The pandemic is hammering home how private banks need to break the mold – or become obsolete, Hinduja Bank CEO Karam Hinduja writes in an essay for finews.first.

This article is published on finews.first, a forum for authors specialized in economic and financial topics.

The past few months have been unprecedented, even to the oldest heads in private banking. COVID-19 has given the industry a sudden jolt, but its tectonic plates have long been shifting. The pandemic lays indisputably bare that private banks must change – or risk being left behind entirely. 
 
Market volatility kept wealth managers at private banks busier than ever: whether by insulating leveraged investors from losses during the downturn or by mounting aggressive fightbacks for those with the liquidity to do so. But make no mistake: private banks are feeling the financial impact of depleting assets.

«Private banks need to redouble ‹Asian century› efforts»

Coupled with a sharp rise in the costs of compliance over the past decade, cost-income ratios of many private banks are ratcheting up. The crisis is real and private banks require a bold plan for embracing change if they are to survive in the long-term.
 
At the same time, younger generations and those from emerging markets are coming to the fore as wealth management clients. I see three main areas that private banks must target.
 
First, private banks must continue to reach out beyond old-world financial centers like Switzerland and London if they are to remain relevant. We have entered the third decade of the «Asian Century,» and the region remains the fastest growing market for private banking services.

«More risk, higher returns challenges banks to keep pace»

Appealing to younger wealth creators in India and China – countries that will produce more billionaires in the coming decade than the rest of the world combined – is essential for the future health of the industry.
 
The pivot to the East, and to a younger generation of investors more generally, is placing new demands on private bankers. Many of these investors accumulated wealth quickly in fast-growing businesses, and often favor riskier portfolios than traditional private banking clients.

Their appetite for more risk, higher returns is challenging wealth managers to keep up the pace. If private banks are to thrive, they must be able to meet such clients halfway – as fellow creative entrepreneurs, who can partner with them to seek out and finance innovative opportunities for growth.
 
Secondly, private banks must be equipped to cater to the increasing preference for lasting impact when younger generations of high net-worth individuals invest. Flexibility and the willingness to understand client needs and wants on detail has always set private banks apart.

«Banks must share a conscientious view of wealth»

For younger generations looking to stamp their philosophy on their money, the opportunity to create a highly-specialized portfolio should make private banks particularly attractive.
 
Whether it be tackling climate change, addressing gender inequality or achieving social justice, private banks must prove to socially- and environmentally-conscious investors that they share this understanding of wealth – that creating true value is about more than purely financial returns; it’s about protecting people and our planet.
 
The third pillar of private banks’ renewal lies in expanding our use of, and exposure to, emerging technologies to keep pace with disruptors. New generations of investors increasingly look to big data, artificial intelligence, and other technologies to inform their investment decisions.

«Technology won't replace sound investment advice»

Technology may not be a replacement for sound investment advice, but widening the pool of information upon which we base our decision-making is common sense.

Moving with the times and embracing new tools includes developing a far more comprehensive digital offer to maintain a first-class client experience. Digital platforms and apps that allow investors to interact with their financial advisers at the swipe of a finger are fast becoming a sine qua non. 
 
The very same generations of clients also expect a more expansive range of investments and exposure to emerging technologies.

«Innovative start-ups shouldn't be dismissed as curiosities»

Creative opportunities to invest in innovative start-ups developing technologies of the future are often lumped into the box of «alternative investments,» allowing them to be dismissed by traditional wealth managers as curiosities.

This is an unsustainable attitude that simply doesn’t fly with a generation raised on technology. Private banks should think about how to better seek out those investments deemed «alternative» by traditional standards.
 
As the world continues to wrestle with COVID-19, private banks must reckon with the macro trends sweeping their industry. Without a clear strategy for accommodating the demands of a new, entrepreneurial, ethically minded generation of investors, they risk fading into irrelevance. They must break the mold of «traditional» private banking and forge a new purpose.

Karam Hinduja was named CEO of Hinduja Bank in Switzerland last month. The 29-year-old British citizen is the grandson of Srichand Hinduja, the octogenarian patriarch of the eponymous clan whose net worth is reportedly $30 billion. Karam Hinduja studied political science at Columbia before in 2015 founding Timeless, a media company that includes an impact investment platform. The Geneva-based executive was previously on the board of Hinduja Bank in Switzerland as well as the bank’s Dubai-based subsidiary.

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