Andras Kallay, Private Banking Executive Director & Retail Chief Investment Officer with Raiffeisen Bank International AG, illustrates the unique trends in his region that dictate how the bank caters to its affluent customers.
Some studies suggest heirs will look for a new financial advisor after inheriting their parents’ wealth - What are you doing to cultivate family loyalty and prevent heirs from moving their money to different institutions?
The most important discipline is to know more and more members of the family, mainly from the 2nd generation. In CEE the situation is even more sensitive than in the global industry generally since the vast majority of our clientele founded their companies and generated their wealth back in the 90’s, so the generation switch/succession topic for our typically 60-year-old+ clientele is a burning issue almost at the same time. The banks are opening separate accounts for the successors even with assets lower than our official entry threshold, the requirement is to have at least one attached account with significant asset volume (“family level principle”). Most of the local sites are organizing dedicated learning sessions and client events for the successors. The best approach from the founders´ generation is to involve them more and more in the decision making around their wealth management, but it’s not so common. This is where we have responsibility.
How do you approach advice in terms of inheritance? How does it differ from typical financial advice?
In most of our CEE countries, the local bank has strongly limited license in any succession-related actions. They can identify the issue/requirement of the client, but beyond some basic banking preparation (e.g. to have a death statement on the current accounts/deposits, to allocate some wealth for family members, not to take too long investments if the succession structure is not designed yet, etc.) the detailed analysis and the following actions are prepared and executed via one of the bank’s partners (tax/legal/structuring companies etc.). The private bankers have a checklist of the status of the most important actions to be taken, but the client would typically need a tailor-made approach. In a few countries, new structures (e.g. trusts, foundations, etc.) can support the transition and local banks have license to carry on with cooperation via those vehicles. Our experienced Austrian colleagues can help also to accelerate the preparation.
How different are Millennials compared to their elders? How different are their expectations and behavior?
They are more practical, the transparency of the portfolio (including the performance, the fee structure, risk classification, etc.) is more important than it was with their parents’ generation. Since there are more and more company exits ongoing or already completed (and no risk deriving from the operated company anymore) with free cash release - the total risk level of the portfolio is dramatically decreasing. Because of this transition and their much more longer investment time horizon, they are more interested in higher risk categories – usually bankers should update their portfolio vs. the actual one. Beyond the fact that advisors have more space for equities, they can cover new asset classes as well: private equity, development real estates, and art investments are common in the private banking industry in CEE in the coming years. What originated in the Covid-era for their parents is now their baseline requirement: more remote advisory sessions and digital end-to-end transactions are required. The role of a banking location is generally in transition, for them it’s even less required and appreciated.
How have you transformed your wealth management offer to satisfy the new generation? And how do you engage potential new customers?
Via more digital solutions in general, a wider range of products, and more transparent pricing models. In the global portfolios the role of the single lines (equities, ETFs) is increasing. End-to-end digital means mobile and not desktop-based anymore.
In CEE, the product range widened a lot in recent years with RBI, but a few countries need to improve their mobile based investment capabilities. We are also focusing heavily on monthly savings plans sold via mobile platforms. The client can allocate between funds now, the robo-advisory /digital discretionary portfolio management, and the usage of trackers (mainly ETFs) will come soon.
According to research by Accenture, the current wealth management advisory model is not working for women. Do you notice differences in terms of investment behavior by women compared to men? What are some examples? And how have you tailored your offerings to serve female clients better?
There is no service model exclusively dedicated for women investors yet, but local banks are experiencing an increasing number of women investors (on both types - as a sole owner of liquid wealth and as the “Minister of finance” in the life of a family). Typically, they are requiring more transparent fee structures in order to have a deeper understanding of the main driving forces of their portfolio and they take less risk than our male investors, but the latter changed a lot during the recent period. The main dedicated activities for them are client events. The sites design both the professional and entertaining parts differently for these women investor clubs.
Technology is being implemented to digitize almost every area of a bank, but advisory remains complex to automate. How is your bank approaching the integration of AI into its advisory services? Will it be a mix? Will the human touch always be required when it comes to wealth management?
A more tailor-made solution will be needed but the human interaction will remain. In our plans, the mass retail and the lower premium way of wealth management can become more or less end-to-end digitalized. In the upper premium and private segment, the role of the banker would be kept dominant (in hybrid models). What is crucial: to enable clients to break those wealth-based traditional boundaries and let them use their channel preference. Ultimately there will be more and more private banking clients from the new generation served only via robo-advisory services and no interaction would be initiated by bankers. The aforementioned succession planning is a different topic. The way of communication can be digitalized, but the solutions would remain individual with strong human advisory content.
How do you see wealth management evolving in the next decade? (open banking, platformication, new players, new technologies…)
The CEE markets are getting more and more competitive (with new players, typically with cheap pricing and narrow service range), the existing product gaps will be closed soon. Ultimately, the easy to understand and cheap digital wealth management services will become commodities. The challenger banks will onboard retail banks’ clients with satellite services (also via open platforms), but the universal banks will be kept as the managers of core portfolios. As a consequence, both the service level and price range can be improved in parallel for clients.
The entry threshold to have any tailor made / human initiated advice would become higher. This would start from the upper premium/junior private banking level. The channel of any investment advisory for an average client would become solely the video call center / collaborative services. All the other investment demands of a client with smaller tickets would be managed by end-to-end digital channels and typically automatic saving plans.
For the upper segments, new assets classes will become available and holistic wealth planning (throughout generations) will become more significant. The human interaction will be kept, but further subsegments will be created (junior private/private banking/HNWI wealth management services) with different levels of human contribution.
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