Julius Baer – banking on a people business

It’s not all about the money, according to seasoned wealth manager Régis Burger.

“In many ways wealth managers are behavioural coaches; the most important service we can provide to a client is to mitigate, and ideally neutralise, their behavioural biases,” explains the managing director and head of Middle East and Africa for Swiss private bank Julius Baer.

The rise of the robo-advisor has been hard to miss. As the name suggests, these platforms offer algorithm-based financial advisory services with little to no human intervention. The estimates of the actual size of the industry vary, but it is projected that robo-advisors will handle anywhere between $7 trillion to $20 trillion assets under management by 2025, up from roughly $2 trillion in 2020.

Several major banks and financial institutions have also adopted the technology and started offering robo-advisory services, including Citigroup, JPMorgan Chase, Wells Fargo, Bank of America and Morgan Stanley, among others.

Burger confirms that Julius Baer has also made significant investments in the tech space to improve the client experience; over the past five years, the bank has invested over CHF1bn (over $1bn) in digitisation efforts. It further plans to increase investments in technology by 20 per cent in 2020 and 2021.

“We are giving our front-office teams sophisticated tools to serve their clients better and more efficiently. We are also investing into new digital touchpoints and processes that connect clients and prospects directly to Julius Baer. The goal is to combine personal and digital interfaces,” he says.

Julius Baer’s robo-assistant, called the Digital Advisory Suite – or DiAS – combines suitability checks with investment proposals and portfolio monitoring.

“We have also started to refine and align our client experience, with the upgrade of e-channels around the world, introduction of smart analytics, improved direct client reach and digitally supported client onboarding,” explains Burger, outlining the strategy.

That said, man will always rule over the machine, as he is keen to stress.

“The reality is that when the markets are really scary, many investors’ rationality is overwhelmed by emotion. Having a trusted, experienced advisor with whom you can engage in a dialogue and who can help you navigate these stormy times is incredibly valuable. It is precisely the human qualities – intuition, empathy, and adaptability – that set human wealth managers apart from the digital competition and ensure that private banking remains a people business,” elaborates Burger.

Rather than a looming battle between tech and human wealth managers, the way forward is a happy marriage between the two to offer the best experience to clients and help preserve their wealth.

“In the information age, the killer combination will be man plus machine. The reality is that, even enhanced with artificial intelligence, the machine will remain a tool. It, therefore still comes down to how effectively it is used by man,” he adds.

Evolving landscapes
But considering the volatility in the current global economic scenario, it’s not just technology that requires adapting to. Markets worldwide have been hit by the China-US trade war, the global slowdown in the economy and, more recently, the impact of the coronavirus Covid-19. Regionally, the drop in oil prices and geopolitical tensions have also rattled investors.

“When it comes to the organisation as a whole, we need to have our eyes open, to watch what is going on in the industry and more broadly in geopolitics, global trends, and society. Our objective to be the trusted advisor to our clients remains constant, but the way in which we do that will need to adapt according to their changing expectations,” explains Burger.

“Be it any situation, it is very important for us to keep the communication channels open with our clients. We are the gate-keepers of their wealth and it is crucial for us to educate and support them in their decision-making.”

With regards to the coronavirus epidemic, the important aspect is to ensure that clients are “informed” of the market risks and are warned of any volatilities that may appear in the short term, he states. “As far as geopolitics is concerned, it can be a significant and unpredictable factor.  These issues can always result in the imposition of rules, regulations and restrictions that affect us and impact how we are able to conduct business. We continue to have very strong risk monitoring measures especially in regions such as Middle East and Africa.”

Bullish on the region
Despite the regional risks, however, Julius Baer is investing heavily in the region and remains bullish on its growth prospects. Having entered the region over 15 years ago – it was the first international private bank to receive a licence from the Dubai Financial Services Authority in 2004 – the wealth manager has grown significantly, from a few employees to more than 160 staff in Dubai by the end of 2019. The bank now has offices across the Middle East and Africa including in Abu Dhabi, Beirut, Johannesburg and Manama.

Burger, who joined Julius Baer in 2006 as chief operating officer for its Dubai entity, has seen the evolution of the region’s wealth management landscape firsthand.

“Joining Julius Baer [in Dubai], I quickly realised the challenge we would be facing compared to the well-established brands in the region. Despite our long history of 130 years, the focus on the Middle East mainly materialised with our first presence in Dubai. It doesn’t take much time to realise that wealth management is a people’s business. We started small in the region and primarily used our employees as brand ambassadors which worked well in the beginning.

