The changing role of banks for family offices

If they want to stay relevant.

Scott Webb talks about Unsplash

What people fear most is not change, but the potential costs associated with change, the psychological aversion that causes people to behave in ways they would normally not consider. This also applies to businesses. After all, companies are run by people who have a natural aversion to the losses that change brings, and this can become even more so as you move up the hierarchy of power.

As the next generation begins to gain influence and major changes are underway within the family office industry, it is not surprising that some of the more established players in the industry and surrounding service providers would resist this. It will be interesting to see how banks respond to the evolution taking place within their increasingly important customer segments, as this is often even stronger for larger and more established players.

One of the few insightful annual reports on the industry. city ​​private bank‘s Global Family Office Report 2023 (this year with a significantly larger sample set compared to previous editions) shows increased allocations to fixed income and private equity, a slowdown in direct investment, and a We highlighted some of the new changes, including how the office is focusing. For current macro-environmental reasons, asset management is more important than inheritance or family relationships.

But there are other impacts that the next generation will bring, and while some are subtle at the moment, we are already realizing how they will shape the industry in the coming decades and beyond. In a recent discussion with Hannes Hofmann, global head of Family Office Group at Citi Private Bank, he talked about how this generation is far less financially literate, many of whom have worked in the financial industry. He said that it is important to have a high level of They are also naturally tech-savvy, value transparency, and have strong beliefs about sustainability. These four factors will significantly impact how banks work with family offices, forcing them to evolve their services to remain relevant.

More than private banking

Family offices are strategically positioned to help banks move further forward, leveraging historical expertise to provide deeper insights, provide comprehensive wealth management, and add perspective on best practices within the private wealth ecosystem. We hope to become a discussion partner.

Its value will only increase as it moves beyond pure financial services to include established family offices as well as start-ups. A good example is Singapore. DBS Bank And we recently launched what amounts to an in-house collective office that provides a complete compliance and governance service to our clients. While there is no doubt that the provision of services is useful, the age-old question about principal-agents still remains. Can this become an organization that can provide truly independent advice when connected to banks?

Globalization comes standard

A more globally focused next generation will mean less adherence to a single jurisdiction in the way family offices are structured, and an increased need for fully globalized banking solutions. Banks with a global presence will be uniquely positioned to take advantage of this market, along with larger companies such as: JP Morgan Chase or UBS They have an advantage over smaller, niche banks.

While the demise of Credit Suisse has certainly shattered the perception that global investment banks are too big to fail, the element of trust in established family office banks remains strong, allowing them to manage complex financial needs across continents. For family offices that do this, they are bringing value.

technology is essential

Family offices will become increasingly specialized, from investment management to operational functions. Banks that understand how seamless integration with multiple service providers is needed and are open to embracing new technologies to achieve this will put themselves in the best position.

Major banks in Northern Europe SEB has long understood this, has taken a digital-first approach to its services and has been running its own digital innovation lab SEB-X since 2015. Now, the company’s Banking-as-a-Service offering not only works with external companies through SEB Embedded, but has actually integrated the same service into its own bank. As a result, SEB has extensive experience in incorporating AI into data analytics, service capabilities, etc., and offers an open banking platform that allows customers to manage their finances across multiple banks in one place.

Transparency creates trust

The Google generation doesn’t really care about opaque pricing models or shady contracts. We want to make it as easy as possible to directly compare services and prices online. And while this thinking drives the need for a clear pricing overview, it applies equally to the efforts that institutions make around sustainability.

The recent revelation that a major carbon offset project is completely worthless does not solve the underlying trust issues that the next generation has grown up with, and banks should not take a neutral position here. We need to realize that we are not starting from – banks are primarily viewed with prejudice and strong skepticism.

Taking a values-driven approach, like Swiss private banks, can reap big rewards. Lombard Odierbecame the first asset management firm to achieve B Corp designation, aligning their actions with the interests of their clients and turning sustainability into what they call “the greatest investment opportunity in history.”

intensive philanthropy

Once there was little need for effective measurability, philanthropy is changing, and banks responsible for these strategies are looking to replicate what companies with significant philanthropy are doing. You will need to do more than that. Family offices will benefit from banks that can provide tailored advice and help create a philanthropic approach that aligns with both current and future generations. “The next generation is concerned about where and how philanthropy is allocated. In terms of philanthropy, the next generation is much more targeted,” said Hannes Hofmann of Citi Private Bank. ” he says.

While there is no uncertainty as to the impact of this transfer of wealth to a new generation, the timeline and significance of key factors and how they will impact the banking industry are uncertain. It’s coming before our eyes, and it’s going to be interesting to watch. If the only constant is change, then banks that evolve their services to embrace the current changes in the family office ecosystem will thrive and prepare for the next changes to come.

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