Innovation in Private Banking & Wealth Management - Embracing the Business Model Change - Deloitte
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Monitor Innovation in Private Banking & Wealth Management Embracing the Business Model Change
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Glossary
Wealth Management Wealth Managers FinTechs
For reasons of simplification, Wealth Management Wealth Managers are institutional Private Banking & FinTechs are defined as companies that use financial
in this document refers to European Private Banking & Wealth Management service providers in Europe, technologies to support or enable financial services.
Wealth Management. Wealth Management is the holis- with a focus on business with private clients. They in- Typically, they are internet companies that streamline
tic financial management of wealthy clients (typically clude pure-play private banks as well as Private Bank- financial systems and make financial services more ef-
with assets in excess of EUR 1 million) and is character- ing & Wealth Management units of universal or region- ficient. Today, there are more than 500 FinTechs active
ised by personal relationships built on mutual trust al banks. in Europe focusing on business areas such as crowd-
and individual advice at the highest level. Wealth Man- funding, crypto currencies, data analytics, insurance,
agement covers the full process of planning, realising investment and asset management, market informa-
and controlling the wealth of clients, and can go be- tion or payments. Given the focus of this document,
yond purely financial matters to include social and per- references to FinTechs exclusively relate to European
sonal arrangements. companies that provide Private Banking & Wealth
Management services to private clients or that pro-
vide technological solutions to Wealth Managers
as defined on the left hand side.
2Innovation in Private Banking & Wealth Management| Embracing the Business Model Change Executive Summary 3
Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Executive Summary
Innovation
Case for
Approach
It’s about time for innovation in Wealth Management…
Wealth Management has now reached a point where a mind shift has become essential. The profitability of European Wealth Managers has been in con-
stant decline in recent years, with profit margins falling by 40% between 2000 and 2015. During the same period, the market size for Private Banking
Managers
measured by the bankable assets of European millionaire households has grown by more than 60%. This increasing gap between profitability and market
Wealth
size shows that Wealth Managers are failing more and more to serve clients successfully with their existing business models of an integrated value chain
(average industry integration level of above 80%). This suggests that the industry is facing an innovation gap, since industrialisation and M&A – the other
two main strategic growth levers – have already been employed for years.
Market Intelligence
FinTechs
…and the time is about right…
Typically, innovations result from a conscious, purposeful search for innovation opportunities, which are found only in few situations, such as changes
in the industry structure, demographics or in the perception of an industry, economic incongruities or the appearance of new knowledge. All these
can be found today in the Wealth Management industry. An increasing number of FinTechs active in Wealth Management (+300% in the past three years) is
disrupting traditional industry structures; millennials will form 50% of the global workforce by 2020, creating demographic change; and the global regula-
Summary
tory agenda has triggered the reshoring of assets, adversely affecting the prospects for cross-border Wealth Management.
Innovation
…but ambition is lacking
Corner
Innovation ambitions for both Wealth Managers and FinTechs revolve around the existing core Wealth Management business. However, most innova-
tions are a response to existing business challenges, and far fewer exploit opportunities to create value in a new way. Wealth Managers are mainly dig-
itising their traditional business model to reduce their cost base; and FinTechs are either offering digital solutions to support Wealth Managers or are
providing digital offerings to compete for digitally-aware private clients. The innovation efforts of Wealth Managers are therefore concerned mainly with
Innovations
Successful
industrialisation efforts, and those of FinTechs with disruption: neither are focusing on innovation to embrace a change of the Wealth Management
business model.
and Sources
Contacts
4Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Executive Summary (continued)
Innovation
Case for
Approach
Enabling innovations that can change the business model…
While eliciting a change of business model typically requires to employ multiple types of innovation with a focus on shifts in the profit model and cli-
ent engagement, efforts in Wealth Management concentrate mainly on digitising processes and structures in the existing business model. Instead, Wealth
Managers
Managers could exploit innovation opportunities in a more transformational way by re-designing instead of reorganising their infrastructure (e.g.,
Wealth
through Cloud Computing, Open APIs, Orchestrating), deepening their understanding of client needs (e.g., through Social Listening, Instant Client Feed-
back), identifying new sources of revenue (e.g., supplementary Client Care Services, Digital Security Services) and refreshing their brand (e.g., through
Sub-branding, Ingredient Branding).
Market Intelligence
FinTechs
…requires a shift in the leadership’s mental model…
Innovations come to a halt, or fail, for many different reasons, but most often it is because superficial changes to improve performance are not suf-
ficient to affect a fundamental transformation. Innovation requires change at a deeper level, a change of the leadership’s key beliefs as these typ-
ically affect attitudes and culture throughout the organisation. Wealth Management is built around traditional assumptions, behaviours and beliefs
about how to create value that drive the strategies leaders deploy and guide their decision-making. These assumptions and key beliefs need to be
Summary
exposed to the new realities of today’s world and the future, by monitoring trends and their implications, and recognising the urgency and impor-
tance of innovation.
Innovation
…and an effective innovation system
Corner
Once the leadership is on board, innovation needs to be formally embedded as a management discipline and the corporate culture needs
to be opened up towards divergent thinking. This calls for a systematic change that, based on an analysis of successful leaders in innovation, requires
four building blocks to be in place: approach, organisation, resources and competencies, and metrics and incentives. A tailored approach should be
built around clear definitions and methodologies for the work to be done in generating innovations, and innovations should be managed as a portfolio.
