AGEFI Luxembourg - février 2024

Février 2024 17 AGEFI Luxembourg Fonds d’investissement By Vanessa MÜLLER, Partner and David LAHIANI, SeniorManager, Consulting, EY Luxembourg W ith assets undermanagement (AUM) totaling EUR600 bil- lion in the private banking sector (1) , EUR5,285 billion in invest- ment funds (2) , and severalmajor ban- king groups that have established their hub for Private Banking here, Luxembourg remains themost important hub inEurope for wealthmanagement. The in- dustry, however, is going throughdynamic transforma- tions. Clients are growingweal- thier, expanding their interna- tional horizons, improving their finan- cial awareness, anddemandingmore in terms of products and services. These factors have opened opportunities for alterna- tives to current wealth management providers. Knowing that 45% of Luxembourgish wealth man- agementclientsarereadytochangetheirproviderfor a differentiated product offer and service channels, determining the optimal positioning of Relationship Managers, and refining the client value proposition shouldbe a priority for everywealthmanager. The shifting landscape ofwealth management inLuxembourg Asaninternationalfinancecenter,attractingavariety of high profiles individuals, the country has seen a strong diversification of clients in recent years. The numberofnon-Luxembourgishresidentshasalmost doubledinthelast20years,from162,000to304,000 (3) , not counting the 220,000+ cross-border workers (4) . This has equally contributedpositively toadiversifi- cation of viewpoints and expectations of servicing standards, reflecting how other countries serve wealth management clients (e.g. Asia, Middle-East, South of Europe). Furthermore,wearecurrentlyattheedgeofatremen- dous generational shift inwealthmanagement, with the average “baby-boomer” clients starting to pass theirlegacytothenewgenerations.Onspecificclient- centricity-related factors, there is a significant differ- ence between generations. Millenials and Gen Z (respectively under 58 and 42 years old) clients are used to a seamless integration of the platforms and services they use. Consequently, they consider their wealthmanagement provider more in terms of how they can access a 24/7, global, diverse, and dynamic banking service, rather than under the angle of a tra- ditionaldesignation,includinginthegamefull-service providers andbig tech companies (i.e., GAFAM). Trustmaynot be enough Trust remains a paramount aspect for wealth man- agement clients. InLuxembourg, banks have histori- callybasedtheirrelationshipswithclientsonastrong personal bond fueled by high-quality advice and confidentiality, as confirmedbynumbers: according toEY’sGlobalWealthResearch2023, 83%of Luxem- bourgish clients trust their wealth management provider. However, in a period of high movement whereclientsarecontinuouslyexposedtoalternative banking products (such as technology, private eq- uity, art, etc.) and are now more willing to “shop around”, relying solely on trust may no longer be sufficient to retain them. Wealthmanagers need to stay ahead of their clients’ rapidly evolving needs and expectations To maintain high satisfaction levels, wealth man- agers must address clients’ constantly changing needs. This includes providing more personalized service, adoptinghybrid servicingmodel, ensuring fee transparency, and offering access to diversified portfolios. According to client feedback (5) , there is an increased appetite for more advice across segments. 69% of the Luxembourg clients seek additional advice, compared to 53%globally. This trend is highly vis- ible in the specialized services, with 86%of themil- lennials requestingmore guidance in this area. It is essential for wealth managers to tailor their offer- ings for a client-centric approach, where the capac- ity to leverage on data will be a key differentiator: transitioning from using data and digital tools for industrialization to tailoring purposes. Clients expect their entire customer lifecycle to be ac- cessible via digital platforms, from account opening to account management. Before COVID-19, it was considerednearlyimpossibletohaveaclientmeeting by video conference. Now, 63% 5 of Luxembourgish wealth management clients prefer virtual collabora- tionmodels for their investmentmanagement activi- ties and 70% desire account opening via digital platformsorvirtualcollaborationtoolssuchasavideo chat. While some banks are making progress with theirdigitalcapabilities,othersneedtobemore proactive tomeet these expectations . Amidst their need for digitalization, tradi- tional drivers for selection of wealth man- agers prevail, with competitive fees being among the five top drivers. While most clients trust theirwealthmanagers to charge fairly, 35%of themare concerned about hid- dencharges.Thisisprimarilynotableamongst millennials (71%) andmass affluents (73%). In light of recent market de- velopments, including un- certainties, inflation and innovations, both interna- tional and Luxembourg- based clients havediversified their risk exposure across