Julius Baer takes top down approach to innovation

A leader with a clear strategy on how to use technology to achieve their firm’s ambition is an important asset for any organisation, but even more critical at old, traditional private banking institutions, badly needing to accelerate their push towards digitalisation and migrate legacy systems to modern ones.

For most observers, the 133-year old Swiss bank Julius Baer, located at the heart of Zurich’s premier high-end shopping and banking boulevard of Bahnhofstrasse, is the epitome of such a firm. 

“The drive towards innovation and digitalisation should first and foremost come from the needs of our clients,” says Nic Dreckmann, chief operating officer (COO) and head intermediaries at Julius Baer.

While advisers’ personal relationships with clients will always be key to successful private banking, digital innovation brings both change and opportunities, he says. “Not only is technology playing a bigger role in our client’s lives today, but it’s also an indispensable support for our relationship managers and makes our business even more effective and efficient.”

While the accepted wisdom at many bigtech firms is that innovation must come from the grass roots, Mr Dreckmann is convinced that in banks, a strong, top-down leadership is key to both setting strategic objectives and inspiring an atmosphere of “structured serendipity”, to make space for creative thinking.

“Effective leaders need to be able to inspire and motivate colleagues to think creatively and take risks, while providing the necessary resources and support to turn innovative ideas into reality,” he suggests.

Decentralised and virtual teams work best, he believes, combined with “centralised technology execution” as they can thrive by adopting a ‘try fast, fail fast’ mindset.

Julius Baer, which manages SFr429bn ($471bn) in client assets, has upped its technology investment by SFr400m for the 2023 to 2025 period, although it is not able to share details of the total budget. The bank aims to utilise this spend to make operations more efficient, empower relationship managers (RMs) and deliver a ‘digital first’, hybrid client experience.

Among other initiatives, Mr Dreckmann highlights Baer’s digital Advisory Suite, which helps RMs select suitable products for clients in compliance with regulation, the “modularisation” of its IT landscape and the construction of its “data DNA”.

With Target Insights, an in-house ‘corporate start-up’ consisting of cross-functional internal employees, the Swiss institution has created “the culture of a technology company within a bank”, to enhance client servicing with artificial intelligence and lead the modernisation of the wealth management business, says Mr Dreckmann.

This initiative follows the industry trend of building a team of tech-savvy specialists, instead of transforming the entire culture of a bank.

The focus on client service, and hence on the front-office, is at the core of the private bank’s digital strategy. But that implies investments on the middle-and back office too. “A well-calibrated investment strategy based on front-to-back impact is crucial,” he adds.

The cost of digital transformation must also be minimised by applying a cost to impact ratio for every investment and measure it continuously, explains Mr Dreckmann.

Tech tribulations

But these projects are not always plain sailing. Mr Dreckmann admits that he has seen digital transformation fail to drive results in the industry, when objectives are not clearly articulated and measured on an ongoing basis.

“It is also detrimental to focus too much on generating new ideas, prototypes, and MVPs [minimum viable products] instead of scaling and implementing in the real business environment.”

The other key challenge is knowing when to update systems and services and how many resources to allocate to each stage of the project.

“We need to continuously assess technologies and be willing to make course corrections or adopt new technologies when they become relevant, and not just look at sunk costs,” says Mr Dreckmann. 

His managerial insights come from having worked in a variety of roles within the bank since he joined almost 20 years ago. His journey started in business development and took in roles as chief of staff, heading the integration of the Merrill Lynch IWM business into Julius Baer and overseeing the joint venture with Thai Siam Commercial Bank.

More recently, he led the firm’s core-banking migration to the Temenos system in Europe and Asia, the implementation of the Crealogix Digital Hub in Switzerland and partnership with SEBA Bank to offer digital assets. Driving the bank through the Covid-19 pandemic, he demonstrated “agile decision making”, says a wealth management consultant.

Start-up action

While he often structures things differently to external innovators, Mr Dreckmann also sees bigtech firms as an important source of ideas. “There is no question that what clients experience in bigtech apps becomes the new baseline for their expectations also towards a bank, and we need to gain inspiration from them,” he says, always learning from how bigtechs “encourage a culture of innovation with a mindset ‘to try fast and fail faster’ from every aspect of the organisation.”

Collaboration with start-ups is also crucial at Julius Baer. The bank is a founding member of Tenity, a global start-up incubator and accelerator, where it has run several POCs (Proof of Concepts) with start-ups.

 “It’s very important for us to keep an open mind as they bring us access to technology, new ways of working and help us find innovative ways to solve some of our most pressing pain points,” he says.

But to embrace this innovation, it is necessary to take risks and accept failures. “Only one in 10 innovation projects are successful and most get stuck in the POC phase,” he says. A POC helps validate the proposition, while minimising the risk and impact of failure.

In 2021, the bank set up Launchpad, an innovation lab in Singapore, encouraging collaboration globally among colleagues, clients, partners, start-ups, and experts “to develop and test disruptive solutions faster”.

To hedge against risks and failure, the lab takes a portfolio approach, running four to six innovation “experiments” at any point in time, from tokenised artwork, digital client communities to partnering with next generation clients “on the co-creation of a sustainability venture”, he says.

The journey towards digitalisation also involves overcoming ongoing challenges, he adds, including facing employees’ reluctance to change, acquiring proper digital skills and expertise, and being able to make significant investments in technology and infrastructure. Data privacy and security, as well as regulatory compliance issues, are also key hurdles.

Clouds and chains

He expects new technologies will have a big impact on digital transformation. Beside cloud adoption, he highlights Generative AI, which can provide “faster access to information and curation of data and opportunities on a nearly endless scale”.

Generative AI will be the differentiating factor in the future, not just for private banks for but any organisation, says Mr Dreckmann. “We are in the middle of an arms race to see who can figure out how best to leverage such technology.”

In wealth management, notable use cases may include leveraging AI to improve client servicing, risk management, fraud detection and anti-money laundering. But there is still a general lack of understanding around the “black box” producing the output. This is a challenge that needs solving before AI can be adopted “on a greater scale” within Julius Baer.

The use of blockchain technology is also likely to be fundamental in future, enabling frictionless settlement within the industry, automation and streamlining of back-end operations processes, and even overhaul of wealth transfer via smart contracts. Data analytics and ESG-related technologies, such as the Internet of Things, will also be influential in the future, he predicts.

Industry analysts praise Julius Baer’s COO attitude to innovation and leadership skills. “Mr Dreckmann’s analytical mindset and continuity in leading positions at Julius Baer have been a major asset for the firm’s drive towards digitalisation,” says Alois Pirker, founder of wealth management consulting firm Pirker Partners and PWM wealth tech awards judge. Mr Pirker believes “true digital innovation requires business model change and business process reengineering, as much as new technologies”.

Mr Dreckmann’s ability to innovate on a continuous basis will come in handy after the demise of Credit Suisse, predicts Mr Pirker, laying the ground to elevate the bank to the top tier. “While Julius Baer is a magnitude smaller than UBS, it now has the opportunity to become the chief rival of UBS.”