Innovations
Successful
Accordingly, the appropriate talent and capabilities need to be acquired and nurtured. In this context, and as a starting point, Wealth Manager should
clarify the role of partnerships.
and Sources
Contacts
5Innovation in Private Banking & Wealth Management| Embracing the Business Model Change The Case for Innovation in Private Banking & Wealth Management 6
Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
What we mean by innovation
Innovation
Case for
Often equated with related disciplines such as digitisation, industrialisation
and disruption, innovation is a much broader term depending on the creation of value
Approach
Distinct features of innovation
•• In the context of a transforming banking ecosystem, innovation is often asso-
Innovation
1 ciated with other concepts and disciplines related to change, but their defini-
Managers
•• Innovation
Wealth
requires an tions clearly distinguish them:
Innovation understanding
of whether 1) Innovation (as separate from invention) is the creation of a new
clients need
or desire an (to the market or the world), viable (creating value for clients, stakeholders
invention, and
Market Intelligence
also how it can be and the organisation itself) business offering (ideally going beyond prod-
delivered ucts to platforms, business models and client experience)
FinTechs
•• Innovation
4 3
has to provide
economic value*, 2) Digitisation is the transformation of business activities by the introduc-
Disruption Industriali- i.e., it must be tion and use of information technology
able to sustain
sation itself, and return 3) Industrialisation is the concept of reducing the cost base and re-think-
in excess of its
weighted average ing the value creation process through the elimination of redundancies,
Summary
cost of capital
•• Innovation does smart sourcing, automation and standardisation
2 not have to be
new to the world, 4) Disruption is a process whereby a smaller company with fewer resourc-
only to a market
Digitisation or an industry, es is able to successfully challenge incumbent businesses; disruption typ-
and can be based ically originates in low-end or new-market niches
on previous
advances •• As opposed to digitisation and disruption, innovation is depending on the
Innovation
Corner
creation of economic value*; while industrialisation and innovation have
this in common, innovation is much broader in its application
•• Disruption can be considered contradictory to industrialisation: while indus-
trialisation is a process for players with mature business models to defend
Innovations
Successful
their market shares, disruption is a process for players with new business
models to gain shares of the market
* Based on the Economic Value Estimation (EVE) model, the economic value of a potential innovation is assessed by (1) its reference value, i.e., the actual price of the next best alternative (e.g., the current state), and (2) the net
and Sources
differentiation value, i.e., the monetary value that a potential innovation creates, either in cost savings or increased income, minus any additional cost that incurs with it (e.g., switching costs)
Contacts
7Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Wealth Management in decline: an innovation gap?
Innovation
Case for
Despite profitability being on the downturn for years, the Wealth Management
business model remained unchanged suggesting today a substantial innovation gap
Approach
Index: Profitability of Wealth Managers vs. market volume, 2000-2020
•• Since 2000, the profitability of European Wealth Managers has declined
by nearly 40% (CAGR of -3.2%) despite market volume growth of more than
Managers
162
Wealth
60% (CAGR of +3.3%)
•• While the steep decline in profitability between 2005 and 2010 – accelerat-
Innovation gap? ed by the financial crisis, changing client behaviour and regulation – has less-
The continuously
Market Intelligence
grown divergence ened in the recent past, the downtrend is still on-going substantially irre-
of Wealth Managers’
spective of the accelerated increase in market volume since 2010 (CAGR of
FinTechs
profitability and
121
market volume
development
+6.0% between 2010 and 2015)
112 ? suggests that,
among other main •• In 2015, the indices for market volume and Wealth Managers’ profitabil-
Δ 101
strategic profitability ity have diverged by more than 100 percentage points from their individ-
levers (e.g., M&A,
100 Δ 23 industrialisation1)), ual levels of 2000 indicating that a low point for Wealth Management had
Δ 52 Wealth Management
Summary
is facing an been reached
innovation gap
89
•• The growing gap between profitability and market volume shows that
Wealth Managers are failing more and more to serve clients successful-
ly with their existing business models – either from a revenue or cost side,
69 or, even worse, from both
Innovation
Corner
61 •• The forward-looking trend line (dotted line; based on CAGR 2000-2015) in-
2000 2005 2010 2015 2020 dicates that, should Wealth Managers not adjust their current set-up,
questions whether Wealth Management will still be a profitable business
in the future will arise
Innovations
Successful
Key:
Market volume index (2000 = 100) represented by wealth2) of European millionaire households, 2000-2020
Average profit margin index (2000 = 100) of European Wealth Managers, 2000-2020
1) Industrialisation levers include: Process Excellence, Organisational Efficiency, Product Rationalisation, Value Chain Re-engineering, IT Simplification, Location Optimisation, Industry Utilities and Joint Ventures, Process Digitisation
and Robotics, Economic Value Management
2) Wealth is defined as financial assets including onshore and offshore currency and deposits, debt securities, equity, investment funds shares, life insurance and annuity entitlements, pension entitlements and entitlements
and Sources
to non-pension benefits
Contacts
8Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Wealth Management in decline: the end of the core business model?
