THE TIMES THEY ARE A-CHANGIN

“When we first started our wealth management activities in 1987, we were mainly used by German clients who were looking for a European alternative to book assets,” says Li. As one of the first banks established in Kirchberg 50 years ago, Deutsche Bank Luxembourg has evolved from being a subsidiary of the Deutsche Bank AG, to becoming a fully-fledged local private wealth management bank.

Deutsche Bank Luxembourg now offers clients a wide range of local skills, from portfolio management to structured finance. “We use Luxembourg as our EU international hub, especially for clients who want to diversify their portfolio. Luxembourg’s economic strength and comprehensive legal framework provide a variety of verticals for sophisticated families and semi-professional clients who want to book and hold their assets here in Luxembourg.”

Li further notes that alongside the internationalisation of their clients, Luxembourg as a country has likewise become more international, with a multitude of management companies, as well as single- and multi-family offces specialised in cross-border jurisdictions. “In recent years, or at least in the last 10 years, we have seen a growing trend of EU, as well as non-EU clients wanting to use Luxembourg as an entry point for their European investments, leveraging the increasing expertise of professionals available in the country.”

“We see Luxembourg developing as a European, even as a global wealth management hub,” remarks Bollen. Similarly to Deutsche Bank Luxembourg, Citi Private Bank was established in Luxembourg 50 years ago. Recognising the opportunities the country has to offer, Citi recently opened its private banking hub in Luxembourg in order to be closer to their clients and to address the regulatory component of MiFID by establishing a booking centre inside the European Union – specifically outside the United Kingdom – including local front office activities and investment advisors.

“The Luxembourg financial centre has always been structured around the organisation of wealth: wealth planning and the use of the Luxembourg toolbox, as we call it, is the hub of the business here. In addition to its location at the heart of Europe, the country boasts a high level of political stability, with a large number of varied professionals who are not only able to create a structure in the right format, but are also capable of managing these holdings and on top of it bring investment opportunities,” explains Lecler.

Established in 1893, Societe Generale Luxembourg is one of the oldest foreign banks in Luxembourg. Though always engaged in wealth management, the activity was structured into a separate business line in 2008, covering the full span of the wealth management services, such as fund management, portfolio management, wealth planning and credit facilities, from Luxembourg, with representative offices in Milan and Frankfurt.

DIGITALISATION: FRIEND OR FOE?

With banks being challenged by the number of new entrants in the market, the innovative advances in technology, as well as the digitalisation of a number of wealth management activities, Lecler brings up the subject of whether this trend will continue to evolve right up to the advisory level. He explores the question of whether some digital tool or robo advisor will one day disrupt part of the relationship private bankers have with their clients.

“My view, and the view which is shared by many in the profession, is that the one-to-one relationship between the client and the bank is still very important. I agree that we have to be able to deliver a number of tools that are needed by our clients for their day-to-day operations, however, I do not believe that moving towards a 100% digital exchange is the way to go. People still appreciate, and want, a oneto- one relationship and choose to discuss with professionals directly.”

Bollen agrees that although algorithms and technological tools are available, robo advisors and artificial intelligence are currently not able to simulate human experience or provide a personal touch in delivering the relevant information clients seek. He does add, however, that technology can help deepen the relationship with clients and improve customer experience.

Another challenge that Lecler describes is the use of technology by some professionals to create tools for real time comparison of information such as pricing or terms and conditions of various banks and new entrants, putting additional strain on private banks. “There are specialists that have appeared on the market who handle parts of the wealth management value chain at a very low cost. This strong pressure on the margins of the banks is something we need to be able to adapt to and monitor,” conveys Lecler.

According to Li, advances in financial technology and its impact on the wealth management sector is influenced by two major shifts, namely, Luxembourgs support of Fintech startups and the regulatory environment. MiFID II for example, calls for banks to become more digital, to automate and to optimise their back-office operation processes. Li adds that while the use of financial technology has improved and has indeed become an aid to wealth managers, she has not yet experienced a wholehearted leap into digitalisation on the client side. “Many clients are typically in the age range of 55 to 75 and are either already a client of the bank, or have the same needs as their parents. But when it comes to the next generation, they can have very diverse needs. They expect to be offered different methods of access to their accounts and are more into ESG investments. Here, we have experienced a growing trend, with, for example, entrepreneurial clients telling us specifically that their investments should be ESG.”

SHIFTING THE INVESTMENT GOAL-POSTS

Li has noticed substantial growth in the ESG sector and believes that investors are sincerely concerned by the topic rather than just following a developing trend. Another key factor that she feels is drawing clients to such investments is the increasingly attractive return on investment as a result of the growing amount of assets flowing into green and impact investing.