“Over the years, I have realised the importance of creating awareness of the brand through various platforms and the impact it will have on attracting new clients and talents.  It is also important to understand that each market – though in the same region – could be very different from another and the one solution fits all approach doesn’t usually work well. It is then crucial that we assess each market’s strengths and weaknesses and assign a suitable strategy, which I see as my main role while leading our teams in Middle East and Africa.”

The region is an important growth market for Julius Baer and is a “key pillar” in its long-term strategy due to the opportunities it presents, emphasises Burger.

 

The numbers add up
While personal wealth globally only rose by 1.6 per cent in 2018, much lower than the compound annual rate of 6.2 per cent from 2013 to 2017, the Middle East managed to buck the trend, with regional personal financial assets rising 5.7 per cent in 2018, according to BCG’s Global Wealth report for 2019.

Looking ahead, the report predicts that globally, personal wealth will grow at a compound annual rate of 5.7 per cent from 2018 to 2023 to reach $272 trillion in 2023. In the Middle East, assets are estimated to increase by a CAGR of 6.9 per cent to $5.2 trillion in 2023.

“We feel that the region has untapped potential as businesses based here are still family owned and several are expected to pass down wealth to the new generation in the next 10-20 years. Increasingly, such business owners appreciate the value of expert investment advice,” opines Burger.

“We particularly consider the UAE and Saudi Arabia as the most promising markets as they have been boosting efforts to diversify their economies leading to an increase in private wealth. Through the acquisition by Julius Baer in 2012 of Merrill Lynch’s international wealth management business, our footprint in the Middle East was also complemented with two important and long-standing entities in key markets, Lebanon and Bahrain, fully supporting our growth since then.”

What comes next?
Reporting the private bank’s results for 2019 in February, CEO Philipp Rickenbacher announced new financial targets for the next three years, which will see the organisation streamlining operations to boost revenues.

Julius Baer, which reported a 37 per cent drop in net profit for 2019 to reach CHF465m ($473m) – hit by one-off costs – revealed plans to reduce up to CHF200m ($203m) in costs through a strategy that will include cutting 300 jobs and reviewing the extent of its geographical operations.

As part of its strategy, the bank plans to achieve over 10 per cent annual growth in adjusted pre-tax profit by 2022, with an adjusted cost/income ratio of 67 per cent or lower – compared to the 71 per cent level achieved in 2019.

“We will sharpen our value proposition for high net worth and ultra-high net-worth clients. We will accelerate our investments in human advice and technology. And we will shift our leadership focus from an asset-gathering strategy to one of sustainable profit growth,” said Rickenbacher.

Looking at future trends, if wealth management firms need to stay relevant, they indeed have no option but to evolve. While personal wealth growth remains on an upward trajectory, it is imperative to note the changing aspirations of its owners. Within the next two decades, up to $30 trillion is anticipated to change hands, estimates suggest.

“If we take it into the Julius Baer context, it means that $10-20bn of assets under management every year are going to change hands in the next two decades from one generation to the other,” elaborates Burger.

“As wealth is going beyond generations and beyond national boundaries, clients’ needs are getting more sophisticated and the focus will move from pure wealth accumulation/creation to wealth preservation. We – as a wealth manager – have a challenge to stay relevant for our clients. Discussions on wealth transfer and succession planning, taking into consideration the less liquid assets such as private equity and real estate, are increasingly coming to the fore in the Middle East,” he adds.

Other factors that are heavily influencing the younger generations are aspects like sustainability and social impact of their lifestyle on the environment. Many of them are also heavily swayed by social media and opinion makers when it comes to issues and causes.

In Julius Baer’s recently released Global Wealth and Lifestyle report 2020, which tracked the price trends of premium goods and services across 28 cities globally, a special focus was given to ‘conscious consumption’, highlighting how ethical choices about the environment and sustainability are causing a rethink in what it means to live well today.

“Our analysis reveals the growing desire among consumers to balance their buying decisions with their social, environmental and political convictions. This began with the millennials, but the baton has definitely been passed down the generations now. The conscious consumer is here to stay, and we see a fast evolution of existing offerings and major investments into innovations across industries as a response to this growing demand,” the report stated.

“We are paying attention to the increasing awareness and demands of our clients, and strive to cater to these growing needs. For us, responsible investment is a journey and not a destination and we will continue to develop our approach and offering,” says Burger.

As part of that approach, the bank offers its ‘next generation’ investment philosophy, which focuses on thematic investing. “The main objective is to map out investment opportunities by identifying companies with a competitive advantage within growing markets, and thus harness megatrends to deliver investment returns. We track shifts in consumer spending and capital expenditure and look at five key investment themes – arising Asia, digital disruption, energy transition, feeding the world and shifting lifestyles,” he states.

“Our advice to clients is centred around the question: ‘What matters to you?’”

The answer, probably, makes all the difference.