Innovation
Case for
With the current core business model for Wealth Management approaching the end
of its life cycle, there is an urgent and growing need to develop innovation
Approach
Illustration of a business model life cycle
•• Typically, the life cycle of a business model is characterised by an introduc-
Introduction Growth Maturity Decline
tory phase, during which management is in an entrepreneurial mode and
Profitability
Entrepreneurial Adaptive Planning Adaptive
Managers
Wealth
mode mode mode mode
Business model willing to take risks, and losses are incurred to grow the business before
innovation
Once in the reaching breakeven
decline phase,
adjustments •• Once growth is established, management is in an adaptive mode,
to the core
Market Intelligence
business making short-term decisions and being reactive by making adjust-
model can only ments to the business model with the objective of increasing growth
FinTechs
slow down its
extinction; this and profitability
is why there
Core business model New business model
is a growing •• In the maturity phase, management is changing to a planning mode, driv-
urgency
to develop a new ing analysis to increase efficiencies and developing strategies to maintain
business model
on the back
levels of profitability. Ideally, management starts questioning whether
Summary
Time
of innovations the core business model can be successful in the future and develops ideas
for a new business model (green dashed line)
•• Once decline has started, only transformational innovations can enable
new business models, and adjustments to the core business model will only
delay the end of the life cycle (grey dashed line)
Innovation
Corner
Characteristics of the current core business model in Wealth Management
•• Focus on domestic on-/offshore business to affluent and high net worth clients •• As shown on the previous page, the current core business model in Wealth
with an international footprint Management (see call-out box on the bottom left for characteristics) has
•• Offering of custody, advisory and brokerage services, as well as standardised and individual
discretionary mandates been in decline since 2000. Accordingly, adjustments will only slow down
•• Relationship Manager-driven coverage and service model (as opposed to specialist or desk/team
driven model) the ongoing decline, while the urgency to develop new business models
•• Limited own-product manufacturing capabilities is increasing and forcing Wealth Managers to intensify transformational
Innovations
Successful
•• Highly integrated value chain (average industry integration of above 80%) with complex
IT infrastructures innovation efforts
•• Profit model based on client asset volumes
and Sources
Contacts
9Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Insufficient strategic importance of innovation
Innovation
Case for
The question for an innovation gap can be affirmed when comparing the strategic
importance of innovation in Wealth Management with that of other industries…
Approach
Relevance of innovation in Private Banking and Wealth Management
R&D •• In comparison to other industries, Banking in general
investments is lagging behind when it comes to innovation as both
Managers
44.8 in the EU (€bn)
Wealth
31.9 the level of R&D investments and the ranking of banks
15.2
9.2 7.6
5.2
2% among the most innovative companies indicate
•• This is specifically paradox given the fact that Bank-
Market Intelligence
ing is the second most impacted industry by dig-
Auto- Pharma Techno- Electro- Banks Chemicals
mobiles logy nics
Investments in R&D, one
of the main indicators Only 2% of the most ital disruptions and thus banks should presuma-
FinTechs
of innovation capacity, innovative companies are
are lower in the banking banks, and none of them bly attempt to overcome this challenge by investing
specialises in Wealth
sector than in other
Management
1 in digital innovations
industries
2 •• For Wealth Management, a business that is traditional-
3
ly based on trust and personal relationships, the back-
Summary
Banking is the second log in terms of digitisation is even higher than for oth-
most impacted
industry by digital er banking sectors such as Retail or Investment Banking
disruptions
•• This is specifically alarming as 75% of Millennials – a
The number of FinTechs specifically tech-savvy and growing client segment –
tripled in the past three years 1 Retail
Banking
while the number of private would switch their private bank if they found a better
Innovation
banks has significantly 2 Investment
alternative
Corner
Banking
declined
3 Wealth
Management
•• Considering the fact that the number of FinTechs – firms
More than 3 out of 4 Wealth Management that on the back of technology-based business models
Millennials would switch
private banks if they find
is one of the least offer digital banking services – has tripled in Europe in
developed banking
a better alternative the past three years while the number of private banks
Innovations
sectors with regards
Successful
to digitisation
has steadily declined, which might hint that the creation
of alternatives is already underway
and Sources
Contacts
10Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Situations favouring innovation opportunities
Innovation
Case for
…and given the fact that most types of opportunity for innovation
can be found in Wealth Management already for some time
Approach
Situations favouring innovation opportunities… …and their relevance in Wealth Management
Industry changes In the past 3 years, more than 50 FinTechs have been disrupting the European
Managers
Wealth Management market with new technology-based business models, while
Wealth
When changes in an industry structure occur, incumbent players tend to focus >50 incumbent players held on to their traditional business model relying on personal
on defending what they already have while neglecting smaller, fast-growing market
segments and leaving innovators the chance to evolve interaction and legacy systems
Market Intelligence
Demographic changes
FinTechs
The generational change over to the millennials is becoming increasingly noticeable;
Innovation opportunities created by changes in age distribution, education, number 50% by 2020, they will form 50% of the global workforce and their wealth is expected
of people, occupations or geographic locations have proven to be among the most to double between 2015 and 2020 making them the upcoming key client segment
rewarding as they represent a shift of needs on the demand side
Economic incongruities
Summary
While the wealth of millionaire households (demand side) in Europe has increased
by more than 60% between 2000 and 2015, Wealth Managers’ profitability
Innovation may arise from incongruities between economic realities, for instance, +60% (supply side) has been on the downturn with profit margins falling by 40%
when the supply side’s assumptions of an industry and its dynamics diverge
from the expectations of the demand side over the same period (see p.8)
Innovation
Changes in perception Against the backdrop of a global regulatory agenda the perception
Corner
of the traditionally offshore-reliant Wealth Management business has taken
Changing an industry’s perception from “the glass is half full” to “half empty” -7% a turn for the worse; accordingly, Wealth Management Centres such as Switzerland
can drive significant innovation opportunities; this changed perception drives market (-7%), the UK (-21%) or Luxembourg (-11%) have experienced a slowdown of new
participants to reinvent themselves and the way they are doing business international client assets since 2009
Innovations
Successful
New knowledge Digital investment solutions such as robo advisers are being picked up by private
clients only slowly in Europe with EUR 3bn in assets under management in 2015
Knowledge-based innovations – whether scientific, technical or social – are what EUR 3bn reflecting only a fraction of the EUR 18tn held in financial assets* by European
people commonly think of as innovation; however, as ground-breaking as they are,
their success depends on the creation of economic value with long lead times households in 2015 – a textbook example?