a wider array of asset classes anddemonstrate increasedpro- ficiency in utilizing a diverse range of financial products. Whileproductsavailabilityandperformancesatisfac- tion are generally high, there is room to improve clients’satisfactionforinnovativeassetclassessuchas privateequity,ESG,digitalassetsandotheralternative investments. An impressive 87% (5) of the clients em- phasizetheimportanceofaccesstoproductspecialists. LuxembourgWealthmanagerscanoffertheextensive experienceandexpertiseofourhistoricalwealthman- agement center. As the wealth management industry tussles with a mixofrisingclientexpectationsandtechnologicalad- vancements, wealth managers need to evaluate the long-termneeds of clients and take swift actions. Tacticalmoves to address changing client expectations Moving to a seamless, fully integrated client journey, wealth managers’ benchmark should not be limited to the private banking industry, since clients expect level of services comparable to those provided by re- tail banks, fintech, big tech companies – and beyond that, an experience similar to the one of other parts of our lives (e-commerce, traveling, news feeds…). Wealth managers can draw inspiration from more tech-savvy organizations: - Platform approach: Digital platforms can combine traditionalwealthmanagementservicessuchasport- foliomanagement,financialplanning,andriskassess- ment, with a range of complimentary services including tax advisory, real estate management, in- surance, and even lifestyle services.An effective plat- form would help clients have an overview of their wealthmanagementanalyticswhileallowingthemto interact with their banker and receive personalized advice at all hours, transforming disjointed points of contact into a seamlessly integrated experience. - Leveraging AI to enhance customization: Cus- tomization is the key, however, delivering personal- ized services to an extensive client base can be both challenging and costly. By harnessing the power of ArtificialIntelligence,wealthmanagerscangreatlyen- hancerelationshipmanagement,realizingsignificant efficiency and time savings. From transcribing client conversationsandinterpretingsentimentstosuggest- ing real-time actions andproducts basedon a client’s unique risk profile, lifestyle, family situation, and in- vestment preferences, AI holds the potential to revo- lutionize personalization. To accelerate this client-centric transformation, there is an array of digital solutions that can be deployed short to long-term, ranging from simple quick-wins tomore complex approaches. - Short tomid-term: o E-signatures: E-signatures innewareas can signifi- cantlyreducetimeandeffortneededbyclientsaswell as contributing to an environmentally friendly busi- ness approach. This becomes even more important wheremulti-signersareinvolved,forexample,lifein- surance products. o Digital onboarding and omni channel models: Digital onboarding and omni-channel solutions en- hance client convenience, streamline processes, and provide a tailored, interactive experience, ultimately optimizing client satisfaction. o DataManagement: Bankshaveawealthofdatathat needstobestructuredforeffectiveinsightgeneration. With the increased need of personalization, wealth managers must invest in data management tools to streamline the data collected about clients and use it for tailoredpropositions. -Mid to long term: o WealthPlanningTools: WealthPlanningtoolsisan- otherlowrisk-highyieldsolutionthatenableswealth managers increase operational efficiency anddeliver enhancedexperience.Anagileandadaptabletoolthat offers solutions for asset planning while protecting againstever-evolvingregulatorylandscapecanclearly createmeaningful differentiation. o AugmentedRMthroughAI: TheadventofGener- ative AI announces a transformative era in wealth management. Far from replacing wealth managers, Gen AI augments their abilities, strengthening their aptitude to capture the Voice of Customers and im- plement critical hyper-tailored strategies and offer customizedsolutions andservices.According toEY’s 2023 Retail & Commercial Banking Generative AI Survey,67%ofbanks’executiveswillprioritizecross- sellingviaGenAI to enhance client satisfaction. As client expectations witness an accelerated shift, wealth managers have an opportunity to empower relationshipmanagerswithdigitalcapabilitiesandde- liver a client-centric and tailored approach that will allow the banker-client relationship to evolve and thrive.Inthewealthmanagementsector,thegoalisto maintaintheprivatebankerasthefocalpointofclient relationships, empowered by appropriate data and tools. Luxembourg’s clients’ expectations are no ex- ception to this evolution. 1)ABBL/CSSF Private Banking Survey 2021 2)ALFI, December 2023 3) Nationalities,, 2021 4)Moving across the border, LuxTimes, 2023 5) EY’s GlobalWealth Research, 2023 Enhancing Client Satisfaction through digitalization: The vital mandate for wealth management institutions the complete range of services for your sustainability journey your multidisciplinary team of experts