Growing pains: Julius Baer strives to keep its innovative spirit alive

Nic Dreckmann, CEO of Swiss stalwart Julius Baer, discussed the challenges provided by the bank’s trajectory towards the $500bn-plus club at the recent PWM summit.

For traditional ‘pure play’ private banks, digital transformation has become one of the most awkward hurdles that management must negotiate.

The complex nature of coalface decisions, often tackling conflicting objectives, became evident during an onstage PWM interview with Nic Dreckmann, CEO of Zurich-based private banking giant Julius Baer, at the recent Innovation in Wealth Management Summit in London.

“The larger you grow, the more important it becomes to keep some sort of small cells of innovation alive,” said Mr Dreckmann, acknowledging the challenges provided by the bank’s trajectory towards the $500bn-plus club.

Until recently, as chief operating officer, Mr Dreckmann was responsible for migrating legacy systems to a more digital approach, dragging the 134-year-old bank, located at the heart of Zurich’s luxury shopping and financial hub of Bahnhofstrasse, into the modern era.

But following the resignation of chief executive Philipp Rickenbacher in early February, after a massive loan write-off to an Austrian luxury property developer, which halved the bank’s profits, Mr  Dreckmann was promoted to interim CEO.

Before 2010 and prior to acquisitions from Merrill Lynch and UBS, the bank was essentially a family-owned private bank. But it was catapulted into the big league by an M&A flurry, overseen by Boris Collardi. And following the collapse of Credit Suisse, Baer took its perch as Switzerland’s second biggest wealth manager.

For innovation to succeed, said Mr Dreckmann, “you need deep pockets, you need some money, where obviously size helps”, he said, acknowledging the wrestling match between traditional client expectations of an adviser-based relationship, against the reality of data-led, process-driven private banking of the digital era.

His comments were backed by the latest Wealth Management Insights report from consultancy PwC, which shows 65 per cent of industry players see the benefit of GenAI – today’s cutting edge technology – as particularly beneficial for increasing workforce productivity. A significantly smaller number – 54 per cent – expect it to help meet client needs.

The difficulties of fostering this change in the business model can be immense, he admitted. “The bigger you grow, the more structures, procedures, frameworks and risk management is in place, which can also hinder a certain innovation, so finding this balance is absolutely key.”

New features such as the Digital Advisory Suite, designed for helping relationship managers select suitable products for clients, in compliance with regulation, are necessary, yet not so easy to implement, admitted Mr Dreckmann.

Ten years ago, Swiss bankers were able to sell funds or structured products to Italian, British or German clients without difficulty. “Today, you need to check suitability, check knowledge and experience,” he said. “Technology investments are not only about the latest, greatest stuff, but also about infrastructure, cyber security and so forth.”

At the centre of the transformation process is the issue of identity. The major question for management to resolve is whether clients of banks such as Julius Baer really want to have a digital-first offer to arrange their finances. Latest PwC figures show 74 per cent of respondents still prefer in-person advisory, “emphasising the enduring value of face-to-face meetings when it comes to fostering trust and relationships with clients”.

When serving ultra-high net worth individuals, “future-ready” wealth managers will be human-led and tech-empowered, according to PwC.

This is very much in line with Mr Dreckmann’s philosophy. “Remember in which segment of banking we are in, we are not in the retail or affluent business, we are in the ultra-high net worth business,” he stressed. “Do these clients really only want to talk to a robot or AI? I am not so sure.”

Mr Dreckmann mentioned many potential pivotal points during his tenure at the bank, which were not as transformative as many pundits expected. The bursting of the dotcom bubble was soon followed by a wave of robo-advisers and fintechs, who “told me that ‘your bank will run out of business’ in the next two to three years”, he said, smiling. Several years later, distributed ledger technology once again threatened to marginalise advisers, but at each stage, this did not happen, he said.

“Short term, new technologies are always over-estimated, but long term, they are underestimated,” he told the audience of digitally oriented private bankers.

He admitted that banks can get carried away with latest innovations and forget basic housekeeping and risk management. “You need to strike the right balance. There needs to be a framework, there needs to be risk management and controls in place,” said Mr Dreckmann, who often wonders whether digital transformation is as extensive as its champions claim, and whether the extensive investments pumped into technology have actually paid off for banks.

Clients typically want to transfer their retail experiences into their banking relationships. “We need to be in this to a certain extent, but whether this has created huge new revenue pools for us as a bank, I am not so sure,” he said.

Answering a question from Phillip Watson, former chief innovation officer at Citi Private Bank, about adoption of key innovations, including AI-driven prompts, Mr Dreckmann once more demonstrated the vulnerability of wealth firms during an uncertain cultural and economic transformation.

Banks require a longer-term “judging process”, involving both clients and relationship managers, when adopting new tools, he said. This often involves incentives for private bankers to use new features such as electronic signatures.

“You need to encourage people by creating incentives and a pricing scheme,” he said. “So, if you do it digitally, you are charged less.”

There is much more to digital development than simply inventing the tools, he said. “It’s a myth or illusion to believe that you bring new features or applications and everyone immediately jumps on it, loves it and uses it.”