As we enter the decade of the 2020s, it is worth looking at what some of our larger private banks are promising their clients for the future.
The common belief is that the Generation Y or millennial cohort of clients have a penchant for environmental, social and governance (ESG) principles and investments which create an impact on society.
Traditional equities and bonds are said to be on the retreat, with hands-on private equity and real estate transactions preferred by younger investors. We can use these product and client segmention lenses to examine the offers of two large banks, with very different cultures.
BNP Paribas, the French giant with private banking ambitions across Europe, Asia and the US, has gone further than many competitors in creating a Sustainable Investments unit, which works right across the global wealth management operation.
According to the bank’s research, conducted together with wealth think-tank Scorpio Partnership, 39 per cent of “elite entrepreneurs” respondents consider ‘positive impact’ to be core to how they assess business performance, compared to 10 per cent of respondents two years ago. More than half of the bank’s clients now expect assets to be managed according to sustainable criteria.
Targets have been set. Currently, the bank manages €15bn ($16.6bn) in sustainable mandates and funds, with a goal of €20bn for next year. Around 22 per cent of funds in advisory portfolios are managed along socially responsible lines, up from 12 per cent at the end of 2016 (and 5.4 per cent five years ago).
By putting these environmentally friendly commitments at the centre of their model, the bank must locate enough products to satisfy client demand. This is where many fall short, by talking big on ESG, yet failing to populate portfolios.
The French admit this is a huge challenge. But at least they have kicked off the process with the hunt for strategies encompassing both external and internal asset management.
Ethics not lost in France
BNP Paribas has the advantage of an internal asset management firm, managing money along ethical lines for many years. The Corporate & Investment Bank will also be asked to step in to create opportunities within ESG parameters.
The bank has committed to having “100 per cent” of its core mutual funds integrating ESG in their processes by the end of 2020.
A recently created digital tool, MyImpact, has been pioneered in Paris to help match clients with their preferred UN Sustainable Development Goals. But don’t let any bank tell you they are hugely advanced in this process. BNP Paribas is one of the leaders and yet, they are only just beginning this quest. Of the 400 clients it is trying to enrol into this pilot scheme, around one third are actively participating in the early stages.
But the response is overwhelmingly positive, with clients “really appreciating our sustainable offering” after an initial meeting with relationship managers. And this is where the culture change is coming. Most clients are aware of investing with impact and have some interest in it, but very few will “push the button” until the bank begins the conversation.
This dialogue has the potential to transform the relationship between private bank and client, says BNP Paribas, as the discourse moves away from financial returns and embraces goals which can improve society and the environment in which we live.
This marks the beginning of what the bank calls a new era of “dynamic CRM”, where the relationship between client and banker generates data, which can be analysed, with the results used to further enhance relationships. “MyImpact is central to changing the way we interact with clients,” says Eleonore Bedel, head of SRI and impact investing at BNP Paribas Wealth Management.
Other key assets in the sights of Ms Bedel’s units include private equity and real estate. The bank has identified impact investment funds managed by private equity giant KKR for assessment, but admits the journey toward managing environmentally friendly real estate portfolios is still an uphill one.
Something in the Citi
Over at key competitor Citi, the whole question of what the next generation of private clients wants is being treated in a different way.
As we approach the next decade, the higher echelons are well aware that younger relationship managers with a more modern outlook need to be recruited and promoted.
Each year, 20 of the private bank’s most senior representatives democratically a band of new managing directors.
“It is very transparent – you’re not going to get elected just because you are a member of the same club as another MD,” says Peter Charrington, global CEO of Citi Private Bank.
Crucial to the direction of this new cohort and to that of the bank in general, is expertise in family business. Citi sees the family office sector as fundamental to expansion across jurisdictions.
To bond with Generation Z, the new MDs must be switched on to the bank’s fast-growing alocations of private equity and real estate.
Sophisticated clients, says Mr Charrington, want access to institutional-style services like research, pricing and deal execution. Real estate is now the number one asset class for Citi’s private clients, with external fund manager Threadneedle used to put together club deals between different parties.
But the beginning of the forthcoming decade, according to Citi, will be defined more by geopolitics than previous periods.
Assets, investments and whether clients’ key buying targets are in London, Madrid or Hong Kong, will depend on this study of global political developments.
Banks such as Citi are deploying increasing resources to the analysis of these trends. A knowledge of and empathy with geopolitical developments are key criteria which will shape organisational structures, investment hubs and successful bankers in the 2020s.