and Sources
* Financial assets include onshore and offshore currency and deposits, debt securities, equity, investment funds shares, life insurance and annuity entitlements, pension entitlements and entitlements to non-pension benefits
Contacts
11Innovation in Private Banking & Wealth Management| Embracing the Business Model Change Market Intelligence on Innovation in Private Banking & Wealth Management Approach 12
Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Market intelligence approach
Innovation
Case for
Based on a comprehensive view of the Wealth Management industry, we identified
28 unique innovations from Wealth Managers and 11 from FinTechs…
Approach
Scope of and approach to market intelligence
•• In order to gain a comprehensive view of innova-
Wealth Managers FinTechs
tions in the Private Wealth Management industry, we
Managers
Wealth
analysed current innovations and innovation trends
>500 for both Wealth Managers and FinTech companies
>100 research papers reviewed FinTechs in Europe analysed
65 WM professionals surveyed1) •• For Wealth Managers, we reviewed more
Market Intelligence
116 65 than 100 recent reports and surveys looking for imple- Chapter 3b
p. 16 et seq
innovations in Wealth FinTechs focusing on mented, planned or intended innovations in the Private
FinTechs
Management identified Wealth Management identified
Banking and Wealth Management industry; we found
28 11 116 innovations in Wealth Management and of these,
unique innovations 2) unique innovations 2)
in Wealth Management in Wealth Management 28 were unique innovations; the 10 most prevalent
qualified qualified were then described in detail
Summary
Wealth •• For FinTech, we analysed more than 500 European
10 Manage- 8 companies and identified 65 companies that special- Chapter 3c
p. 23 et seq
most prevalent 3)
ment
most prevalent 3) ise in Wealth Management of which we could identify 11
innovations innovations
described described unique innovations already implemented
•• Innovations of both groups were then compared with
Innovation
each other and commonalities, differences and white Chapter 3d
Corner
p. 27 et seq
spots were interpreted
13
innovation •• Finally, based on our view of the market and innova-
ideas
described tions observed in other industries, 13 innovation ide- Chapter 3d
p. 30 et seq
as in Wealth Management were described in an innova-
Innovations
Successful
Deloitte innovation corner
tion corner
1) Wealth Management professionals have been surveyed as part of the study “Innovation in Wealth Management” conducted by Deloitte in collaboration with WealthBriefing
2) Identified innovations were clustered as unique innovations; for example, robo advisers were counted only once as a unique innovation for Wealth Managers and FinTechs despite plenty of research focusing on this topic
and a number of organisations offering robo advisory services
3) Based on the unique innovations, the most prevalent innovations per innovation type (see p. 14) were assessed based on a frequency analysis following the number of mentions (Wealth Managers) and the number of companies
and Sources
(FinTechs) respectively
Contacts
13Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Market intelligence approach
Innovation
Case for
...and mapped them according to their Type of Innovation and Innovation Ambition
to create a clear picture of where and how innovation takes place in Wealth Management
Approach
Ten Types of Innovation and Innovation Ambition
T Transformational: Leveraging
breakthrough capabilities, offerings, T Trans-
Innovation Ambition
forma-
processes and technology new
“Where to play”
Managers
tional
Wealth
to the industry to enable innovation
intended for brand new client segments addressing A
completely new client needs Adjacent
A Adjacent: Leveraging emerging capabilities, C
offerings and processes different from those in use Core
Market Intelligence
today, more advanced technology being used only
in other sub-sectors of the industry to enable
FinTechs
innovations that address clients in adjacent 1 Profit 2 3 4 5 Product 6 Product 7 8 9 10 Client
perfor- engage-
markets as well as current clients model Network Structure Process system Service Channel Brand
mance ment
Configuration Offering Experience
C Core: Leveraging existing capabilities, offerings,
processes and technology already being used
in the industry to enable innovation with respect
to existing clients as well as known and current Type of Innovation “How to win”
Summary
client needs
1 Profit model: Finding fresh ways to convert offerings into 6 Product system: Connecting and bundling individual offering
revenues by understanding what clients actually cherish to create complementary products and services
Innovation matrix
While the innovation ambition represents 2 Network: Identifying how to benefit from other firms’ 7 Service: Amplify the utility, performance and apparent value
the overall potential to change the way processes, channels, technologies, offerings or brands of offerings to create compelling client experiences
business is done today’ (“where to play”),
Innovation
Corner
the type of innovation indicates the areas
of the business it affects (“how to win”) 3 Structure: Organising and aligning talent and assets 8 Channel: Rejuvenating how to connect with clients and deliver
to create value more productively and effectively products and services to them
4 Process: Using unique, superior capabilities and methods 9 Brand: Distilling a brand promise that attracts clients
to produce offerings more flexibly and efficiently and ensures they recognise, remember and prefer the offering
Innovations
Successful
5 Product performance: Improving value, features, and quality 10 Client engagement: Creating meaningful connections
of offerings incl. new products and product updates with clients by understanding their deep-seated aspirations
and Sources
Contacts
14Innovation in Private Banking & Wealth Management| Embracing the Business Model Change Market Intelligence on Innovation in Private Banking & Wealth Management Wealth Manager Lens 15
Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Focus areas of innovation today: Wealth Managers
Innovation
Case for
Innovations addressed today are mainly configuration and experience driven, and revolve
around the core business with only outliers touching transformational ideas
Approach
Current relevance of innovation for European Wealth Managers
T Trans- •• Today, Wealth Management providers mainly fo-
forma- 0 0 0 0 3% 0 1% 0 0 1% 5%
cus their intended innovations around areas that
Degree of ambition
Managers
tional
Wealth
A
are core (86%) and to a limited degree adjacent (9%)
Adjacent
1% 4% 1% 0 1% 1% 0 1% 0 0 9% to the traditional business model suggesting the indus-
try is still holding on to its “past days of plenty”
C
3% 6% 17% 17% 1% 3% 9% 9% 6% 15%
Market Intelligence
