These are good times for private banks, although they are not, in themselves, the best. Uncertainty, already established as a constant, is key to explaining why private banking remains on the path of consolidation. It does so at a slower speed than in exultant previous years (in 2021 managed assets grew by 16% compared to the previous year, according to a report by the DBK Sectoral Observatory), but it is fit enough to challenge personal banking for a certain hegemony.
In the middle of a 2023 propped up by rising interest rates and inflation with no sign of giving a break, the investor continues to surrender to the tailor-made suit formula to protect their interests in complex times. Advice adjusted to the needs of each estate (and the circumstances) is sought -and valued- and the recipe that is obtaining the best results is the one that establishes a detailed follow-up, especially if we are talking about high estates.
Along these lines, a survey carried out by EFPA Spain -the Spanish Association of Financial Planners and Advisors- highlights the change of cycle, redefining private banking and personalized financial advice. In the first place, because 73% of the professionals asked consider that "clients now trust their financial advisor more than ever".
According to this association, which brings together more than 35,000 professionals dedicated to financial advice and planning in the country, this is not the only thing that is changing. The client, logically, is also more conservative, as stated by two thirds of the financial advisers surveyed (64%), more concerned with preserving capital than increasing it. On the contrary, 15% consider that, in general, clients opt for riskier investments, to try to achieve returns that offset inflation.
But private banks are fighting other battles, in addition to the increase in prices. In the first place, that clients perceive the added value offered by the advice. In fact, the sector is at the gates of a possible change in the remuneration model, with a European Commission that is studying the prohibition of retrocessions in member countries by identifying a possible conflict of interest.
In this regard, Pablo Torralba, CEO of Edmond de Rothschild in Spain, Private banking makes the flag of specialization to generate returns that allow increasing the wealth of its clients in times of persistent inflation is clear that "MiFID II has helped to increase cost transparency with customers. “Now, the private banking business must be brave in making explicit the service costs that it passes on to its clients, like any profession”, he adds. In exchange, they get an increasingly valued intangible: independence, as highlighted by Ricardo García Jaudenes, managing director of Andbank Spain, one of the entities with one of the best solvency ratios in Spanish banking, with 19.7%.
“Great wealth demands something very simple, but at the same time very difficult to obtain: an independent service without conflicts of interest. They value advice in which the banker puts the client's interests before any other aspect", shares Jaudenes, who adds: "Unfortunately, in recent years we have suffered a regression in terms of objectivity in client advice, prioritizing the placement of products and commissions above the quality of the product. For this reason, entities that offer specialization and independence are so well received”, says the managing director of Andbank Spain, an entity that closed 2022 increasing its net profit by 16%, to 15.6 million euros.
In 2023, when it comes to managing the assets of people with high net worth, the search for new investment opportunities with which to make it grow -and not just maintain it- is the beginning and end, but there is more. "In addition to advice on financial portfolios, high net worth individuals are interested in products and services with which they can make investments in the real economy and thus maximize returns without undermining that these have good tax treatment, such as investments in private equity through venture capital companies with stakes equal to or greater than 5%”, highlights Raúl Martínez, managing director of Andbank, whose business volume stood at 18,805 million euros in 2022, a figure that represents 8.5% more than in 2021.
In the case of Edmond de Rothschild in Spain, they detect "the possibility of remunerating current account deposits, which up to now the large commercial banks are not carrying out." For specialized private banks, this can mean, as Torralba indicates, a great business opportunity in the short term. "The challenge is to consolidate and make profitable these potential inflows of new assets over time," he adds. Also on the table, of course, is a topic that gives rise to a 'Business Point apart': the -apparent- dilemma posed by the role of technology and artificial intelligence in a bank that has made exclusivity and personalized treatment his best asset.
