Why banks should be more customer-centric in their approach to Family Offices
Financial institutions, once regarded as the cornerstones of business, are now facing unprecedented changes and challenges that could not even have been conceived of a decade ago. We explore how banks can remain relevant within the private wealth space through a customer-centric approach.

By Francois Botha
Published on Simple October 5, 2020

To say the financial market is changing is an understatement. Financial institutions, once regarded as the cornerstones of business, are now facing unprecedented changes and challenges that could not even have been conceived of a decade ago. The emergence of neo banks, Robo-advisors, and cryptocurrencies have changed the rules of play. A demand for transparency and a desire returns beyond the purely financial have posed a further challenge to the status quo. These developments are particularly evident when it comes to private wealth clientele, many of whom are forming independent family offices.

A ‘Kodak moment’ on the horizon

Whilst Kodak once represented a reputable brand and industry giant, their failure to identify and capitalise upon the beginning of a digital revolution in the 1980’s is now infamous. A ‘Kodak moment’ has come to epitomise that moment when businesses lose market relevance by failing to catch-on to how consumer behaviour is changing. As family offices grow, professionalize and become increasingly sophisticated, many are hiring former bankers and private equity dealmakers to take back control of their considerable wealth and investments. Add to this the far-reaching personal connections of their founding families and rapidly growing networks with other family offices, and they’re fast becoming global financial powerhouses.

 

To say the financial market is changing is an understatement. Financial institutions, once regarded as the cornerstones of business, are now facing unprecedented changes and challenges that could not even have been conceived of a decade ago. The emergence of neo banks, Robo-advisors, and cryptocurrencies have changed the rules of play. A demand for transparency and a desire returns beyond the purely financial have posed a further challenge to the status quo. These developments are particularly evident when it comes to private wealth clientele, many of whom are forming independent family offices.

A ‘Kodak moment’ on the horizon

Whilst Kodak once represented a reputable brand and industry giant, their failure to identify and capitalise upon the beginning of a digital revolution in the 1980’s is now infamous. A ‘Kodak moment’ has come to epitomise that moment when businesses lose market relevance by failing to catch-on to how consumer behaviour is changing. As family offices grow, professionalize and become increasingly sophisticated, many are hiring former bankers and private equity dealmakers to take back control of their considerable wealth and investments. Add to this the far-reaching personal connections of their founding families and rapidly growing networks with other family offices, and they’re fast becoming global financial powerhouses.

As this new way of operating continues to unfold, investment banking and wealth managers in both advisory and deal-making capacities are at risk of experiencing a ‘Kodak moment’. HNW and UHNW individuals are moving away from managed mandates, which are increasingly regarded as being too expensive and of little value.

Instead, the purchase and sale of assets, identification of strategic partnerships and investment deals are being shifted to within their private networks. In fact, the UBS Global Family Office 2020 survey indicates that just 18% of wealthy individuals still identify investment deals through financial advisors. Deals are increasingly facilitated through other means, specifically personal networks and VCs.

“First family offices call their friends, then venture capital, and the third call is to an investment bank”
Joe Stadler, Head of Ultra-wealthy Clients at UBS

Similarly in early 2020, Bloomberg reported that some of the biggest family offices are hiring bringing institutional expertise in-house. Rather than unscrupulously following established traditions, family offices are increasingly focussed upon the outcome and impact of service providers – the banking sector included. In-house advisors and independent sponsors are increasingly assisting family offices in structuring private investments through less traditional routes. As technology platforms and service providers enable private client investors to access hard-to-enter asset classes, the more traditional investment banks are under threat.

“The trend towards DIY-style direct investing may also reflect some clients’ frustration at the “product-push” business model associated with large, integrated banks”
Tom Burroughes, Group Editor of Wealth Briefing Asia

The banking sector is oftentimes viewed as immune to disruption, yet in reality, it is as vulnerable to disintermediation as any other sector. This trend of family offices bringing institutional expertise in-house and ‘chasing alpha’ is a strong indication that change is afoot. For many families, the desire is to have ultimate control over their investments. Direct investing allows family offices to build a portfolio around their own needs and time horizons. How can private banks compete in this emerging trend?

From product-centric to customer-centric strategies

Financial institutions’ knee-jerk reaction to these developments has been to rapidly try to identify other possible areas of monetization and develop financial products and services around these. Though this may seem like a logical response, we see signals of a different approach in other industries and verticals where customisation places the customer at the centre. This should also be possible at the top end. Financial institutions would do well to remember that the reason many family offices have cut them out in the first place is that they no longer need financial services assistance from intermediaries. They’ve successfully procured it in-house.

