Banking, which is that our staff must be as digitalised as our clients, and this is very important for us. Our new approach brings together not only experts from the business, but also IT specialists, digital platform builders and design thinkers into a small community to work on solutions. 

The second thing is we need to learn to fail, because the key thing about digital, which is very exciting, is that we don’t know where we’re going to end up, because everything has to be invented yet. So we know there will be great opportunities for both staff and clients, but we need to accept that sometimes we will fail. 

Graham Kellen We’re looking to remove the friction of a traditional process which may have not been able to move as fast as the client would like it. As you rightly say, the digitisation of a business isn’t just about the client’s view, it also concerns the employee’s view so empowering them enables them to do their job better. What we’re trying to do is add value to the existing service, which we will continue to deliver, but in a much more meaningful and relevant way both for now and for future generations.

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Gary Linieres I would add two additional layers on top of those points. We need to think about how to use technology to help acquire clients through proactive methods, through artificial intelligence, through data mining, through leveraging social networks of existing clients, which is not being done in wealth management at all, but is being done in other industries. I think this is the next wave, and that’s what we’re looking at. 

So once we have managed to digitise existing clients, we must look at digital social networks and social circles and how we might use them to help acquire a market of potential new clients.

Yuri Bender: I’ve looked at some of the apps and there’s one in particular where wealthy investors can come together to share details of their assets, allowing them to potentially co-invest or sell businesses or assets. Is there a danger that relationship managers can actually be dis-intermediated here and the clients will network among themselves and think: “Well, why do we need these guys in the middle who are trying to sell us products?”

Thierry Derungs This is really a big evolution; that application is focusing on some of the wealthiest, most precious clients we have, and they need to be able to discuss with their peers and do business with their peers. We need to take advantage of the fact that we are very well connected with those people, through their different relationship managers. Now we can help them to connect with one another and we can help them to build new business. And if they do new business, we are pretty sure they will continue to do business with us and that we will be involved in the deals or whatever they conclude between them. They will need, at the end of the day, a bank, and we would like, of course, to be the bank that they choose for that. 

But it’s a really important development that demands a mindset from everyone at the bank. We are not there just to sell our own products, it’s all about the relationship and not only the link from bank to clients but also between the clients.

Victor Allende We have developed the capabilities to help make the client self-sufficient with his or her wealth alone, using home banking, knowing that if he or she has a problem they can make a call immediately to their financial planner. We are growing those capabilities, but not just for managing the investment portfolio. It’s quite easy to just take the investment portfolio, then to telephone us and tell us to sell shares or buy a particular mutual fund. But once we add in the current account, pension plans and variable annuities on top of the investment portfolio, then it gets a lot trickier. The challenge, I feel, is not going to be just around the investment portfolio, it’s going to concern managing the whole wealth of the client and that is not easy to do.

Amin Rajan We are moving from a supply-driven to demand-driven industry. In that kind of industry, wealth managers really have to sit up and take notice of what it is their clients really want, the best form of engaging with them and how to really deliver value for money. Technology plays a very big role in this, with a new generation of clients coming through and the real transformational change in the industry will come with that generation. 

What we’re doing at the moment, with technology is a kind of “warm up” exercise, because clients have old habits and don’t take very easily to new technology. But that new generation have got digital instincts and are comfortable with using technology to make life decisions and that becomes totally transformational. So, technology is going to have a big impact, but that impact will be really felt 10 years down the line.

Yuri Bender: And when clients are making these major decisions, are private banks becoming increasingly worried about the paper, email or data trails which they need to be able to show at any time to compliance officers and regulators? Is new technology the safest way to prove this trail exists and be able to make sure relationship managers are effectively communicating and recording and acting on all of a client’s needs and wishes?

Gary Linieres It’s the only way to achieve this. And it’s a sort of double-edged sword, because regulation has brought the opportunity for senior management to re-institutionalise their clients. We started off as a CRM [customer relationship management] system for private bankers, each one of whom had 300 clients. There wasn’t anywhere you could go inside an organisation to see all the updated client data, because it was all in the heads and hearts of the investment managers. Now we have developed our role into client engagement and by dealing with regulation through technology, senior management can now actually see who their clients are rather than actually having to pander private bankers and hoping they will stay with them.

So it has to be done that way and there is no other way.

Yuri Bender: Has addressing the previously unwieldy ‘onboarding’ process been a core part of the private banks’ workload?

Nicolas Commerot ‘Onboarding’ in private banking is a very big challenge and we have two ways to look at it, either as a compulsory regulatory issue, where you do it because you’re forced to, or the second way, to make it an opportunity. 

You can try to leverage that specific moment when you onboard a client, which must be in private banking a ‘magic moment’ and where you and your client first share information. This information is the beginning of the story with the client and the partnership inside the private bank. The more information we have about our client, the more our clients are willing to share with us, the more we understand their needs, the better we will serve them. 

The role of a private bank is definitely not to sell a product and this is a switch that at Société Générale Private Banking we made a few years ago. Our job is to support our client over the long run, through different generations. 

Technology provides a great opportunity for us because it allows us to use information and communicate with clients more positively, through a channel we didn’t have in the past. It’s also a way to interpret data to identify trends on what clients want and show us where to prioritise our activities in terms of service development. So, instant access to documents and information processing will be a very strong trend in private banking, but there are also new technologies coming onto the market that will allow us to further expand knowledge of our client base and to reinforce our partnership with them.

