By Alessandro Hatami
Private banking is on an upswing, buoyed by growth in emerging markets such as Asia – the most important global growth engine of 2024-5 according to HSBC – and also by new wealth created by entrepreneurial digital-first ventures such green and genAI focussed businesses.
Another transformational event is the massive generational wealth transfer already underway globally. In the next two decades $84 trillion will change hands – to put this figure in perspective, the GDP of the USA in 2023 was $27.4 trillion – about a third of that amount.
In theory, with their centuries of experience in handling the needs of the world’s wealthiest, the private banking sector’s legacy players are perfectly positioned to take advantage of this massive wealth management task. In practice, they will need to profoundly change the way they operate to align with their new, younger, more diverse, digital-first client pool.
Private banks’ existing client base – the silent generation and boomers – often expect face-to-face engagement including updates at agreed time slots with advice on a traditional range of investment opportunities. However, the new wealth management clientele favours a combination of both digital channels and traditional client interaction. They are also keen to explore a much wider range of investments such as digital assets (crypto/ NFTs), passion investing (art, wine), angel venture investing and most importantly, purpose investing which involves looking at generating returns while making a positive impact on society. They expect to interact with whoever is managing their assets in real-time.
Consequently, private banks will need to enhance their digital capabilities while upgrading the quality of their face-to-face engagement. Adapting to this new wealth paradigm starts now – and my view is that the following will be key trends in 2025:
- Joint Human and AI Advice: Private banking clients are reluctant to engage with robo-advisors – but they will appreciate the depth and speed of advice given by a private banker using AI. In 2025, we will see increased adoption of AI by relationship managers, with advice delivered via the client’s preferred communication channels. The delivery of individualised experiences is key to this working well. Market leaders already heading down this road include LGT, JP Morgan, St James’s Place and RBC, all of which are investing in developing AI systems.
- New asset classes will come to the fore: The days of playing it safe with wealth are over. New segments and generations of private banking customers increasingly want their private bankers to provide access to new asset classes. There are several key areas attracting interest. Firstly, digital assets, from cryptocurrencies to tokenised commodities. Secondly, passion investment, such as art, wine and spirits. Finally, impact investments. These opportunities generate commercial returns and deliver social, cultural, economic and environmental benefits. Impact investments should include access to angel and seed investments into disruptive transformational startups.
- The industry will pivot to Private Banking as a Service: To deliver these diverse capabilities, banks may have to offer skills and expertise that are difficult (perhaps impossible) to provide with internal resources. As a result, private banks will become platforms through which their clients can seamlessly engage with specialist advisors and delivery platforms. Private Banking as a Service will gain in popularity, and this may open up a space for embedded finance partnerships with brands in the luxury space.
- Next-gen wealth means new faces: As money changes hands and social norms evolve, the profile of the wealthy is changing. Next-generation affluent customers will be much more diverse in terms of their backgrounds, gender identification and overall outlook on life than previous generations. Private banks will need to be ahead of these shifts and factor them into how they promote their services and, crucially, how they recruit, train and retain employees.
- New wealth landscape brings enhanced risk: The inexorable move towards a digital user experience, combined with an expansion in asset classes, will increase cyber risks. Private banks will need to make sure they enhance their ability to address such risks, because if accounts of High-Net-Worth Individuals (HNWIs) get hacked, the potential net losses can be much greater than other types of bank clients. In 2025, expect to hear about much deeper engagement between private banks and the cybersecurity ecosystem.
- A transformed user experience: One likely consequence of this generational shift is the development of a ‘wealth super app’, which delivers every wealth finance instrument that customers might want, via a single unified platform. Supported by AI, this unified customer experience will integrate everything from stock and shares to pensions and mortgages into a single destination. The wealth super app will provide HNWIs with a holistic view of their wealth and offer personalised suggestions about investment opportunities.
Final thought: Increased complexity will demand strategic rigour
New technology, atypical asset classes, a diversified client base, and deeper personalisation will increase the complexity of offering best-in-class advice to HNWIs. As such, private banks will need to invest in their employees and the systems they rely on. Employees will require high-quality training to navigate the new landscape. Meanwhile banks must develop a strategic framework that ensures they can offer a consistently compelling proposition capable of meeting the expectations of a very different set of customers.
Alessandro Hatam
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