The Shifting Role Of Banks For Family Offices

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It’s not change that people fear most, it’s the potential loss associated with that change – a psychological aversion that can make people take actions they wouldn’t usually consider. This is something that applies to companies too, since at the end of the day, companies are run by humans that naturally have an aversion to any losses changes may bring, potentially even more so the higher up you go in the ranks of power.

With significant changes afoot within the family office industry as the next generation begins to exert growing influence, its only natural that some of the more established players in the industry and surrounding service providers would be resistant to this. The bigger and more established players often even more so, which is why its interesting to see how banks respond to the evolution taking place within an increasingly important customer segment.

As one of a handful of insightful annual reports on the industry, Citi Private Bank’s Global Family Office Report 2023 (this year using a considerably larger sample set compared to previous editions) highlighted some of the emerging shifts: a raised allocation in fixed income and private equity, a slowdown in direct investments and how family offices are focusing on wealth management more than succession or family relations due to current macro-environmental reasons.

But there are other influences that the next-generation is bringing, some subtle for now but already recognized for how they’ll shape the industry over the next few decades and beyond. In a recent discussion with Global Head of Family Office Group at Citi Private Bank, Hannes Hofmann, he noted that key amongst these was how this generation is far more financially literate, with many having spent time working within the financial industry. They’re also naturally more tech-savvy, value transparency and have strong beliefs around sustainability – four factors that will bear significantly on how banks engage with family offices and force a need to evolve their services to stay relevant.

More than private banking

Family offices want their bank to go further and become a strategic discussion partner that uses their historical expertise to provide deeper insights, provide comprehensive wealth management and add perspective on best-practices within the private wealth ecosystem.

Going beyond purely financial services only increases their value, not just to established family offices but emerging ones. A case in point is Singapore’s DBS Bank and their recently-launched equivalent of an in-house multi-family office that provides full compliance and governance services for their clients. No doubt that providing services can be useful, however, the age-old principal-agent question remains — can this be an outfit that provides truly independent advice if connected to a bank?

Globalization comes standard

A more worldly-focused next-generation means less attachment to single jurisdictions in how they structure their family office, and increases the need for fully globalized banking solutions. Banks with a global presence will be in a unique position to capitalize on this market, with the larger entities like JP Morgan Chase or UBS at an advantage over the smaller, niche-focused banks.

While the demise of Credit Suisse certainly dented the perception of global investment banks being too big to fail, there is still a strong element of trust for established family office banks that brings value when it comes to family offices managing complex financial needs across continents.

Technology is inherent

The professionalization of family offices, from investment management to operational functionalities, will only increase and banks that understand how seamless integrations with multiple service providers need to be and openly embrace emerging technologies to achieve this will position themselves best.

Leading Nordic bank SEB has long understood this, taking a digital-first approach to services and operating their own digital innovation lab SEB-X since 2015. Today, their banking-as-a-service offering powers not only external companies through SEB Embedded but they’ve actually integrated the same services in to their own bank. The result is that SEB is well-experienced with incorporating AI into things like data analytics and service capabilities and offer an open banking platform where their clients to manage their finances across multiple banks in a single place.

Transparency breeds trust

The Google-generation doesn’t care much for opaque pricing models or shady contracts – they want to directly compare services and prices online as easily as possible. And while this mindset has driven a need for clear pricing outlines it equally applies to commitments that institutions make with regards to sustainability.

The recent exposure of major carbon offset projects being completely worthless doesn’t help underlying trust issues that the next-generation has grown up with, and banks need to realize they’re not starting from a neutral position here – they’re mostly viewed with heavy skepticism.

Taking a values-oriented approach can be heavily rewarded, like Swiss private bank Lombard Odier, who were the first wealth and asset manager to achieve B Corp Certification and have aligned their customer’s interests with their actions, turning sustainability into what they refer to as “ the largest investment opportunity in history.”

Focused philanthropy

Where there was once little need for effective measurability, philanthropy is shifting and banks responsible for these strategies will need to do more than replicate what significant philanthropic players are doing. Family offices will benefit from banks that can offer personalized advice and assist in creating a philanthropic approach that aligns both current and future generations. “The next generation is concerned about how and where philanthropy is allocated,” says Citi Private Bank’s Hannes Hofmann, “They are far more targeted in terms of philanthropic endeavors.”

While there’s no uncertainty around how much of an effect this transition of wealth to a new generation will bring, the timeline or significance of crucial elements and how they will affect the banking industry is emerging before us and will be fascinating to observe. If the only constant changes, the banks that evolve their offering to embrace the current shifts in the family office ecosystem will prosper and set themselves up for the next round of changes yet to come.

Image by: Pexels

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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