Enhancing Client Satisfaction through digitalization: the vital mandate for wealth management institutions

With assets under management (AUM) totaling EUR 600 billion in the private banking sector¹ , EUR 5,285 billion in investment funds², and several major banking groups that have established their hub for Private Banking here, Luxembourg remains the most important hub in Europe for wealth management. The industry, however, is going through dynamic transformations. Clients are growing wealthier, expanding their international horizons, improving their financial awareness, and demanding more in terms of products and services. These factors have opened opportunities for alternatives to current wealth management providers. Knowing that 45% of Luxembourgish wealth management clients are ready to change their provider for a differentiated product offer and service channels, determining the optimal positioning of Relationship Managers, and refining the client value proposition should be a priority for every wealth manager.

The shifting landscape of wealth management in Luxembourg

As an international finance center, attracting a variety of high profiles individuals, the country has seen a strong diversification of clients in recent years. The number of non-Luxembourgish residents has almost doubled in the last 20 years, from 162,000 to 304,000³, not counting the 220,000+ cross-border workers⁴. This has equally contributed positively to a diversification of viewpoints and expectations of servicing standards, reflecting how other countries serve wealth management clients (e.g. Asia, Middle-East, South of Europe). 

Furthermore, we are currently at the edge of a tremendous generational shift in wealth management, with the average “baby-boomer” clients starting to pass their legacy to the new generations. On specific client-centricity-related factors, there is a significant difference between generations. Millenials and Gen Z (respectively under 58 and 42 years old) clients are used to a seamless integration of the platforms and services they use. Consequently, they consider their wealth management provider more in terms of how they can access a 24/7, global, diverse, and dynamic banking service, rather than under the angle of a traditional designation, including in the game full-service providers and big tech companies (i.e., GAFAM).

Trust may not be enough

Trust remains a paramount aspect for wealth management clients. In Luxembourg, banks have historically based their relationships with clients on a strong personal bond fueled by high-quality advice and confidentiality, as confirmed by numbers: according to EY’s Global Wealth Research 2023, 83% of Luxembourgish clients trust their wealth management provider. However, in a period of high movement where clients are continuously exposed to alternative banking products (such as technology, private equity, art, etc.) and are now more willing to "shop around”, relying solely on trust may no longer be sufficient to retain them.

Wealth managers need to stay ahead of their clients' rapidly evolving needs and expectations

To maintain high satisfaction levels, wealth managers must address clients' constantly changing needs. This includes providing more personalized service, adopting hybrid servicing model, ensuring fee transparency, and offering access to diversified portfolios.

According to client feedback⁵, there is an increased appetite for more advice across segments. 69% of the Luxembourg clients seek additional advice, compared to 53% globally. This trend is highly visible in the specialized services, with 86% of the millennials requesting more guidance in this area. It is essential for wealth managers to tailor their offerings for a client-centric approach, where the capacity to leverage on data will be a key differentiator: transitioning from using data and digital tools for industrialization to tailoring purposes.

Clients expect their entire customer lifecycle to be accessible via digital platforms, from account opening to account management. Before COVID-19, it was considered nearly impossible to have a client meeting by video conference. Now, 63%5 of Luxembourgish wealth management clients prefer virtual collaboration models for their investment management activities and 70% desire account opening via digital platforms or virtual collaboration tools such as a video chat. While some banks are making progress with their digital capabilities, others need to be more proactive to meet these expectations. 

Amidst their need for digitalization, traditional drivers for selection of wealth managers prevail, with competitive fees being among the five top drivers. While most clients trust their wealth managers to charge fairly, 35% of them are concerned about hidden charges. This is primarily notable amongst millennials (71%) and mass affluents (73%). 

In light of recent market developments, including uncertainties, inflation and innovations, both international and Luxembourg-based clients have diversified their risk exposure across a wider array of asset classes and demonstrate increased proficiency in utilizing a diverse range of financial products.

While products availability and performance satisfaction are generally high, there is room to improve clients’ satisfaction for innovative asset classes such as private equity, ESG, digital assets and other alternative investments. An impressive 87%5  of the clients emphasize the importance of access to product specialists. Luxembourg Wealth managers can offer the extensive experience and expertise of our historical wealth management center.

As the wealth management industry tussles with a mix of rising client expectations and technological advancements, wealth managers need to evaluate the long-term needs of clients and take swift actions.

Tactical moves to address changing client expectations

Moving to a seamless, fully integrated client journey, wealth managers’ benchmark should not be limited to the private banking industry, since clients expect level of services comparable to those provided by retail banks, fintech, big tech companies – and beyond that, an experience similar to the one of other parts of our lives (e-commerce, traveling, news feeds…). 

Wealth managers can draw inspiration from more tech-savvy organizations:

• Platform approach: Digital platforms can combine traditional wealth management services such as portfolio management, financial planning, and risk assessment, with a range of complimentary services including tax advisory, real estate management, insurance, and even lifestyle services. An effective platform would help clients have an overview of their wealth management analytics while allowing them to interact with their banker and receive personalized advice at all hours, transforming disjointed points of contact into a seamlessly integrated experience.
• Leveraging AI to enhance customization: Customization is the key, however, delivering personalized services to an extensive client base can be both challenging and costly. By harnessing the power of Artificial Intelligence, wealth managers can greatly enhance relationship management, realizing significant efficiency and time savings. From transcribing client conversations and interpreting sentiments to suggesting real-time actions and products based on a client's unique risk profile, lifestyle, family situation, and investment preferences, AI holds the potential to revolutionize personalization.

To accelerate this client-centric transformation, there is an array of digital solutions that can be deployed short to long-term, ranging from simple quick-wins to more complex approaches.

• Short to mid-term:

1. E-signatures: E-signatures in new areas can significantly reduce time and effort needed by clients as well as contributing to an environmentally friendly business approach. This becomes even more important where multi-signers are involved, for example, life insurance products.
2. Digital onboarding and omni channel models: Digital onboarding and omni-channel solutions enhance client convenience, streamline processes, and provide a tailored, interactive experience, ultimately optimizing client satisfaction.
3. Data Management: Banks have a wealth of data that needs to be structured for effective insight generation. With the increased need of personalization, wealth managers must invest in data management tools to streamline the data collected about clients and use it for tailored propositions. 

• Mid to long term:

1. Wealth Planning Tools: Wealth Planning tools is another low risk-high yield solution that enables wealth managers increase operational efficiency and deliver enhanced experience. An agile and adaptable tool that offers solutions for asset planning while protecting against ever-evolving regulatory landscape can clearly create meaningful differentiation.
2. Augmented RM through AI: The advent of Generative AI announces a transformative era in wealth management. Far from replacing wealth managers, Gen AI augments their abilities, strengthening their aptitude to capture the Voice of Customers and implement critical hyper-tailored strategies and offer customized solutions and services. According to EY’s 2023 Retail & Commercial Banking Generative AI Survey, 67% of banks’ executives will prioritize cross-selling via Gen AI to enhance client satisfaction. 

As client expectations witness an accelerated shift, wealth managers have an opportunity to empower relationship managers with digital capabilities and deliver a client-centric and tailored approach that will allow the banker-client relationship to evolve and thrive. In the wealth management sector, the goal is to maintain the private banker as the focal point of client relationships, empowered by appropriate data and tools. Luxembourg’s clients’ expectations are no exception to this evolution.

¹ABBL/CSSF Private Banking Survey 2021

²ALFI, December 2023

³Nationalities, Statistiques.lu, 2021

⁴Moving across the border, LuxTimes, 2023

⁵EY’s Global Wealth Research, 2023