Digitalization is making its way into private banking.
It encompasses back-end processes as well as the advisory conversation with clients. Some software aims to make financial planning an experience.
Looking for snappy code
In the crown jewel of banking, wealth management, digitalization is on the horizon. Several platforms offer solutions for it. Yet institutions must also overcome hurdles.
Few business areas in banking are considered as demanding and lucrative as serving wealthy clients. This sector is undergoing transformation in several respects. One generation of clients passes their wealth on to the next. Demographic shifts bring pressure to automate. The inheriting generation demands a different, more digital service.
At the same time, the effort increases, because individual and personal advice remains in high demand. Therefore, a renewal of IT architecture is becoming ever more urgent for financial institutions—on one hand to serve clients with modern tools, and on the other hand to boost efficiency.
Costs in the profitable wealth management business have become a significant factor, as a study by Zeb, a consultancy specializing in financial service providers, shows. A simple glance at the figures of the 13 German private banks selected for their analysis makes the situation appear stable: from 2019 to 2023, expenses rose by five percent, revenues by more than eight, and earnings by a hefty 22 percent.
“The currently strong earnings situation obscures the massive challenges.”
– Jens Wiegel, Zeb
“However, the currently strong earnings of most private banking providers masks the massive cost-side challenges,” warns Jens Wiegel, Senior Manager at Zeb. In the past two years, earnings growth has largely been driven by temporary interest-rate effects. Meanwhile, expenses have risen well above the inflation rate. This particularly affects smaller institutions. “Regulatory requirements are increasing, personnel costs have soared,” emphasizes Wiegel. “This demands a highly efficient and consistently digital operating environment.”
Transformation
In fact, when it comes to IT systems, a transformation seems to be underway at these institutions. “Banks are undergoing a comprehensive transformation in the way money is managed,” observes Arnaud Picut, CEO of Aachen-based software firm Aixigo. “Wealth management is at the center of this.” Aixigo, which specializes in asset management software, was acquired by French fund provider Amundi. The Parisians plan to integrate Aixigo into their technology division, which also includes their in-house software Alto.
Alto is regarded as the French answer to the success of Aladdin, BlackRock’s portfolio and risk management system. Both programs have branches that are suitable for use in private banking and wealth management. “Asset management is undergoing upheaval, as more financial advisors turn to technology to offer tailored solutions at scale,” says Venu Krishnamurthy, global head of Aladdin Wealth.
However, many institutions face a hurdle when implementing new software: their IT infrastructure resembles “a patchwork quilt with a vintage core system,” says Picut. “In the past, core banking systems formed the most important layer,” explains the IT manager. “In the future, they will likely serve only as archival systems.”
Demands for such comprehensive IT overhauls vary. “Large banks can generally afford more extensive and expensive tools than asset managers and small private banks,” says Massimo Ferrari of Zurich-based software firm Assetmax. “For the latter, managing client portfolios must be extremely efficient, which means their IT systems also need to be very cost-effective.”
Assetmax belongs to the group of Norwegian financial data provider Infront. In 2019, the Oslo-based company also acquired the VWD Group. “If an asset manager wants to execute transactions for several hundred clients, it needs to be fast and cannot take several minutes per client,” explains Ferrari.
Off-the-shelf alternatives
“Larger banks sometimes opt for off-the-shelf solutions,” adds Ferrari. So far, in the broad retail securities business, the advisory segment has been important. “They work extensively with guided investment proposals,” explains Ferrari. “They must ensure that suitable funds are placed with the right clients through a professional advisory process.” The wealthier the clientele, the more discretionary, single-asset mandates come into play.
Modern IT systems are often modular, adaptable to different tasks and use cases. “Our systems are like Lego bricks,” describes Aixigo manager Picut. “Every client can assemble a solution tailored to their needs.” Amundi’s Alto Wealth, for example, can be customized to the specific requirements of a bank or asset manager.“
Academic Concept
Some institutions, on the other hand, rely on specialised solutions — such as Quirin Privatbank. Since 2024, the Berlin-based bank has been using a programme developed by the Swiss wealth and insurtech company 3rd-eyes analytics. This tool captures clients’ financial goals and aspirations, calculates the paths to achieve them, and presents them visually. Quirin Privatbank follows a fee-based advisory model and places a strong emphasis on financial planning.
“The core of our advisory approach is to link the client’s current financial situation with their future goals,” explains Ivica Jankovic, Deputy Branch Manager for Frankfurt am Main. “Quirin Privatbank stands for an academic investment concept,” Jankovic continues. The advisory team explores in client meetings what an optimally adjusted risk profile must look like to meet the stated objectives.
After collecting all relevant information about the client’s personal circumstances and financial goals, the software shows how their assets are projected to develop over time (see graphic “Current Investment vs. Recommendation”) and whether those financial goals are realistically within reach. These goals could include having enough money for early retirement or extensive travel in later life. The software can also factor in future long-term care needs. It considers the client’s current asset allocation but can also illustrate how wealth might evolve over time with, for example, a higher equity allocation.
“One key advantage of 3rd-eyes is that it takes stock market fluctuations into account,” says Jankovic. “Most programmes only provide linear planning, where the average equity return is simply added year after year. But this doesn’t factor in risk.” For instance, if markets plummet during the withdrawal phase, clients can miss out on any recovery because they continue selling into the downturn. “A purely linear equity allocation should therefore always be treated with caution,” warns Jankovic. The Quirin Bank’s portfolio management team compiled historical market return and volatility data and fed it into the software.
Advisory Experience
The visualisation can clearly demonstrate that a higher equity allocation at the beginning of retirement can help build greater wealth, says Jankovic. It also shows that even in the worst-case market scenario, clients are still better off than if their money had remained idle in a bank account. The programme factors in taxes, inflation, fees, and the bank’s advisory charges when calculating returns. “We provide precise net figures,” Jankovic emphasises.
The adviser concludes: “In more than 20 years of experience, I’ve always seen wealth planning as a very dry, mathematical exercise. But now we’re creating a real advisory experience.”