Core 86% •• However, this might be deceiving as Wealth Manage-
ment is a slow and intangible business characterised
FinTechs
1 Profit 2 3 4 5 Product 6 Product 7 8 9 10 Client
perfor- engage- ∑ by personal interaction and trust, which requires
model Network Structure Process system Service Channel Brand
mance ment
Configuration Offering Experience
time to be receptive to transformational innovations
•• While banks have understood that the digital transfor-
Type of innovation
mation is inevitable, there is no uniformity with regards
Summary
to the degree of digitisation of the business,
i.e., the right mix of digital and personal interactions
Services and Channel
Structure and Process Brand
Building digital capabilities is
With cost reduction being one
the most prevalent innovation
Despite the fact that the financial •• Accordingly, they have focused on more obvious inno-
of the most important strategic crises have undermined clients’
priorities for Wealth Managers,
in WM, although it can be rather
trust in banks, the need to refresh vations aiming to increase efficiencies (structure and
considered as catching up
innovations enabling efficiency brand identity does not appear process) and catching up with digital backlog in client
with other areas of banking or
Innovation
gains are targeted on a large scale to be imminent
industries
communications (service and channel)
Corner
•• Other areas, however, such as brand eminence
or advancement of profit models have remained main-
Key: Focus areas of innovation based
on identified innovations (n=116): ly untouched, while transformational innovations such
>10% as the robo adviser are perceived with scepticism
Innovations
Successful
>5-10%
>1-5%
•• Detailed descriptions of the most prevalent
>0-1% unique innovations from Wealth Managers are
0 presented in the following
and Sources
Contacts
16Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Most prevalent unique innovations: Configuration
Innovation
Case for
Driven by the continuous decline of profitability, Wealth Managers shift towards value-
based pricing models and consider collaborations with FinTechs
Approach
Value-based pricing models Collaboration with FinTechs
Trans-
forma-
Primary Trans-
forma-
Primary
tional innovation type tional innovation type
Profit model Network
Managers
1 2
Adjacent Adjacent
Wealth
Type and ambition Core Innovation Core Innovation
of innovation 1 2 3 4 5 6 7 8 9 10
ambition 1 2 3 4 5 6 7 8 9 10
ambition
Client Client
Profit
model Network Strucure Process
Product Product
perfor- system Service Channel Brand engage- C Core Profit
model Network Strucure Process
Product Product
perfor- system Service Channel Brand engage- A Adjacent/Core
ment ment
Market Intelligence
mance mance
Configuration Offering Experience Configuration Offering Experience
FinTechs
•• Adjustments of the pricing model are a highly effective profitability lever often •• Collaboration with FinTechs refers to the mutual benefits banks and FinTechs can
used to grow revenues without a requirement for risky acquisitions or large gain from working together and, thus, combining experience and new technologies
upfront investments
•• B2C-focused FinTech companies stand to gain from access to the valuable client bases
•• Pressured by the steady decline in profitability, banks are planning to make greater of Wealth Managers; Wealth Managers can leverage new technologies of FinTechs
Description
Summary
use of value-based pricing models aiming for a shift from event-based fees to more to develop innovative products, rejuvenate their image and gain fresh perspectives
performance and advisory fees, and similar to retail banking all-in price models
•• As a network innovation, collaboration with FinTechs is considered core, but it
•• Considered core, performance-related profit models can trigger higher service can trigger adjacent and even transformational innovations across all other
quality and a revived client engagement in order to meet internally agreed targets innovation types
Expected trends in the usage of fee types by 2020 (in %) Willingness of Wealth Managers to collaborate with FinTechs
Innovation
Corner
Advisory fees All-in fees Performance fees
A large majority of
Wealth Managers 60% of the Wealth
expect advisory fees Managers think they
Industry evidence and performance 60% should collaborate
92% 82% 75% fees to rise with FinTechs in order
Innovations
significantly by 2020, to gain new ideas on
Successful
and all-in models will how to create value
play a major role
Key:
Increase Key:
Stable Support collaboration with FinTechs
Decrease Do not support collaboration with FinTechs
and Sources
Contacts
17Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Most prevalent unique innovations: Configuration
Innovation
Case for
Both Outsourcing and capability sharing and Relationship Manager workplace focus
on the effective organisation of assets and optimise their use in internal processes
Approach
Outsourcing and capability sharing Relationship Manager workplace
Trans-
forma-
Primary Trans-
forma-
Primary
tional innovation type tional innovation type
Structure Process
Managers
3 4
Adjacent Adjacent
Wealth
Type and ambition Core Innovation Core Innovation
of innovation 1 2 3 4 5 6 7 8 9 10
ambition 1 2 3 4 5 6 7 8 9 10
ambition
Client Client
Profit
model Network Strucure Process
Product Product
perfor- system Service Channel Brand engage- C Core Profit
model Network Strucure Process
Product Product
perfor- system Service Channel Brand engage- C Core
ment ment
Market Intelligence
mance mance
Configuration Offering Experience Configuration Offering Experience
FinTechs
•• Outsourcing and capability sharing is today mainly done for standardised, non-client
•• The RM workplace is a digital platform integrating all capabilities and applications
facing operations such as tax reporting, transaction execution and client settlements
required for an RM to serve clients while creating a complete, real-time 360° client view
•• However, the continuous margin pressure forces Wealth Managers to expand their
•• In doing so, the platform simplifies the RM’s daily work by freeing up time
outsourcing scope to further non value-creating activities; specifically for smaller
Description
Summary
from administrational tasks and collecting information from different systems enabling
banks, which so far preferred the one-stop shop model, this procedure is truly
the RMs to serve clients more efficiently and effectively
innovative
•• Despite being classified as core, the RM workplace constitutes a fundamental change
•• Outsourcing and capability sharing primarily touches upon the efficiency-oriented
from ‘business as usual’, which ultimately impacts all innovation types
innovation types such as structure, process and network
Wealth Managers considering Advisory and relationship Current level of satisfaction Intended investments
Innovation
