Private banking disrupts Italy’s wealth management market

As supply and demand models change in Italy’s dynamic wealth management industry, private banking is emerging as a key disruptor

The Duomo cathedral in Milan, where BNP Paribas' headquarters are
The Duomo cathedral in Milan, where BNP Paribas' headquarters are 

The wealth management industry is currently undergoing the most major disruption since the financial crisis, due to the convergence of several major factors.

Technological development is bringing greater digitalisation and automation to financial services in the form of new fintech solutions, such as virtual advisers.

Meanwhile, private banks have begun to offer improved specialisation in wealth management, along with new ways of organising and selling their services. Finally, in the background, government regulations are focusing on customer protection, and demographics are also shifting.

Although ageing populations continue to spur the development of retirement planning and wealth transfer services, Millennials are now changing the landscape, not least because they raise the number of wealth-owners in the younger generation as a whole.

Among this cohort, entrepreneurship significantly overrides inheritance as the major source of wealth, while Millennials also underpin a new emphasis on social impact investing.

Moreover, Millennials tend to demand greater personalisation in customer service, which is partly thanks to the pervasiveness of innovative technologies. In fact, technological change is spurring demand for simple products, customised solutions and the delivery of services through new digital channels.

Unfortunately, amid all of this, loyalty rates are dropping as customers become increasingly self-directed, turning to service providers that can offer the most dynamic solutions. In such unstable times, wealth managers must overcome the difficulties of adapting while managing the pressures of day-to-day operations.

Plotting a course
In response to technological progress, digitalisation brings opportunities for differentiation. Customers are increasingly seeking fully digitalised, omnichannel services in order have an active role in the management of their money.

As such, it is important for the industry to invest in end-to-end digital processes by significantly improving their back-end technology. This, in turn, will provide customers with full-featured client platforms, such as remote advisory and transactional services that are aligned with the platforms used by relationship managers themselves.

More broadly, technology can help wealth managers adapt to the evolving regulatory climate. For example, wealth managers can be more confident that they are both compliant and competitive if they develop new operating models that progressively digitalise processes in line with emerging standards for transparency, customer support and business law.

BNP Paribas hopes to be a leading light in transforming the wealth management industry by 2020, by taking a strategic, innovative approach to all markets

Furthermore, technology can be useful in responding to demographic change, as investment in omnichannel and digital services is quickly becoming a must-have.

That said, wealth managers should also employ more conventional resources, such as brand cultivation and relationship management, to boost customer trust and fulfil the new demand for interactive, personalised and focused service solutions.

The Italian landscape
Italy’s wealth management market offers good examples of how the industry as a whole is starting to change. Like elsewhere, customers are increasingly seeking fully digitalised, omnichannel services.

As such, Italian wealth managers generally structure customer interactions around the ‘ATAWAD’ model (AnyTime, AnyWhere, AnyDevice). International players and cross-industry newcomers, such as fintech developers, drive this competitive landscape.

Change is also spurred by rising costs, unsteady profits and new customer behaviours that are often the result of greater selectivity and a willingness to only pay for things that represent real value.

Meanwhile, existing business models in Italy are coming under further scrutiny as EU regulations continue to evolve. A prominent example is the forthcoming update to the Markets in Financial Instruments Directive, known as MiFID II, which will legislate for greater investor protection and stronger supervisory powers.

In Italy, where wealth is generally distributed across the central and northern regions, the total wealth of households that have financial assets in excess of €500,000 ($587,860) is over €1trn ($1.18trn).

In recent years, this figure has been steadily increasing. Of such households, about 75 percent are run by private facilities that have developed a dedicated business model.

Meanwhile, the remaining 25 percent represent a potential market that still goes unmanaged by private banking. The latter portion, which is known as the aggressive market, comprises €250bn ($293.85bn) of unmanaged wealth, as well as potential customers from large commercial banks without sophisticated services.

Meanwhile, more than 650,000 households comprise medium to high-level entrepreneurs, with a high rate of wealth that is currently being invested in illiquid assets, such as unlisted companies and real estate.

The most important feature of the Italian market is the substantial number of business owners, who mainly control small and medium-sized enterprises (SMEs). Entrepreneurs express a variety of attitudes when choosing wealth managers.

On the one hand, they prefer institutions that have a local presence. On the other, they recognise that solidity, expertise and greater confidentiality can make major international players more desirable.

Most notably, many family-based enterprises consider family offices to be the best at managing the needs of a large client group with extensive financial, real estate and business assets.

In such cases, wealth management must be dedicated and highly personalised, yet this can be difficult for some private banks given the limitations of their existing operating models.

The BNP Paribas paradigm
In light of these various disruptions, BNP Paribas hopes to be a leading light in transforming the wealth management industry by 2020, by taking a strategic, innovative approach to all markets – paying particular attention to Italy.

The firm’s private banking arm has already launched a programme called ‘private banking service models and related customer journeys’, which uses ATAWAD logic to develop new service models for key clients, including private wealth management and relationship managers.

The goal of such models is to make value propositions more attractive by packaging them within a distinctive and consistent customer experience. To maximise the effectiveness of such a plan, the firm will need to make concrete, appealing promises and to present current and future initiatives to clients in an articulate manner.

Underpinning these goals will be digitalisation and personalisation, most notably through the provision of 24-hour services and continued investment in relationship management.

BNP Paribas’ private banking wing intends to increase market share by innovating its service model for private network clients. This will be achieved in three main ways: first, investment in remote digital interactions that will connect multiple instruments to achieve high added value.

Second, the firm will extend its financial and non-financial offerings. New forms of wealth planning, real estate advisory, succession planning and art advisory services will be introduced, all of which are tailored to meet the expectations of younger generations. Finally, BNP Paribas hopes to build innovative key enablers that can connect tools and sustain a multitude of customer journeys.

Examples of such enablers include Youmanist, a new customer journey service that is designed to boost onboarding based on an end-to-end process that spans from customer attraction to customer acquisition.

Youmanist works via mobile apps and conventional websites, and contains lifestyle and work-balance solutions, simulation tools for wealth planning, premium services, and access to peer-to-peer communities.

Similarly, another enabler called Privilege Connect is being established as the private banking wing’s tailor-made service centre, offering extended, 24/7 support via a dedicated phoneline, digital and direct access points, and customer service agents. This will supplement daily banking, which is bookable through the service centre’s ‘pick up–home delivery’ scheme.

King customer
Beyond developing its private network clients, the firm also hopes to cultivate service models in its wealth management segment more generally by creating a dedicated family office and by fully exploiting synergies with the entrepreneur segment.

As with all new services, it is important to emphasise that different models add value in different ways. For example, some customers want strong, personalised interactions with relationship managers that are sustained by innovative methods of advising, such as 24-hour access to services.

The firm’s digital enhance model would cater to such needs adequately, yet it would be ill-suited to the demands of customers that prefer a more dynamic, remote relationship. For the latter, BNP Paribas’ I-Private model, which relies more on digital processes, would come into its own.

To remain relevant in the turbulent world of wealth management, it is crucial to have a centralised, enriched, segmented understanding of customer needs. As such, BNL-BNP Paribas private banking has identified six different customer categories by analysing its clients against various customer personas and archetypes.

From there, it was possible to define customer engagement processes and to offer customised services that follow customer journeys with the support of several high-innovation tools.

In satisfying the customer demands that have emerged in recent years, it is necessary to focus on providing both a highly personalised customer service and on catering for digitalised, international interactions. Ultimately, such developments should expand the firm’s pool of managed assets while nurturing strong, positive relationships within a growing customer base.