Industry marvels at rise of the ‘Superbanks’

We are entering a new era for the $20tn (€15.6tn) global wealth management industry. Only a handful of institutions are likely to be big enough to compete globally amid the challenges of regulation, economic constraints and a new breed of educated consumer.

PWM’s Global Private Banking Awards’ judging process is witnessing the gradual rise of the ‘Superbanks’ and contenders for this title will likely include UBS, Credit Suisse, Royal Bank of Canada and possibly the likes of BNP Paribas.

Coupled with global reach are the levels of necessary technical innovation, as we approach a tipping point. For several years, the industry chose to ignore clients’ preferences for new channels of communication.

Now there is much lost ground to make up as banks struggle to rebalance their resources. The breakthrough which banks are seeking in the next decade will be around linking demands and actions of clients to costs for the business.

“The year 2015 will be the start of a decade of development around understanding the relationship between client engagement and adviser productivity,” states Seb Dovey, co-founder of wealth management think-tank Scorpio Partnership.

With 25 global operators controlling 80 per cent of assets, regional players may struggle to approach ‘Superbank’ status, although developing a cost-effective cross-border digital solution remains a viable shortcut.

The technology of investing is also improving fast. Private banking was until recently a backwater. At best it was an experimental landscape where prototype institutional technology could be road-tested or rolled out. At worst, bank bosses saw it as a distribution channel for investment banking products. But in the latest era, wealth managers are diversifying client-bases and branching out into the institutional space, attracting assets from pension schemes and sovereign wealth funds.

“They are leveraging their global brands to venture into what is a very demanding client segment,” says Amin Rajan, CEO of the Create research consultancy. This means banks are upgrading investment management capability – to embrace ‘smart beta’ and multi-asset strategies – and asset allocation expertise.

Of course, there are challenges ahead, not least from regulators and national governments. The US mission to reclaim taxes which were avoided by its citizens, with the help of European banks, is a case in point. But the US threat only helped accelerate a re-alignment of many banks from a domestic, secrecy led model to a more international, asset-management based business.

Feedback from clients is that their banks are actually performing well, against their expectations. Yet a deeper understanding of client needs remains necessary. “There is still a very big risk that the industry will hear a ‘good score’ and just decide to do nothing,” concludes Mr Dovey.

“Our insight is showing that there remain some deep structural weaknesses in the model of wealth management which suggest the market is just about ‘fit for now’. Our worry is that it is unlikely to be fit for the future.”