Innovation in Private Banking amp Wealth Management

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Innovation in Private Banking Wealth Management Embracing the Business Model Change. Wealth Management Wealth Managers FinTechs, For reasons of simplification Wealth Management Wealth Managers are institutional Private Banking FinTechs are defined as companies that use financial. in this document refers to European Private Banking Wealth Management service providers in Europe technologies to support or enable financial services. Wealth Management Wealth Management is the holis with a focus on business with private clients They in Typically they are internet companies that streamline. tic financial management of wealthy clients typically clude pure play private banks as well as Private Bank financial systems and make financial services more ef. with assets in excess of EUR 1 million and is character ing Wealth Management units of universal or region ficient Today there are more than 500 FinTechs active. ised by personal relationships built on mutual trust al banks in Europe focusing on business areas such as crowd. and individual advice at the highest level Wealth Man funding crypto currencies data analytics insurance. agement covers the full process of planning realising investment and asset management market informa. and controlling the wealth of clients and can go be tion or payments Given the focus of this document. yond purely financial matters to include social and per references to FinTechs exclusively relate to European. sonal arrangements companies that provide Private Banking Wealth. Management services to private clients or that pro. vide technological solutions to Wealth Managers,as defined on the left hand side. Innovation in Private Banking Wealth Management Embracing the Business Model Change. Executive Summary, Innovation in Private Banking Wealth Management Embracing the Business Model Change. Executive Summary,Innovation, It s about time for innovation in Wealth Management. Wealth Management has now reached a point where a mind shift has become essential The profitability of European Wealth Managers has been in con. stant decline in recent years with profit margins falling by 40 between 2000 and 2015 During the same period the market size for Private Banking. measured by the bankable assets of European millionaire households has grown by more than 60 This increasing gap between profitability and market. size shows that Wealth Managers are failing more and more to serve clients successfully with their existing business models of an integrated value chain. average industry integration level of above 80 This suggests that the industry is facing an innovation gap since industrialisation and M A the other. two main strategic growth levers have already been employed for years. Market Intelligence,and the time is about right, Typically innovations result from a conscious purposeful search for innovation opportunities which are found only in few situations such as changes.
in the industry structure demographics or in the perception of an industry economic incongruities or the appearance of new knowledge All these. can be found today in the Wealth Management industry An increasing number of FinTechs active in Wealth Management 300 in the past three years is. disrupting traditional industry structures millennials will form 50 of the global workforce by 2020 creating demographic change and the global regula. tory agenda has triggered the reshoring of assets adversely affecting the prospects for cross border Wealth Management. Innovation,but ambition is lacking, Innovation ambitions for both Wealth Managers and FinTechs revolve around the existing core Wealth Management business However most innova. tions are a response to existing business challenges and far fewer exploit opportunities to create value in a new way Wealth Managers are mainly dig. itising their traditional business model to reduce their cost base and FinTechs are either offering digital solutions to support Wealth Managers or are. providing digital offerings to compete for digitally aware private clients The innovation efforts of Wealth Managers are therefore concerned mainly with. Innovations,Successful, industrialisation efforts and those of FinTechs with disruption neither are focusing on innovation to embrace a change of the Wealth Management. business model,and Sources, Innovation in Private Banking Wealth Management Embracing the Business Model Change. Executive Summary continued,Innovation, Enabling innovations that can change the business model. While eliciting a change of business model typically requires to employ multiple types of innovation with a focus on shifts in the profit model and cli. ent engagement efforts in Wealth Management concentrate mainly on digitising processes and structures in the existing business model Instead Wealth. Managers could exploit innovation opportunities in a more transformational way by re designing instead of reorganising their infrastructure e g. through Cloud Computing Open APIs Orchestrating deepening their understanding of client needs e g through Social Listening Instant Client Feed. back identifying new sources of revenue e g supplementary Client Care Services Digital Security Services and refreshing their brand e g through. Sub branding Ingredient Branding,Market Intelligence.
requires a shift in the leadership s mental model, Innovations come to a halt or fail for many different reasons but most often it is because superficial changes to improve performance are not suf. ficient to affect a fundamental transformation Innovation requires change at a deeper level a change of the leadership s key beliefs as these typ. ically affect attitudes and culture throughout the organisation Wealth Management is built around traditional assumptions behaviours and beliefs. about how to create value that drive the strategies leaders deploy and guide their decision making These assumptions and key beliefs need to be. exposed to the new realities of today s world and the future by monitoring trends and their implications and recognising the urgency and impor. tance of innovation,Innovation,and an effective innovation system. Once the leadership is on board innovation needs to be formally embedded as a management discipline and the corporate culture needs. to be opened up towards divergent thinking This calls for a systematic change that based on an analysis of successful leaders in innovation requires. four building blocks to be in place approach organisation resources and competencies and metrics and incentives A tailored approach should be. built around clear definitions and methodologies for the work to be done in generating innovations and innovations should be managed as a portfolio. Innovations,Successful, Accordingly the appropriate talent and capabilities need to be acquired and nurtured In this context and as a starting point Wealth Manager should. clarify the role of partnerships,and Sources, Innovation in Private Banking Wealth Management Embracing the Business Model Change. The Case for Innovation,in Private Banking Wealth Management.
