According to a recent Financial Times survey, in 1997 some six million people all over the world held over $1 million each in liquid assets. The Price Waterhouse survey, meanwhile, values European private banking at $6,000 billion and the world market at $16,000 billion. Numerous analysts confirm that the world pri- vate banking market has a very significant growth potential: forecasts suggest that the increase in wealth worldwide, currently 6% a year, is set to rise to 12%. Europe has the lion’s share of this market: Mer- rill Lynch estimates that 30% of “high net worth individuals” live in Europe, 27% in the US and 21% in Asia. The Institutional Investor gives the breakdown, indicating that in Europe 30% of managed assets  are  in  the  United  Kingdom,  20%  in Switzerland and 15% in France and Germany. In a booming market, asset management is also a highly profitable activity, with capital returns for Anglo-Saxon managers varying between 30 and 40% in 1996. With profits at that level, there will be strong competition for management of the available capital. Most bankers admit that they manage only 20 to 40% of their affluent customers’ assets, so the potential prizes for more aggressive sales tactics are substantial. Keeping the customer satisfied This group of customers tends to spread its assets across several banks and demand the highest stan- dards of service. Surveys have repeatedly shown that cost is not a determining factor in the choice of a private bank. Far more important are quality of ser- vice, performance and financial credibility. The banks are devising ever more sophisticated investment packages to tempt customers with higher returns. In France at present, 80% of investments are in prod- ucts geared to the domestic market. But investors are increasingly moving away from conventional savings products and towards genuine asset management, with a strong trend towards more international investment and market globalisation. This trend will strengthen with the introduction of the euro. These   customers   are   becoming increasingly demanding and aware that bankers are competing for their custom. They are also moving towards a more rounded approach to asset management, and looking to banks to provide greater diver- sification. Moreover, they are look- ing  for  advice  tailored  to  their career   span,   using   appropriate packages to prepare for an opti- mum transfer of their estate. These expectations    require    extensive know-how on the part of the asset manager (in areas such as deriva- tives, for instance), and recourse to legal and tax experts. The basic qualification require- ments today are no longer those of an economy dominated by industry in general and iron and steel in particular. Luxembourg’s financial centre, like those in neighbouring countries, has a far higher requirement for skilled management staff than do industrial activities. The banks will be training specialist staff to develop their asset management activities alongside back office and routine operations, which are often processed from home on computers. Looking resolutely to the future, the financial institutions must offer portfolio and tax simula- tions, mutual funds, and ultimately more sophis- ticated products on the Internet, as part of their private and institutional banking services. It is therefore vital to develop a strong brand image for quality of service. Opportunities   and   challenges   for   asset management in Luxembourg Whereas until the mid-1960s Luxembourg banks catered chiefly for domestic demand, the growth in crossborder financial activities in Europe and the legal restrictions in force in some neigh- bouring countries have contributed to Luxem- bourg’s flourishing activity as a financial centre. From the ‘80s onwards, private banking activities also took off, thanks to the city’s reputation for confidentiality, political stability, a legal frame- work open to change, an attractive fiscal envi- ronment, flexible modern technology, a wide product range and quality of service. Today the country’s bankers face two challenges: transforming their fiscal customers into private customers on the one hand, and making Luxem- bourg a name as the natural centre for private banking in euros. Luxembourg’s European credentials as a commit- ted founder member and its guaranteed place in the first wave of EMU, its robust public finances meeting all the criteria with ease, have earned it a reputation as a leader of the euro-pack, as Lucien Thiel, director of ABBL, recently remarked. Pressure from other European countries for such measures as tax harmonisation, or an end to banking secrecy, would have serious repercussions for the private banking sector. Resistance to the proposals at the highest levels of the Luxembourg government would seem to have headed off the threat, however. The progress made on this issue under the Luxembourg presidency, which put for- ward a new globalisation approach whereby taxes on savings and corporation taxes should be dealt with together, is the surest indication that these advantages are in no real danger. The city also needs to promote new activities. The pension fund niche market is attracting partic- ular interest among Luxembourg’s banks, at a time when most European countries face an inevitable overhaul of their entire pension sys- tems in the near future. As the pressure of demographic ageing increases, the vol- ume   of   managed   funds should continue to grow. A    shift    in    euro-market activities  towards  private banking   and   investment fund management will mark the development of Luxem- bourg’s    financial    centre over the coming years. The strong growth potential in both sectors will aid in this strategic redeployment, pro- vided that Luxembourg con- tinues to forge an image as a reputable European centre for asset management, prized for its expertise rather than its fiscal advantages. by André Roelants,Chairman of the Management Committee, of Banque Internationale à Luxembourg The Kirchberg, home to many banks and financial institutions Le Kirchberg, siège de nombreuses banques et institutions financières Der Kirchberg, Heimat vieler Banken und Finanzinstitute 38 Premier Life Cregem International Bank A world-class financial centre