Development opportunities on Private Banking in France
Interview of Julien DUQUENNE, former Development Director of AXA’s Wealth Management activities at the time of its launch, creator of MAIF’s Financial Advisory subsidiary and recently CEO of OFI’s Private Banking activities.
Sia Partners: How would you define the landscape of Private Banking in France today?
Julien DUQUENNE: When it comes to Private Banking, some people tend to think only of some prestigious private banks positioned on customers with more than 1 million in financial assets. This prism can misrepresent market picture and its actual potential: we must also look at the 10% of Mass Affluent and Affluent customers who hold between € 100K and € 1 million in financial assets, whom represent nearly 50% of the investments in the French market.
In this segment, the landscape has not evolved much and the Retail Banks and their specialized subsidiaries still hold nearly ¾ of the market. While the investment market in France is generally mature, there is a significant potential for development of specific offers for this clientele: A recent study shows that almost 1 out of 2 customers eligible for Private Banking still seeks advice from a general advisor.
SP: "What are the key success factors that enables leading private management to consolidate their position? "
JD: Two factors will make a difference: trust, for establishing development, but also the profitable use of digital canals to ensure service quality.
Trust is necessary to effectively win over new clients and establish the necessary dialogue for good advice. Retail banks can still develop that trust and gain ground by relying on their strong brand image and their close relationships. In order to do so, it is essential to have specialists to support sales networks and to establish internal prescription programs of general advisor to the Financial Advisor.
Insurance networks may also expand their investment activities in the same way. This is what we put in place at AXA for its Wealth Management activity. I then adapted this to the environment of the MAIF: the “MAIF Solutions Financières” Branch quickly accounted for more than 1/3 of the total sales of MAIF’s life insurance activity with forty counselors and it now draws product diversification of group!
This trust factor also allows for many specific segment approaches to develop and provides opportunities for developing partnerships for specialized players.
The second key factor is Digital. To meet customer monitoring requirements and transform these requirements in additional sales opportunities, it is necessary to integrate the innovations developed by Fintech firms.
SP: How can Fintech and/or Robo-Advisors bring value to a winning business model today?
JD: Robo-Advisors will soon be used for monitoring asset allocations because of their efficiency and low cost. This type of solution will challenge the traditional management offerings under mandate. It allows for example to provide automated advisory management on affordable terms.
Note that some traditional players have not waited for Fintechs to move forward. Generali is already firmly engaged in this direction: there are many opportunities for discretionary management and asset management options with several managements companies or with IFA’s involvement, all with an accessible internet interface.
However, it will be more difficult for Robo-Advisors to take over a truly comprehensive wealth management approach, especially in France in view of the complexity of the tax code. Only a limited number of Fintech such as Grisbee attempt to truly address this issue ... which leaves room for the traditional networks using specialized software such as those from Harvest or Manymore publishers.
A multichannels and specialized approach will be crucial. Overall, the roles of each channel will be as follows: Internet for information on solutions, monitoring and adjustment of asset allocation, simple operations and administrative management; specialist advisers by phone to animate the portfolio, refine the projects and revive client relation; face facing advisors to prospect, animate the prescription, reassure and finalize the most sensitive operations.
Let us remember the example of the famous Robo-Advisor Betterment in US. Its development was accelerated after their partnership with Fidelity. They now have a dedicated offer "Betterment Institutional" that promise to reduce the administrative work of advisors.
SP: We have noticed that over the past years private banking actors have switched from a vertical value chain to a horizontal one, what are your beliefs on this trend?
JD: This trend will certainly continue as advisors will refocus on what is most important: building a personal relationship with the client. For the customer, this allows new diversification of investments and a possibility to use different tax loopholes. For the advisor, this represents a broadening of the base of necessary commissions in response to margin pressures.
Integration of solutions is now much easier. Even the smallest Independent Fiancial Advisor (IFA) can incorporate a selection of management mandates offer, packaged private equity or alternative investments, Real Estate... using managed service platforms operating in open architecture with several suppliers. I refer in particular to actors as “Selection 1818”, “CD Partenaires” or “Finaveo” who went beyond the insurance platform or the platform “Cerenicimo” specialized on real estate. The administrative burden remains an obstacle, but most actors working on digitalization of underwriting process and accounts aggregators will help to unify the operating modes.
Of course, some actors will take on an opposite position. For example, “Carmignac Gestion Privée” has a special interest in staying on an investment offering focused only on its management.
SP: How would you describe the private bank of tomorrow?
JD: The need of development and the opportunities offered by Digital will influence the majority of players to decline wealth management approaches on mass affluent customers. This requires well defined and segmented approaches and will have a significant impact on organizations and businesses:
- The organizational model of "business line" by segment will impose for large networks,
- The role of the advisors will be redefined with greater distinction between development roles (hunter) and monitoring (breeder). Business methods and processes will leave more room for Robo-Advisors and remote advisors.
Unlike some people, I think there will be no single winning model based on critical mass, as we may think by looking at the recent merger announced between Rothschild & Co and Banque Martin Maurel or the offers on Meeschaert. We will have several movements:
- There will be a consolidation phase for those who fail to change their internal model,
- Digital, multiple segmented approaches and facilitated partnerships will allow multiple players to develop,
- Regulatory burdens and the difficulty of relying on a brand will remain a handicap for small Independent Financial Advisors (IFA). This allows for development opportunities for actors like “Primonial” by federating some IFAs and for the few large groups of IFAs such as “Cyrus Conseil”. The cluster initiative of 18 IFAs around a structure and common brand Olifan for 2 years illustrates the movement: we will see emerge several formats of IFA groups.
While the landscape slowly changed so far, the margin pressure that is accelerating as a result of Fintechs and low rates requires to quickly take a new direction. Speed and agility will be required to achieve these changes while also meeting the new regulatory requirements (MiFID 2, IMD 2 PRIIPs) subjects on which a firm like Sia Partners can help to accelerate implementation.
Copyright © 2016 Sia Partners. Any use of this material without specific permission of Sia Partners is strictly prohibited.