Banking activity for independent management companies is today operated by around twenty banking institutions in a market with 150. “This activity represents around 45 billion assets (end of June 2020), which corresponds to 11-12% of market share, against less than 10% a few years ago. It shows a growth rate that is significantly higher than the activity of “direct” private banking. The business finds interest among new players who decide to develop in it in parallel with the traditional private banking activity ”, explains Guillaume Labbe, Head of Financial Intermediaries at Société Générale Private Banking.
Favor a private banking approach
Societe Generale Private Banking is one of the twenty institutions providing this activity. “There are several ways to approach this profession. Some players are moving more towards asset servicing with a view to making their operational platform more profitable. They were already serving the collective management activity of collecting societies and have started to support their management mandates on private clients in a pure depository logic. Others consider that supporting the funds on the traditional depositary bank and supporting the private management activity of these same counterparties are two distinct businesses ”.
SGPB operates in this second category. While Societe Generale Securities Services supports management companies on the fund side (UCITS / AIF), SGPB favors a holistic approach for their private clients. “We are not content to operate a depositary bank activity for these third party managers, but provide these professionals with all the offer that the private bank is capable of delivering to direct customers. Moreover, we have chosen to extend our coverage to Wealth Management Advisors and Multi Family Offices ”. In fact, the bank saw in this activity the means of reaching an Ultra High Net Worth clientele that it was not always possible to reach directly through its service offering.
Offer services at a fair price
For banks, the challenge is to convince these professional clients of the added value of going through a private banking department to support them. ” This added value comes at a price. Actors wishing to benefit from Societe Generale’s mortgage credit and asset engineering offer for their clients must agree to pay a supplement compared to what their global custodian bills ”. Keeping a balance between profitability and added value is a challenge for banks. All the more so since the latter must deal with the requirements of regulated professional players and the specific needs of a wealth management clientele which limit their ability to standardize processes. A mix of genres that requires private banks to deploy an additional regulatory framework (best execution guarantees, delegation of transactional reporting, etc.)
Without forgetting the technological challenge in terms of platforms and reports. “The market is increasingly global. While Luxembourg management companies represent 40% of deposited assets, foreign financial intermediaries increasingly use local banks. We provide them with our global platform ”. Indeed, the particularity of SGPB is to offer these players three booking centers in Switzerland, Monaco and Luxembourg operating in a coordinated manner to deliver the same services.
Towards market fragmentation?
While the market remains concentrated (the top 5 banks that operate it represent 54% of the market share in 2020), it tends to fragment (-7% compared to 2019).“We should theoretically witness a convergence of the market on a dozen players, because the critical size to operate this activity profitably is around EUR 2 billion in assets today and the management companies themselves would like to collaborate with fewer counterparts. In fact, we see rather that the banks have offers that complement each other and each meet certain specific needs. For their part, intermediaries do not always manage to concentrate their portfolio with one establishment and end up being able to put up with having to manage several custodians ”.
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Private banking: focus on the activity dedicated to external asset managers