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
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
Cregem International Bank