outsourcing of technology activities not to be 64% of Wealth in RM workplace in adviser applications
Corner
solutions (non-value creating) outsourced Managers are
considering the
15% 60% of Wealth
outsourcing
20% Managers are
of non-value
unsatisfied with their
creating
RM technology in
Industry evidence 64% 89% 86% 83% 78% 78% technology 60% VS 65%
use, and even 65%
solutions, while
think that further
Innovations
advice and
Successful
investments in
relationship
Key: adviser applications
related
Require further investments are required
activities are
Key: RM CRM Investment Portfolio Product Robo least likely to Key: No further
Considering outsourcing and advisory manage- manage- advisory be outsourced Unsatisfied investments required
advisory ment ment solution
Not considering outsourcing workplace Satisfied No plans to invest
and Sources
Contacts
18Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Most prevalent unique innovations: Offering
Innovation
Case for
Wealth Management innovations around product performance and product systems
have the highest degree of ambition while impacting numerous other innovation types
Approach
Robo adviser Holistic advisory approach
Trans-
forma-
Primary Trans-
forma-
Primary
tional innovation type tional innovation type
Product Product
Managers
5 6
Adjacent Adjacent
Wealth
performance system
Type and ambition Core Innovation Core Innovation
of innovation 1 2 3 4 5 6 7 8 9 10
ambition 1 2 3 4 5 6 7 8 9 10
ambition
Client Client
Profit
model Network Strucure Process
Product Product
perfor- system Service Channel Brand engage- T Transfor- Profit
model Network Strucure Process
Product Product
perfor- system Service Channel Brand engage- C Core/Adjacent
ment ment
mational/
Market Intelligence
mance mance
Configuration Offering Experience
Adjacent Configuration Offering Experience
FinTechs
•• Robo advisers are algorithm-based Wealth Management services that provide •• Holistic advisory looks at a client’s total balance sheet beyond assets held
automated customised investment advice and portfolio management services with a Wealth Manager, i.e., clients are being served with respect to their entire
financial wellbeing
•• They can enable Wealth Managers to efficiently offer Wealth Management services
to clients with asset volumes below typical thresholds; for traditional clients, •• A shift from mainly providing investment advice to managing all the financial affairs
Description
Summary
however, they are seen rather as complementary offering than a replacement of clients will open up new sources of revenue and strengthen client relationships;
for human-based advice however, this will require banks to build expertise in new areas
•• Robo advisory is a truly transformational break-through innovation that could •• The holistic advisory approach requires banks to go beyond the current core
impact all innovation types by challenging the established personal private banking and develop adjacent innovation types and create opportunities for new products
business model and profit models
Robo advisers: Estimated European Intend of private banks Holistic advisory relationships
Innovation
market potential (in USD billion) towards pursuing robo with clients as key for performance
Corner
advisers
110
Despite promising 64% of surveyed
20%
Pursue robo growth prospects, Wealth Managers
advisers only 20% of Wealth consider holistic
CAGR
Industry evidence +87.1% 30%
Plan to pursue robo advisers
as they become more
Managers already use 64% advisory
sophisticated robo advisers; 30% relationships
Innovations
are planning to do so as key for their
Successful
3 No plans to pursue robo once they become future business
50%
advisers more sophisticated performance
Key:
2015 2020 Consider holistic advisory as key for performance
Do not consider holistic advisory as key for performance
and Sources
Contacts
19Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Most prevalent unique innovations: Experience
Innovation
Case for
Innovations around service and channel are mainly driven by meeting clients’ desire
for self direction and enhancing interactions and the connectivity with clients
Approach
Digital research platform Omni-channel communications
Trans-
forma-
Primary Trans-
forma-
Primary
tional innovation type tional innovation type
Service Channel
Managers
7 8
Adjacent Adjacent
Wealth
Type and ambition Core Innovation Core Innovation
of innovation 1 2 3 4 5 6 7 8 9 10
ambition 1 2 3 4 5 6 7 8 9 10
ambition
Client Client
Profit
model Network Strucure Process
Product Product
perfor- system Service Channel Brand engage- С Core Profit
model Network Strucure Process
Product Product
perfor- system Service Channel Brand engage- C Core
ment ment
Market Intelligence
mance mance
Configuration Offering Experience Configuration Offering Experience
FinTechs
•• Digital research platforms allow self-directed clients to directly access •• Omni-channel communication enables clients to interact with their advisers
advanced financial information (e.g., market data, learning tools) and build their anytime and anywhere using the full variety of digital, physical and personal
own financial expertise interaction channels
•• In response to clients using technologies more and becoming more self-directed, and •• Today, digital channels are primarily used to gather information while their
Description
Summary
to keep up with digital communities and FinTech offerings, these platforms allow Wealth potential related to complex transactions and remote advisory is not yet fully
Managers to create a compelling client experience and grant access to professional exploited; in particular with a focus on cross-border banking this is expected
data to increase continuously
•• Originating from a core service innovation, digital research platforms cover innovation •• Omni-channel communication is a core level channel innovation that can increase
types related to client engagement and product performance value in the overall service quality and foster client engagement
Growth rates of self-directed vs. Client preferred interaction
Innovation
non-self-directed investor segments channels by complexity
Corner
CAGR: 1.4% Trends show that
The majority of
investors shift 59%
Wealth Management
towards more active
CAGR: 4.9% clients prefers
profiles with a 68% digital channels for
Industry evidence significantly higher 58% 56% 52% 17%
19%
communications on
growth of the self-
simple transactions,
Innovations
directed investors, 4%
Successful
4% 4% 4%
15%
but personal
compared to the
contact for complex
non-self-directed Email Mobile Website Telephone Paper Branch In person
2011 2012 2013 2014 2015 technologies transactions
segment
Key: Key:
Self-directed investor market Simple transactions
Non-self-directed segment Complex transactions
and Sources
Contacts
20Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Most prevalent unique innovations: Experience
