Four Strategies That Banks Can Use To Position For Family Offices

Establishing a family office serves to centralize wealth management and related functions for many ultra-high net worth families. While some family offices are established to avoid entrusting wealth to private banks, many still require their assistance in one way or another.

Traditionally, wealth management has been the focus of family offices. This is, however, shifting with the rapidly changing business environment. Wealthy families are expanding their interests into new areas and becoming more dynamic and independent as they seek to reduce costs, improve governance and reporting, consider alternative investments, and ensure inter-generational wealth preservation. With this shift has come rapidly changing expectations of what is required from their banking partners.

Simultaneously, a growing number of banks are actively attempting to diversify their services to meet these evolving needs and win the highly sought-after high net worth, ultra-high net worth and family office business. There are, however, several segments in this space, each with unique requirements when it comes to professional banking relationships, products, services, and solutions. Factors that add various layers of complexity to navigating this space.

Banks who clearly define which segment they are targeting, and effectively tailor and communicate product and service offerings around this, stand to gain considerably.

Here is a look at the four strategies some of the world’s major banks are using to do just that.

Targeting By Family Office Type

High net worth individuals (HNWI), ultra-high net worth individuals (UHNWIs), single- and multi-family offices all have very different expectations and requirements from their banking partners. As such, they must be served differently.

A fact of which the Bank Julius Baer & Co. Ltd., originally a family-owned company, is acutely aware. According to Guy Simonius, Managing Director of Wealth Planning at Bank Julius Baer, Zurich, “Family is in Julius Baer’s DNA,” and with their intimate knowledge of the challenges the various segments fact, the group has developed a unique service offering around these.

Their Wealth Planning unit focuses on HNWIs and UHNWIs who do not want to set up their own family office or be part of a multi-family office yet seek the services of these. This is an area of increasing demand within this segment and one that is primarily attributed to the growing complexities of life and business in the 21st century, which has brought about the globalization of families and their assets as well as the nature of the laws and regulations in various countries.

In addition, the group serves virtual, single, and multi-family offices through service offerings not available to private clients. These include services like asset management and fiduciary administration. In this regard, the group boasts two dedicated units, with team members located around the globe, to ensure that family office clients can leverage Julius Baer’s capabilities.

The Lombard Odier Group, on the other hand, focuses on offering bespoke service for each segment within this space and adapts according to these needs. According to Nicolas Chatillon, Head Grandes Familles, “The wealthy families whom we are servicing exhibit a high degree of complexity. This reflects in multiple ways; through their members, often based in several jurisdictions, or through their wealth composition, which includes liquid financial assets, private assets, real estate, family businesses, in various legal and tax environments.”

As such, the group tailors its multi- or single asset-based investment mandates with clients’ personal criteria in mind, while also providing the tools and reporting required to service their needs.

Targeting By Wealth Source

Banks may choose to target HNWI, UHNWIs, or family offices based on their wealth source and requirements. Has the individual or family recently sold a business and are newly wealthy? Or are they currently involved in industrial or operational activity, or have they inherited wealth and purely require assistance with the administration and management of their financial portfolios?

The SEB Group differentiates itself by catering to the former, supporting both wealthy clients in their private capacity as well as their operational business so that they can handle both under one roof. According to Ole Fredrik Hamre, Head of External Family Office at SEB, “At SEB we strive to provide a client-centric One Bank offering and value-creation advisory approach across divisions, departments and geographies, aimed specifically at the professional family office segment and its management of underlying family-owned industrial, financial and private assets.”

Geographic Focus & Targeting

The world’s major banks all have global capabilities. However, when it comes to HNWIs, UHNWIs and various forms of the family office, targeting may still be determined by geography. Swiss banks traditionally leverage their Swiss roots within their local markets, affording their clients’ access to their networks of affluent individuals and families within these.

UBS, however, has realized the appeal of being a Swiss bank on a global level and has successfully expanded and positioned itself within the international market with its Global Family Office model, a global coverage model pioneered by the group. In 2019, UBS identified an opportunity to build on this success. According to Joe Stadler, Head Global Family Office, UBS Global Wealth Management, “As part of the strategic change, access has been opened up to more than double the number of clients.”

The aim? To become the ‘House Bank’ for these clients, providing them with coverage, opportunities, and execution, they cannot get anywhere else. This is achieved by offering UBS’s blend of wealth management and investment banking expertise to service a client segment in need of complex, bespoke solutions.

The SEB group takes a slightly different approach, focusing on clients in their local market and allowing them to bank in their home markets while enjoying support within the Nordics and across the globe.

Service Design & Differentiation

The one-size-fits all products, services and models that may serve mass affluent markets adequately cannot do the same for HNW, UHNW and family offices. Thus banks need to customize and differentiate their service and product offerings in relevant areas.

According to Chatillon of Lombard Odier Private Bank, “Finding a stand-alone specialist for a given topic is not the main difficulty for family offices. Where we add value to our clients is our ability to draw on in-house specialists covering the key topics. We combine and coordinate various services, including strategic asset allocation, asset management, manager selection, estate and tax planning, structuring of private funds, custody or global reporting.”

Likewise, the Julius Baer, drawing from its family-owned roots and experience is prepared to serve UNWHIs and family offices in various areas. Simonious states, “Julius Baer’s organizational set-up enables its internal specialists to make and execute decisions quickly and efficiently with the assistance of top senior management.”

What does the future hold for banks & family offices?

According to Simonius, there is increasing demand for the individualization of professionalized wealth management services such as outsourced CIO, structured finance, global or multi-custody services and the like. There is also a growing need for wealth planning services that take globalized aspects into consideration as well as ethical and other personal considerations in the context of wealth management, for example, sustainable and impact investment including philanthropic activities.

SEB’s Hamre shares these sentiments, “As the wealth landscape is under constant change triggered by external events, generational shifts and professionalization related to both ownership and governance of family wealth, it’s fair to say that the need for holistic advice linked to family-owned assets never has been stronger, assisting families and next-generation owners to realize their set objectives and aspirations”

At the same time, Chatillon reports observing a renewed interest in strategies based on fundamentals, such as long-only and non-benchmarked concentrated equity portfolios. He adds, “Increasingly wealthy families, and in particular the younger generation, have shown interest in investment strategies with genuine consideration for sustainability. We believe that the Covid-19 pandemic and the recent market turmoil will reinforce these trends.”

As banking services become increasingly commoditized and the HNW, UHNW and family office markets become more complex, with very particular unique needs, now is the perfect time for banks to review and refine their family office strategies, product and service offerings in these markets. Doing so will not only facilitate the development of relevant offerings but also enable potential clients to more easily identify the bank that offers the best possible fit for their needs.

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