The Triple Threat To Private Banking

Demands for tech-enhanced service, a younger cohort of clients and worldwide regulation are driving innovation.

David Bruno is not your average gnome of Zurich. The 43-year-old American, sporting an iridescent polo shirt and ponytail, offers a tip on an edgy indie rock band before getting down to business: explaining his mission as director of UBS’s wealth management innovation lab. In a stream of 21st-century consciousness that bounces from voice-recognition software to Russian oligarchs’ fine-art shopping, one phrase stands out: “We are focused on remaining relevant.”

That’s a jarring statement from the house futurist at UBS, one of the three colossi of global wealth management, with some $2 trillion in client assets. (Its top two rivals are Morgan Stanley and Bank of America, both US-based.) It reflects an unease that is belatedly spreading across private banking about powerful waves of technological and generational change eroding a profit fortress that has stood stolidly for the past century or more.

“Financial services lags other industries in terms of digital innovation, and wealth management is a laggard within financial services,” says Kendra Thompson, managing director in consulting firm Accenture’s wealth management practice.

Barbara Goodstein

Retail bankers have been steadily automating their customer interface since rolling out ATMs in the late 1970s, and using that automation to slash human costs. Wealth managers have stuck with an age-old model dominated by face-to-face contact and hefty fixed fees to pay for it. That paradigm is under assault from at least three fronts at once, apostles of innovation say. First, clients of all ages have become accustomed to a 24/7, go-anywhere, I’m-in-control norm in their everyday business and are demanding it from their private bankers. A semiannual portfolio review in an oak-paneled room doesn’t cut it anymore, and even octogenarians are tech-savvy. “Our average client is clearly not a millennial,” Bruno says. “But I’ve never met a billionaire who wasn’t constantly engaged with his iPad and iPhone.”

Second, wealth is gradually passing to or being created by a younger generation that questions brand loyalty, price-shops incessantly, and loves to look under the hood of any commercial proposition. “In the future, clients won’t want to sign up for life and pay basis points until the end of time,” Thompson says.

Third, a global post-2008 onslaught of regulation has substantially raised compliance costs for wealth managers, putting long-term profitability into question. A key countermeasure could be using technology to service more clients with fewer advisers, the way retail banks have learned to serve more customers with fewer tellers. “Despite strong cyclical growth, top-line revenue increases have not translated into proportional bottom-line returns,” consultant EY observes in a 2015 report. One of its suggested remedies: “Lower the cost-to-serve by means of digitally enabled client relationships.”

The race to implement these complex reforms is just starting—Thompson estimates the industry is roughly two years into a six-year process—and the outcome could affect competitive advantage for decades to come. What will not happen, the experts say, is a fully fledged disruptive start-up eating the wealth establishment’s lunch, as Uber has done to the taxi industry, or AirBnB to hotels. Trusting an online stranger with a cab ride or vacation is one thing. Managing the fortune accumulated through one lifetime or many requires a much higher level of trust and attention, which bedrock banking names are well placed to deliver.

Wealth management has already seen disrupters aplenty in the form of cut-price, online-only “robo-advisers” like UK-based Wealthfront or peer-to-peer networks such as Tiger 21 out of New York (see p. 19). But they have only managed to nibble at the industry’s edges and are more likely to prove acquisition targets for the mainstream than head-on competitors. That’s what the mainstream thinks, anyway. “All the robo-advisers’ assets add up to about $150 billion, still a drop in the ocean,” says Gauthier Vincent, Deloitte Consulting’s lead partner for wealth management. “It’s too hard to overcome the trust barriers. Most will go into the networks of existing banks.”


The term of the moment is “hybrid,” some blend of cutting-edge digitalia and old-school, oak-paneled advisory that satisfies customers’ need to commune with their investments during a 4 AM layover in Singapore and banks’ needs to squeeze overhead. Or rather, a family of blends priced for different wealth levels. If virtual tools can turn the iPad-toting billionaire into a financial Captain Kirk, they might also extend a hint of private-bank-style pampering to the merely affluent, who these days get by with a wire house adviser and the family lawyer. “In the less wealthy range you might have light robo with a call-center-based adviser, then a direct human experience at major life milestones,” Accenture’s Thompson says.

The hybrid future could include some ornate gizmos to customize the wealth management offering, David Bruno says. For instance, his UBS lab is toying with a digital “emotional adviser” that maps a client’s financial psychology and matches him/her with appropriate investment strategies and human advisers. But an essential shift will be toward what Bruno calls “open finance,” deconstructing the suite of services private banks now bundle into that annual management fee—asset allocation, research, estate planning, and so on—so customers can choose them à la carte from competing providers. “A bank will no longer lock in all of a customer’s business,” the chief UBS wealth management innovator suspects. “All your data is your own data, and you can choose different pieces of the value chain.”

That’s a daunting challenge for wealth advisers, as institutions and individuals. “The new technology is going to require a new kind of adviser—one who understands that the advice a private bank gives is private, but the way a private bank works is public,” says April Rudin, a former global marketing chief for office temp agency Kelly Services who now consults to the financial industry.

The banks that thrive will be those that can leverage their core offering: intimate and trusted personal counseling that melds market expertise with insight into complex family decisions. “We don’t want our advisers to become technology managers,” says Dennis Hall, chief of client digital services at Chicago-based Northern Trust. “Very few people choose their private bank based on technology. Trust is still most important.”

But banks need to maintain this labor-intensive intimacy while substantially cutting expenses. “The real innovation is going to have to be in costs,” Accenture’s Thompson says. “If you can deliver at 30 to 40 basis points , you will win.”

That’s a great leap from traditional wealth management fees of roughly 1% of assets. One way technology can deliver savings and enrich client experience simultaneously is by moving “basic education” about markets and portfolio choices online. Customers can “learn investment language at their own pace,” while human contact is reserved for “value-added” advice, Deloitte’s Gauthier says.

Rocked by the 2008 marketquake and its burdensome regulatory aftershocks and roiled by the approaching tsunami of hyper-informed, post-baby-boom clients, private banking is starting to grapple with inevitable change. Much of the focus at this early stage is on scouting potential partners among upstarts that offer technological inspiration but lack a centuries-old client base. Northern Trust is trying to stay ahead of the curve through an alliance with, a pioneer in online customer relations management. The object, Dennis Hall says, is to create a “single-pane-of-glass experience, so advisers and their clients can have all the information they need at their fingertips.”

The good news for private banks and wealth managers is that their essential service cannot be replicated as easily as a hotel’s or taxi company’s. The establishment starts the new age of digital competition with a weighty advantage. “When I take control of my wealth, it doesn’t mean I don’t want advice,” Kendra Thompson says. “The real transformation in this industry will be led by the strongest of the incumbents.”

David Bruno and his competitors have every chance to stay relevant. But they will have to learn to deliver their service more adroitly for less money. For those not thinking seriously about this challenge, it will soon be too late.