David Howard We have been storing records digitally for some time and the challenge for us is: how do we improve on what we’ve had before? One of the issues we’ve seen is that although we were an early adopter of certain digital aspects, we failed to enhance them and keep pace with them. So, one of the things we are focusing on now is trying to pull all those strands together and make it a more enriching experience for the investment managers and for the advisers, because what we do know is that time is precious and access to information in a timely fashion is critical in order to make that client experience better.

Where we’re looking to improve is around the ongoing maintenance of data. One aspect is the onboarding of the client, which is obviously a micro-moment and, as Nicolas mentioned, it’s a magic moment to get off on the right foot, but it’s the ongoing maintenance of data which is a challenge as well and we are looking to introduce digital tools to help us perform that function in a more efficient way.

Yuri Bender: We all know what a challenge it can be when you’re trying to get access to your bank through a mobile device, then you get asked for a plethora of passwords, the third digit of a secret code number which you’ve long forgotten, or the second word of your previously-stated favourite film. 

Can biometrics put an end to all these problems; and how far are we, Gary, in that transition to fingerprint, voice and face recognition?

Gary Linieres I would say voice is starting to take root now in banking, particularly in retail banking, as will fingerprint, but it’s not really prevalent at the moment. In our industry, what Nicolas said was beautiful, it was poetic, it should be a magic moment, when you onboard a client, it’s more often than not a tragic moment. Our industry is so far behind in terms of the way it uses paper forms and mailing documents to people. 

So what you’re talking about in terms of biometrics is absolutely where we’re going to get to, but that is caveman to spaceman stuff. As Amin said earlier, this is still a bit of an experiment at the moment, there’s so much further to go in our industry. But for sure it will go that way.

Yuri Bender: Is there still a long way to go, in terms of biometrics at BNP Paribas, or are you almost there?

Thierry Derungs We have moved to biometrics in one country, but it is about to be deployed in other countries. It’s not one single solution, but a mix of biometrics, so we combine the fingerprint, facial recognition and voice recognition, to generate the security we need, because we don’t compromise and cannot compromise with security. Security is a must, confidentiality is a must. Everything is about trust, so you cannot afford to do anything wrong in that area.

Yuri Bender  We’ve discussed a lot of aspects of digitisation, but what are the key constraints actually preventing us from reaching the sunlit uplands?

Amin Rajan If you look at the history of early innovations, what you find is factors that slow things down, which we describe as ‘moderators’, because they really moderate the pace of implementation. We also talk about ‘accelerators’, which really quicken the pace and at the moment it’s the moderators who are slowing things down, mainly falling into two categories.

The first is the human/machine interface, which is taking a while to develop. That’s a factor, and inherent to technology, with nothing that wealth managers can do about it. But the other one is legacy and we have a lot of legacy systems which have proliferated over decades. Different technologies don’t really communicate with one another and systems integration is very hard. 

This new technology that we talked about is truly revolutionary, it really requires huge infrastructure spending. Many growth managers say: “Before we commit ourselves to these big bucks, we really need a strong business case.” So, there’s a tendency in this industry never to do anything until it’s tried and tested. So early mover advantage is not a forte of this industry. 

There is also another legacy issue, connected to ‘innovator’s dilemma’. If my business is doing well, I’m making a profit margin of 30 per cent and nothing is broken, why do I want to invest in technology or anything else for that matter? Why don’t I just be a fast-follower and wait for someone else to invest and take the plunge before doing it myself?

There are also three accelerators which are really promoting new technology. One is simply the rise of assets in funds, which makes sure costs are becoming a major differentiator in this industry in a way they weren’t five years ago. The second accelerator is the rise of millennials. To me that is really going to be a big game changer. And the third factor is really the societal attitude to digitisation, it is changing and more and more people are getting used to technology.

Graham Kellen There is an evolution in the transformation of financial services. They are moving from being discreet activities, through disruption, with different entrants coming in, to become more of an ecosystem. So, you have to recognise that and how these moderators and accelerators are very much at play. 

What firms such as Schroders are doing is moving to more agile working practices, looking at how we take the delivery of technology into the organisation. The evolution of this process is no longer big bang style, long projects, accompanied by big capital investments in one lump. We’re moving to two-weekly release cycles, looking at three-monthly horizons of the projects we’re running and are having daily meetings which include business stakeholders. 

So this old traditional way of running banking projects, of set the direction, put a big capital investment in, the tech guys go off and disappear and then they come back and say “Is that what you wanted?” – we’re not doing that any more, and I think that is the only way you can really manage the evolution of a direction of an industry that’s going through a huge transformation.

Yuri Bender: Do we need to take a more radical approach and say well, this machine learning, this artificial intelligence, we have to be playing in that field as well?

Victor Allende When you’re talking about private banking you need to be clear on one thing, and this is what I call the nuclear button. When you’re talking about a client’s wealth and you begin working with them and their portfolio, if you think six or seven questions on the internet will allow you to manage their wealth properly, then you are wrong. That is the nuclear button and if you’re going to do what that machine says after six or seven questions, then you are very wrong. You need a human for this. 

I don’t know if we will always need a human, but I will say that in the next 10 years, we will still need humans and hopefully always need humans, accompanied with great technology. But please don’t try to manage a client’s portfolio with six questions.