Innovation
Case for
While Wealth Managers appear to be uncertain as to how they can enhance their brand,
they are trying to create more meaningful personal interactions in branches
Approach
Brand innovation Branch optimisation
Trans-
forma-
Primary Trans-
forma-
Primary
tional innovation type tional innovation type
Brand Client
Managers
9 10
Adjacent Adjacent
Wealth
engagement
Type and ambition Core Innovation Core Innovation
of innovation 1 2 3 4 5 6 7 8 9 10
ambition 1 2 3 4 5 6 7 8 9 10
ambition
Client Client
Profit
model Network Strucure Process
Product Product
perfor- system Service Channel Brand engage- С Core Profit
model Network Strucure Process
Product Product
perfor- system Service Channel Brand engage- A Core
ment ment
Market Intelligence
mance mance
Configuration Offering Experience Configuration Offering Experience
FinTechs
•• The brand of a private bank represents its offering and everything associated
•• Branch optimisation concepts aim to bridge the physical and digital delivery of services
with it – brand innovations can attract and retain clients, and ensure recognition
by extending the prevalent human element by technology-enabled components
•• Despite its undisputed relevance as key decision factor, brand innovation appears
•• Wealth Managers are moving away from today’s branch model of serving clients
to be of subordinate priority for Wealth Managers and is instilled only indirectly
Description
Summary
of all kinds equally, optimising their branch concepts to create a more compelling
through social media activity (channel) or FinTech collaboration (network)
and personalised client experience and increase operational efficiencies
•• Brand innovations in Wealth Management are likely not transformational, yet
•• As a core innovation, future state branch concepts exploit existing technologies to
considering their impact outside of banking they are able to set new directions
foster personalised client engagement, affecting structure, service and branding types
for whole industries
Expected top client decision criteria Bank executive views on branch banking by 2020
Innovation
for selecting their Wealth Manager in 2020
Corner
16%
Today 2020
By 2020, While almost half
Quality of relationship Reputation/premium brand
having a premium of surveyed Wealth
brand is expected 48% 84% Manager executives
Industry evidence Reputation/premium brand Ease of dealing with bank to become the most expect branch
important decision concepts to change
Innovations
criterion for clients significantly by 2020,
Successful
Financial stability/Low risk Quality of relationship
to choose their Expect branches View themselves only 16% feel well
Investment performance Financial stability/Low risk private bank to change as very prepared prepared for this
significantly for this shift
Full WM proposition Investment performance Key:
Yes
No
and Sources
Contacts
21Innovation in Private Banking & Wealth Management| Embracing the Business Model Change Market Intelligence on Innovation in Private Banking & Wealth Management FinTech Lens 22
Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Focus areas of innovation today: FinTechs
Innovation
Case for
FinTechs accelerate the change of the traditional business model in Wealth Management
although they are not as transformational as commonly presumed
Approach
Current relevance of innovation for European FinTechs
T Trans- •• Contrary to their commonly-presumed transforma-
forma- 0 0 0 0 4% 0 1% 0 0 3% 8%
tional characteristics, the innovation ambitions of Fin-
Degree of ambition
Managers
tional
Wealth
A
Techs focus mainly on areas that are core (74%) to the
Adjacent
0 1% 1% 5% 5% 2% 2% 2% 0 0 18% existing Wealth Management business, yet with a high-
er emphasis on adjacent (18%) and transforma-
C
tional (8%) innovations
Market Intelligence
Core 0 7% 5% 15% 11% 6% 14% 8% 1% 7% 74%
•• FinTech’s innovation activities mainly revolve around the
FinTechs
1 Profit 2 3 4 5 Product 6 Product 7 8 9 10 Client
perfor- engage- ∑ innovation types process (20%) as well as product per-
model Network Structure Process system Service Channel Brand
mance ment
Configuration Offering Experience
formance (20%) and service (17%), which reflects the fact
that FinTech companies are split into two camps:
Type of innovation
–– B2B companies, which specifically focus on the inno-
Summary
vation types network, structure and process by offer-
ing flexible and innovative software, analytical tools
Process Product performance Service and Channel
The highest concentration FinTechs’ strong focus on Based on their technological and other digital solutions; they are service provid-
of innovations can be found this innovation type results nature, FinTech companies have ers to Wealth Managers or partner with them
here mainly due to their flexible mainly from the large number changed the utility and delivery
solutions and tools offered of companies that offer robo of offerings, and how to connect –– B2C companies, which specifically focus on the types
Innovation
to Wealth Managers advisory services with clients
product performance, product system and service by
Corner
offering robo advisers, peer-2-peer platforms and in-
vestment strategy solutions; they compete with in-
Key: Focus areas of innovation based on identified
FinTechs focusing on Wealth Management (n= 65):
cumbent Wealth Managers for private clients
>10% •• Overall, it can be said that FinTechs accelerate the change
Innovations
Successful
>5-10%
of the traditional business model and the digital trans-
>1-5%
formation in Wealth Management, but they have yet not
>0-1%
0 fundamentally transformed the business
and Sources
Contacts
23Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Most prevalent unique innovations: FinTechs
Innovation
Case for
Our analysis shows that FinTech innovations are either digitised Wealth Management
services offered to private clients or digital solutions for incumbent Wealth Managers
Approach
Mapping of FinTech’s key types of innovations in Wealth Management
P2P Investments Robo advisers Wealth platforms Digital Family Office
Managers
FinTechs provide platforms that make it With the introduction of robo advisers FinTechs offer clients the opportunity Digital asset management enables
Wealth
B2C
easier for investors to directly connect and artificial intelligence technology, to monitor their consolidated wealth access to asset classes (e.g., private
without relying on an extensive FinTechs transform product from different Wealth Managers equity) and investment strategies
network of intermediaries performance fundamentally on single a digital platform previously not available to all clients
2 FinTechs1) 9 FinTechs1) 9 FinTechs1) 1 FinTechs1)
Market Intelligence
21 FinTechs 1)
FinTechs
1 2 3 4 5 6 7 8 9 10
Profit Product Product Client
Network Structure Process Service Channel Brand
model performance system engagement