Innovation in Private Banking Wealth Management Embracing the Business Model Change. What we mean by innovation,Innovation, Often equated with related disciplines such as digitisation industrialisation. and disruption innovation is a much broader term depending on the creation of value. Distinct features of innovation, In the context of a transforming banking ecosystem innovation is often asso. Innovation, 1 ciated with other concepts and disciplines related to change but their defini. Innovation,requires an tions clearly distinguish them. Innovation understanding, of whether 1 Innovation as separate from invention is the creation of a new.
clients need, or desire an to the market or the world viable creating value for clients stakeholders. invention and,Market Intelligence, also how it can be and the organisation itself business offering ideally going beyond prod. delivered ucts to platforms business models and client experience. Innovation,has to provide, economic value 2 Digitisation is the transformation of business activities by the introduc. Disruption Industriali i e it must be tion and use of information technology. able to sustain, sation itself and return 3 Industrialisation is the concept of reducing the cost base and re think. in excess of its, weighted average ing the value creation process through the elimination of redundancies.
cost of capital, Innovation does smart sourcing automation and standardisation. 2 not have to be, new to the world 4 Disruption is a process whereby a smaller company with fewer resourc. only to a market, Digitisation or an industry es is able to successfully challenge incumbent businesses disruption typ. and can be based ically originates in low end or new market niches. on previous, advances As opposed to digitisation and disruption innovation is depending on the. Innovation, creation of economic value while industrialisation and innovation have.
this in common innovation is much broader in its application. Disruption can be considered contradictory to industrialisation while indus. trialisation is a process for players with mature business models to defend. Innovations,Successful, their market shares disruption is a process for players with new business. models to gain shares of the market, Based on the Economic Value Estimation EVE model the economic value of a potential innovation is assessed by 1 its reference value i e the actual price of the next best alternative e g the current state and 2 the net. and Sources, differentiation value i e the monetary value that a potential innovation creates either in cost savings or increased income minus any additional cost that incurs with it e g switching costs. Innovation in Private Banking Wealth Management Embracing the Business Model Change. Wealth Management in decline an innovation gap,Innovation. Despite profitability being on the downturn for years the Wealth Management. business model remained unchanged suggesting today a substantial innovation gap. Index Profitability of Wealth Managers vs market volume 2000 2020. Since 2000 the profitability of European Wealth Managers has declined. by nearly 40 CAGR of 3 2 despite market volume growth of more than. 60 CAGR of 3 3, While the steep decline in profitability between 2005 and 2010 accelerat.
Innovation gap ed by the financial crisis changing client behaviour and regulation has less. The continuously,Market Intelligence, grown divergence ened in the recent past the downtrend is still on going substantially irre. of Wealth Managers, spective of the accelerated increase in market volume since 2010 CAGR of. profitability and,market volume,development,6 0 between 2010 and 2015. 112 suggests that, among other main In 2015 the indices for market volume and Wealth Managers profitabil. strategic profitability ity have diverged by more than 100 percentage points from their individ. levers e g M A, 100 23 industrialisation1 ual levels of 2000 indicating that a low point for Wealth Management had.
52 Wealth Management,is facing an been reached,innovation gap. The growing gap between profitability and market volume shows that. Wealth Managers are failing more and more to serve clients successful. ly with their existing business models either from a revenue or cost side. 69 or even worse from both,Innovation, 61 The forward looking trend line dotted line based on CAGR 2000 2015 in. 2000 2005 2010 2015 2020 dicates that should Wealth Managers not adjust their current set up. questions whether Wealth Management will still be a profitable business. in the future will arise,Innovations,Successful, Market volume index 2000 100 represented by wealth2 of European millionaire households 2000 2020. Average profit margin index 2000 100 of European Wealth Managers 2000 2020. 1 Industrialisation levers include Process Excellence Organisational Efficiency Product Rationalisation Value Chain Re engineering IT Simplification Location Optimisation Industry Utilities and Joint Ventures Process Digitisation. and Robotics Economic Value Management, 2 Wealth is defined as financial assets including onshore and offshore currency and deposits debt securities equity investment funds shares life insurance and annuity entitlements pension entitlements and entitlements. and Sources,to non pension benefits, Innovation in Private Banking Wealth Management Embracing the Business Model Change.
Wealth Management in decline the end of the core business model. Innovation, With the current core business model for Wealth Management approaching the end. of its life cycle there is an urgent and growing need to develop innovation. Illustration of a business model life cycle, Typically the life cycle of a business model is characterised by an introduc. Introduction Growth Maturity Decline, tory phase during which management is in an entrepreneurial mode and. Profitability,Entrepreneurial Adaptive Planning Adaptive. mode mode mode mode, Business model willing to take risks and losses are incurred to grow the business before.
innovation,Once in the reaching breakeven,decline phase. adjustments Once growth is established management is in an adaptive mode. to the core,Market Intelligence, business making short term decisions and being reactive by making adjust. model can only ments to the business model with the objective of increasing growth. Innovation in Private Banking amp Wealth Management mrain e siness oel Cane 4 Executive Summary It s about time for innovation in Wealth Management Wealth Management has now reached a point where a mind shift has become essential The profitability of European Wealth Managers has been in con stant decline in recent years with profit margins falling by 40 between 2000 and 2015 During the

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