Private Banking in Luxembourg: consolidation of AuM as the industry expands its geographical scope

ABBL Published 28.06.2017

Presentation of the 10th edition of the CSSF-ABBL Private Banking Survey

The ABBL Private Banking Group Luxembourg (PBGL) just published the results of the annual Private Banking Survey for 2017, performed as in previous years in close collaboration with the CSSF.

Private Banking assets under management (AuM) in Luxembourg strengthened their position at a high level, rising by 3% compared to the previous year to a total of €361Bln as at the end of 2016. This evolution confirms the general trend anticipated by the PBGL witnessing a consolidation of the sector at a respectable level with AuMs now standing at 35% above the level reached before the financial crisis in 2008.


In addition, the industry is expanding its geographical scope within the EU countries, today representing the core market (60% of total AuMs), as well as within the rest of Europe (Switzerland and non-EU European countries with respectively 10% and 9% of AuMs) and beyond Europe (for instance Latin America and the Middle East).

The 2017 Private Banking Survey also reveals that persons with a net wealth in excess of €20m now account for more than half of all assets managed by Luxembourg private banks at the end of 2016. The number of clients with assets of less than € 500,000 continues to decrease to a point where, in 2016, this segment now represents 12% of total AuMs.

A shift in assets from the affluent client segment to a high and ultra high net worth individuals (HNWIs or UHNWIs) client segment has now been confirmed for several years in a row. This clearly illustrates that today Luxembourg continues to attract an internationally exposed, mobile and sophisticated HNWI/UHNWI clientele, demanding enhanced and immediate access to reliable and transparent financial services. This client segment recognises the benefits of Luxembourg as a premier onshore EU Private Banking location that combines a high degree of political and legal stability with cross-border border expertise and a very broad range of wealth management products and services.

Whilst evolution of the Private Banking industry in Luxembourg is comforting in terms of growth figures, specific challenges in terms of profitability remain to be addressed. In particular, profit margins have gradually eroded since smaller clients were historically more profitable than wealthier clients. This erosion effect is further reinforced in a context of low – respectively negative – interest rate levels, combined with a marked increase of operating costs essentially due to the need to comply with a sustained flow of complex (and often interconnected) regulatory changes. Top priorities on Luxembourg private bankers’ compliance agenda remain MiFID II and AMLD 4, along with FATCA and C.R.S. requirements, often with increasingly shortened implementation time and delayed

publication of regulatory technical standards. Said regulatory changes come also with an increased burden of reporting obligations to clients and regulators alike. As a result, we note that the return on assets (RoA) for the Private Banking sector in Luxembourg has globally declined by 4% compared to 2015.

Finally, whilst digitalisation of financial services gathers pace and reshapes the financial landscape with unprecedented real time access to market and stock exchange data, the Private Banking sector faces yet another set of challenges with clients increasingly demanding personalised investment services in a more comprehensive strategic approach. We are also witnessing developments in the area of client onboarding and interaction in the form of extended recourse of electronic signatures, biometric identification or the use of blockchain technology.

Totalling almost 7,000 employees at the end of 2016, the number of staff employed in Private Banking has slightly increased by 1.9% after two consecutive years of contraction, compared to the overall increase of 0.5% for the banking sector.

 

PBGL 10th Anniversary

This year, the ABBL is proud to celebrate the Private Banking Group Luxembourg’s 10th anniversary.

As the oldest business cluster of the ABBL, the PBGL regroups some 56 member banks currently active in Private Banking in Luxembourg as well as several non-banking members (law firms, consultants, and other sector related companies).

Over the years, the PBGL has gradually become the voice of Private banking in Luxembourg, among others by:

  • mapping the business sector’s contours and evolution (with the annual Private banking Surveys),
  • setting a number of standards in terms of ethics (by signing the ICMA Charter in 2012) and education (by launching education programmes with the IFBL and the Luxembourg School for Finance), and
  • actively promoting in the sector in Luxembourg and abroad.

 

Press release in French and CSSF-ABBL Private Banking Survey available in the “Downloadable files” below.