At Societe Generale, wealth managers have also noticed a shift in client behaviour. “Clients have always been interested in their investments, but the type of questions raised by investors has changed over the years. Though the basic needs have remained more or less stable, that is to invest their assets in a liberal, safe and stable place with competent professionals, investors have started looking beyond and are questioning the sense of their investments, bringing in the socially responsible aspect. There is a genuine will from our clients to understand not only what they are investing in, but also why,” states Lecler.

Being able to rely on a comprehensive set of instruments provided through a welldesigned legal environment, wealth management professionals are able to oer clients a wide array of services for cross-border solutions to fit their needs. This having been said, Lecler notes that an increasing number of younger generation investors want to not only acquire a significant part in particular private equity investments but also be part of their governance. By being involved in the strategic choices and evolution of these companies, investors need an increased expertise in the relevant fields. “I think that investors have realised that in order to generate significant yield, they also have to invest into non-listed companies, which in turn requires an increased monitoring on their side. This is definitely one of the bigger changes in client behaviour, which also leads to family offices needing to upgrade their know-how and hire new professional profiles to address this development.”

When asked about whether age or newer generations tend to show a difference in investment behaviour, Bollen notices distinct investment styles depending not on age, but on which generation these clients are in terms of wealth generation. “If you compare a company founder’s view on wealth management with somebody who is in their sixth or seventh generation of family wealth, there is a vast difference. The wealth founders tend to be more the risk takers, often having built their wealth by concentrating all their assets in one project. Well-established families, however, maintain and increase their assets by diversifying their investments.”

In terms of digitalisation, Bollen agrees that the development of technology has assisted banks by providing improved services, by allowing them to respond to client queries more quickly and by improving overall client experience. He does, however, question whether digitalisation does indeed make things easier for clients, as the mass of information available can often seem more confusing than clarifying.

Lecler, Bollen and Li all agree that, in this day and age of almost infinite amounts of information readily available, their role as advisors is to guide clients through this mass of information and direct them to various opportunities according to their expectations and needs.

Accentuating the sustainable and impact investing mindset of investors, Bollen notes that most of his clients, if not all, have a very strong moral compass and want to give back to the community in some way, shape or form, going strongly into sustainable finance, philanthropy, or other types of alternative investments. “Our clients have been, and still are, very aware of the sustainability trend in terms of not only the environment, but also social sustainability, making investments that have a positive impact on the environment as well as on society.”

Bollen further explains that many clients are interested not only in socially responsible investing, but more specifically in impact investing. “Socially responsible investing is concerned with avoiding negative outcomes; on the other hand impact investing is concerned with positive outcomes. Clients are seeking companies that have a positive impact on the environment, on governance, on social issues, and so on. We have identified a number of unstoppable trends, as we call them, such as electric vehicles, healthy ageing, digitisation and robotisation, as well as artificial intelligence. Being part of an institutional client group helps us tremendously as we are able to leverage a lot of equity analysis to screen and score companies for portfolios.”

THRIVING IN TURBULENT TIMES

“Luxembourg regulators have strived to establish a high standard with regard to EU regulation, which is one of the reasons why Luxembourg has really become an attractive location for institutional clients,” says Li. As a founding member of the European Union, Luxembourg not only implements EU rules on financial services, but is also an active member of all international standard-setting bodies, such as FATF, the OECD, IOSCO and the Basel Committee.

When asked about the main difference between the Luxembourg ecosystem and other markets, Lecler notes that many clients have cross-border needs that are not necessarily fulfilled by their local national or onshore private bank. With the requirement to consolidate increasingly sophisticated multinational activities, Luxembourg has evolved into an ecosystem which has become progressively more competent and qualified across multiple jurisdictions. “Historically, the families that we have managed were owners of significant industries who needed a place for the organisation of their private wealth. As the tendency of these ultra high-net-worth clients to have relatively complex and international needs was reinforced, we have had to adapt our activities to their expectations.”

Bollen identifies Luxembourg’s ability to cope with the international regulatory framework and its wide array of professionals, who are familiar with cross-border regulations, as one of the key points influencing the decision to make the Grand Duchy their European hub for global wealth management. “Through all these challenges and changes, our principle objective remains to serve our clients in the best possible way. We try to be trusted advisors to our clients and we will use the available toolboxes, be it technological tools or multinational financial management, to help them achieve their goals,” says Bollen.