Configuration Offering Experience
Summary
B2B Collaboration with Wealth Managers Process automation Graphical interfaces CRM tools
Innovation
FinTechs saw the need for Wealth Automation of client-related processes FinTechs offer didactic financial FinTechs provide tailored platforms
27 FinTechs1)
Corner
Managers to digitally transform their significantly reduces settlement graphs over different time frames for Wealth Managers to attract and
business and offer their collaboration time and transaction costs and has and adjustable for individual profiles, interact with clients, prepare client
to develop flexible solutions positive effects on risk and capital enhanced with API functionalities meetings, and manage client data
requirements as well as integration into social media
162) FinTechs1) 4 FinTechs1) 2 FinTechs1) 5 FinTechs1)
Innovations
Successful
1) Based on the analysis described on p.13, 65 European FinTech companies focusing on Wealth Management have been analysed; the number of FinTechs in the mapping is smaller due to the fact that some of the companies have
innovations in areas we have not identified as being “most prevalent”
and Sources
2) Collaboration with Wealth Managers refers to FinTechs active in B2B across different types of innovation
Contacts
24Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Digital Wealth Management
Innovation
Case for
FinTechs focusing on business to private clients (B2C) most frequently offer robo advisory
services and thus challenge the shift towards Digital Wealth Management
Approach
Components of Digital Wealth Management
Connect Advise Invest •• FinTechs focusing on business with private clients offer portfolio and in-
vestment management services on a digital-only basis, which – from a
Managers
Wealth
Social trading client perspective – has changed three core areas: connecting, advising
platform
and investing
Trading
applications –– Connecting has changed as FinTechs enable private clients to access in-
Portfolio
Market Intelligence
vestment information directly; client can also exchange ideas digitally or
Digital Wealth Management
Provider of
Management information mutually invest funds with peers
FinTechs
2.0
Crowdsourcing –– Advising has changed as user-generated investment strategies (so-
tools cial trading) and robo advisers provide automated advice at a man-
Mirroring ageable cost and thus enable clients with low asset volumes to be
provider served efficiently
Summary
Digital asset –– Investing has changed as private clients are much less dependent on
manager
their advisers and can execute their investments much more easily, more
Investment Robo adviser flexibly and significantly faster
Management •• While Digital Wealth Management is growing, face-to-face advice is
2.0 Digital adviser not expected to become obsolete: for example, skilled financial advis-
Innovation
Corner
ers can create value for their clients and offer them tailored recommenda-
Hybrid advisory* tions particularly where decisions are more complex or involve higher value
transactions
Key: Applies Applies to a certain degree
•• In this regard, hybrid advisory models appear to be the most promising
Advise: Invest:
Connect:
Innovations
compromise, as they combine personal and digital components to reduce
Successful
Use digital interfaces and Provide access to investment
Allow investors to link their
analytics to deliver tailored opportunities otherwise
accounts together, and connect
advice and enhanced open only for high-net-worth advisers’ administrative tasks, and thus allow them to concentrate on their
with peers and the right advisers
experiences individuals advisory role and increase client proximity
and Sources
* Combination of Robo advisers with personal advice
Contacts
25Innovation in Private Banking & Wealth Management| Embracing the Business Model Change Market Intelligence on Innovation in Private Banking & Wealth Management Summary Results 26
Summary
Executive
Innovation in Private Banking & Wealth Management| Embracing the Business Model Change
Summary: Focus areas of innovation
Innovation
Case for
Innovation activities from Wealth Managers and FinTechs can be mainly categorised
as industrialisation and disruption driven primarily by means of digitisation
Approach
Categorisation of innovations in Wealth Management
•• The innovation ambitions in Wealth Management combined from Wealth Managers
Innovation
and FinTechs revolve mainly around the existing core business (82%) with only limit-
Managers
corner
Wealth
Innovation (see p. 29 et seq) ed adjacent (12%) and transformational (6%) innovation efforts; the main innovation
types addressed today are clustered around process (18%), structure (14%) and client
engagement (15%)
Market Intelligence
Industriali- •• The focus on process and structure can be attributed to the Wealth Managers’ indus-
Disruption
sation try-wide strategic priority of reducing costs through standardisation and digitisation
FinTechs
triggered by increasing economic pressure and technological advancement
•• Innovations in the area of client engagement are mainly driven by FinTechs and con-
centrate on enhancing the existing, still mainly on personal interaction dependent cli-
FinTechs Digitisation Wealth Managers
(see p. 23 et seq) (see p. 16 et seq) ent experience; having realised that Wealth Managers might be a more attractive cli-
Summary
ent segment than private clients, which is in great need of digital solutions, FinTechs
increasingly specialise in offering flexible, innovative B2B solutions to Wealth Manag-
Current relevance of innovation in European Wealth Management*
ers to help them close their digital transformation gap and thus have a strong focus
on the innovation type process
T Trans-
forma- 0 0 0 0 4% 0 0 0 0 2% 6%
tional •• In conclusion, it seems that innovation in Wealth Management still plays a subordi-
Innovation
nate role with most innovations being responses to existing business challenges
Corner
A
0 4% 1% 2% 2% 1% 0 2% 0 0 12%
Adjacent
C
2% 6% 13% 16% 3% 4% 11% 9% 5% 13% 82%
rather than innovations based on the identification of opportunities to create value
Core
in a new way
1 2 3 4 5 Product 6 7 8 9 10 Client
Profit Product
perfor- Channel engage- ∑
model Network Structure Process mance system Service Brand ment •• Instead, it can be said that the innovation efforts of Wealth Managers are much
closer related to industrialisation and those of Fintechs to disruption – both by
Innovations
Successful
Configuration Offering Experience
means of digitisation
Key: Focus areas of innovation based on of identified innovations (n=181):
>10% >5-10% >1-5% >0-1% 0
and Sources
* The Current relevance of innovation in European Wealth Management has been derived by the weighted average of the innovations in Wealth Management from Wealth Managers and FinTech companies
Contacts
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