So, what can institutions do to not only adapt but thrive in this swiftly evolving landscape? The answer lies in shifting the focus to encompass their clients’ soft assets through a customer-centric approach.

While monetization is the backbone of business, it can no longer be the end-goal. Now is the time for banks and financial institutions to consider the most strategic ways of adding real value to their HNW and UHNW clients. The changes in the way UHNW individuals and family offices are doing business necessitate a completely new approach from financial institutions. Customer centricity – and the ability to see the whole picture – could well be the answer.

“Customer-centric companies don’t make or sell the products they think customers will want; they make and sell products they know their customers will want”
Peter Fader, author of Customer Centricity: Focus on the Right Customers for Strategic Advantage

Moving from push-products to pull-products requires private banks and other financial institutions to develop their research and foresight capabilities. When developing new products and services, it is mission-critical to speak to customers all the way through the process. Doing so means fostering strong, honest relationships and facilitating ongoing open communication not only with the current family office leaders but also with their next-generation heirs. Overlooking the next generation is a critical error as they not only bring new attitudes and expectations to wealth management, but also influence the previous generation’s purchases and service consumption decisions. What’s more is that they ultimately inherit everything from their parents and if they’re not actively engaged with the family’s suppliers, it makes it far more likely that they will replace them entirely.

Know your client (and consider their soft assets)

In an age of radical transparency and empowered consumers, it’s fundamental to know your client as well as they know you. In a mouse-click, they can sort through endless reels of information assessing how your organisation fairs against the market competition. Whilst the simple act of Googling gets consumers far enough, sites such as Crunchbase and CB Insights provides them with an even more finely tuned investment and industry overview, offering deep as well as broad insights.

Being customer-centric means recognising this and figuring out how to provide value in a highly saturated marketplace. Customers should be at the forefront of every single decision a company makes. You need to listen and understand their needs, act on these, and iterate on this process. There are many emerging trends that financial institutions and wealth managers can follow and explore within their client portfolios during relationship-building exercises. Examining these with clients and receiving immediate input can help to identify new products and services. Value first, monetization second.

In order to be truly customer-centric, companies must also be adept at identifying future, as well as immediate needs. For example, purpose-driven investments are on the rise primarily due to the next-generations’ interest and commitment to making the world a better place. By paying due attention to the importance of these ‘soft-assets’ and the underlying values amongst family offices and UHNW individuals, financial advisors are able to position themselves as the solution to the problem. Actively presenting opportunities that align with the client’s objectives is one way to win back investment consultancy business.

Today everything revolves around the customer.

Mounting research further indicates that the next generation values professional advice from multiple sources but ultimately draws their own conclusions. As digital natives, they are adept at crowdsourcing knowledge and making informed decisions as a result. Building offerings that tap into this need for networked knowledge are promising avenues. UBS has launched an Evidence Lab, a sell-side team of experts that work to create insight-ready datasets to help investors answer the questions that matter in their investment analysis. Adapting this model and offering a similar type of ‘expert panel’ from which clients can draw multiple opinions to draw their own conclusions could prove highly valuable.

Agility is another rising ‘soft asset’ amongst family offices. In a rapidly evolving world, with intensifying competitive pressure, and a fast-evolving customer expectation, organisational agility is a fundamental modern-day business competency, How might financial institutions structure themselves to make the most of this? In which areas can they act as ‘on-demand’ consultants? Is there a multi-channel way of offering certain services? How can technology be harnessed to achieve results quickly when they’re needed most?

In times of crises, it’s tempting to fortify the foundations and stay true to models that have stood the test of time. But in the family office segment, this approach all but guarantees extinction. Instead, to remain relevant, banks and financial institutions need to consider whom they need to be to each of their clients and expand their service offering to add real value accordingly. They need to focus on the customer, think and feel like the customer, build whole product solutions and know the customer lifetime value. When they are able to employ this level of empathy and see the customer as a whole entity – inclusive of ‘soft assets’ and emerging next-generation values – they are able to turn a Kodak moment into a photo-finish win.

About the Authors

Francois Botha

Simple Founder. Strategy Advisor

Francois believes that the next generation of family leaders need new, simple tools and trusted experts with a fresh outlook.

Connect with Francois Botha View Francois Botha Profile

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