The European Private Banking Services Survey 2003 set out to examine the relationship between European private banks and family businesses, and reveal some of the strengths and weaknesses within. From the results contained in this report, we hope to provide private banks with fodder to strengthen the link between what they offer families and what families say they want. Conversely, we hope the results will encourage families to question the service they currently receive with a view to maximising it.
The results revealed four main themes:
- The most important financial issue to many large family businesses in Europe is investment products and services – over tax issues, inheritance planning, securing private equity or any other financial issue. Despite this, private banks are under-servicing this area in favour of traditional areas of interest like asset planning or family foundations.
- The quality and closeness of the one-on-one client-private bank relationship is still highly valued – even more so for pure business banking issues than family banking issues. The much-touted trust private banks say they offer over other financial institutions, though, ranks much lower than many other issues.
- Families believe private banks need to work harder to better understand their financial needs, and this is particularly so for the next generation of family leadership; families note the lack of specific provision to the latter as one of their key concerns for the private banking industry in the future.
- Families think transparency of fee and service levels at European private banks is not good enough, and they are therefore unable to compare institutions' offerings or understand how their fee is used.
Families in Business extends its warmest thanks to all the families and private banks that responded to our survey. We welcome any feedback or suggestions for future surveys.
The survey was received by a large cross-section of European family businesses in all industries, and a large cross-section of European private banks both large and small, privately owned and stock-market listed, to give us a horizontal view of each sector. The results were then analysed and collated.
Of the family business respondents, a quarter were UK-domiciled family enterprises, followed by Swiss respondents with 19% and Spanish respondents with 13%. We received responses from a variety of regions including the Principality of Monaco, the Netherlands, Germany and France.
To illustrate the size of family respondents, 51% report between 1-5 family shareholders, while 14% have more than 100.
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What does the European private banking sector offer family businesses?
The highest response to the above question was family foundation services. Interestingly, while banks believe they have identified a lucrative niche in consolidated family business services, when it was suggested as one of the choices for 'most popular offering' to families, not a single respondent selected this option.
Succession planning, inheritance/estate and retirement planning and asset planning came joint second from the banks' point of view, reflecting the acknowledgement of how important a smooth transition process is to family-owned entities and their survival.
Exactly half of all private bank respondents told us they pervceived investment advice as their most popular offering among family business clients. This reflects a shift in focus on the families' side, from just private wealth and business preservation, to growing and maximising both by proactive use of the financial markets. This is underpinned by an increasingly sharp awareness among families of the link between asset diversification and risk management.
What services do European family businesses really need?
Two key things, in their opinion: a dedicated, one-on-one relationship with their private bank advisor, and better investment advice.
The private banking relationship has morphed with the shift in business towards larger corporate players, who do not put the same value in it as traditional, smaller players. Thirty-one percent of family business respondents told us the relationship is the most important element of private banking, but families now want much more transparency and less secrecy with it – placing greater value in portfolio returns and the ability to judge their banks' all-round performance.
With the shift in priorities towards financial performance, trust in the private banking relationship has taken more of a back seat for families when it comes to pure business banking needs. After the one-on-one relationship, general business banking and business loans, only 10% of respondents thought it a top-three consideration. However, in family-specific banking needs, it came second after both investment advice and the one-on-one relationship.
What are the major financial issues faced by European family businesses?
Thirty-eight percent of respondents said taxation issues were top of their list, despite putting a low emphasis on it in other parts of the survey. Wealth management and investment management came second with 37% of votes.
The majority of private banks, however, believed their family clients' most pressing financial issue was a lack of confidence in the financial and investment markets.
Banks noted that their clients worried about the decreasing value of their investments, which upheld the families' increased interest in investment and portfolio returns/performance. However, 10% of private bank respondents thought families were confused by having too many investment choices.
We asked the private banks whether they thought families saw securing private equity as an issue. Not a single family respondent felt it was a financial concern, reflecting this year's busy private equity market and the traditional family dislike for outside investment.
- Thirty-six percent of families said that private banks needed to learn more about family businesses, to better serve them financially. Private banks need to understand the wider emotional, organisational and familial aspects of a succession, in order to serve the financial issues that come with this transition.
- Seventy-five percent of family respondents said that provision of services for next generation family business leaders was not good enough. Worryingly, no banks mentioned 'next generation' as a future service to be offered. Banks need to step up their offerings over the next five years as successions take place. Many next generation leaders will be more comfortable with risk and better able to understand the use of financial instruments and strategies to diversify, grow and manage risk than their predecessors.
- Smaller private banks need to react to competition from larger corporates to survive. Many family businesses choose the latter for their implied ability to create desired returns on their investments. Smaller players should decide whether to tout a more personal, traditional service or compete on AUM terms – where fee levels and generation of competitive returns need to be considered.
- One challenge already being met is the provision of more investment choices, in tandem with families' new focus on diversification and financial returns. Fifty-five percent of private bank repsondents told us that they were to offer new investment products, funds and alternative asset classes to their family business clients before year-end. Twenty-eight percent of family respondents had told us that they thought the banks needed to step up provision of a wider range of investment choices and different types of investments.
- Seventy-nine percent of families agreed that sector transparency is not good enough to compare service and fee levels. Families want to know how their fee is being used to their benefit and what they are paying for, not only to understand where the strengths in the client-bank relationship lie, but also to enable them to compare fees against other private banks'. This would allow families to work out the most cost effective way to allocate their assets. A breakdown of fees by European private banks could see a strengthening of their client relationships for mutual, long-term benefit, and client feedback will allow banks to shape their fees and offerings to what families truly need.