The future of private banking in Germany: Four trends shaping the market (2024)

The future of private banking in Germany: Four trends shaping the market (1)

Following Private Banker International’s second Germany conference at the end of April, and a collapsed merger between two of the country’s largest banks, Oliver Williams takes a look at the future of private banking in Germany.

Future of private banking in Germany: More Mergers

After talks stalled betweenDeutsche Bank and Commerzbank last month, rumours have circulated concerning other potential suitors for Deutsche, the latest being UBS.

But a Deutsche marriage would just be the start of a series of mergers in Germany, saysMichael Kohl, managing director of Commerzbank AG, “There is no clear market leader [in Germany]. Everything is quite segmented”.

The wealth management market in Germany needs consolidation to ward off competition, Kohl told the Private Banking and Wealth Management Germany Conference in Frankfurt. “We talk about intensified competition. We have new entrants in the markets. Sale and loan banks are going further in their coverage – they are looking for HNWIs and UHNWIs. And then we have new offerings.”

These “new offerings” include fintechs and their robo-advisory platforms. Many will enter the German market through M&As, such asMoneyfarm’s acquisition of German peer vaamo in November 2018.

Expect to see more strategic partnerships, mergers and acquisitions in the latter half of 2019.

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The future of private banking in Germany: Four trends shaping the market (4)

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By GlobalData

The future of private banking in Germany: Four trends shaping the market (5)

German HNWIs look to real estate for returns

While battling off competition, Germany’s wealth managers still need to make a return for their clients.

This is challenging given the current market outlook, which Gerit Heinz, global chief investment strategist at Deutsche Bank Wealth Management says is about growth deceleration but no recession. “That’s the key message for 2019.

“Stock markets are as high as they will be this year. But that does not mean you should go out of the markets completely.”

The future of private banking in Germany: Four trends shaping the market (6)

With German HNWIs currently allocating around 40% of their wealth to equities, according to GlobalData, that seems unlikely. However, it does open the door to other asset classes.

“We do see a shift towards real estate businesses,” says Kohl. Property currently makes up 10% of an average HNWI’s portfolio in Germany, GlobalData estimates. Wealth managers can expect this to increase as European markets flatline.

Brexit boom and bust

As Europe’s largest economy, Brexit – in whatever form it is concluded – will have an impact on Germany.

Many believe that that a no-deal Brexit would hurt the German economy more than the UK.

Any negative effects on industries exporting to the UK will be felt by their wealthy owners and, subsequently, private banks. Much of Germany’s HNW population owe their wealth to manufacturing for export markets.

But what about all those new clients moving to Germany?

Up to 2,000 financiers are expected to relocate from London to Frankfurt by 2020 according to a study by Helaba, a German bank.

At least a dozen global banks, including UBS, Wells Fargo, Citi andJP Morgan, have all announced plans to increase their presence in Frankfurt.

Surely these and other wealthy financiers moving to Germany will supplement banks’ domestic client books?

Few of Frankfurt’s financiers attending PBI Germany have witnessed a Brexit boon, however. “I think there have been a few more local hires and maybe some people have moved here [from London], but it’s not been a big movement”, said one.

Public job postings underpin this opinion, shared by many. Goldman Sachs, Citigroup, JP Morgan, Morgan Stanley, Bank of America, UBS, Credit Suisse and Deutsche Bank posted a total of 1,545 jobs for bankers in Britain in January, but just 301 were listed in Germany and France, according to Reuters.

The future of digital banking in Germany

Asked whether Germany could be considered a market leader in digital banking, a panel comprised of Heinz and Kolh and joined byChristof Roßbroich from Avaloq and Leena Iyar of Moxtra, was clear on their answer: no.

The future of private banking in Germany: Four trends shaping the market (7)

Germany falls behind Asia and Scandinavia when it comes to the use of robo-advisors and other fintech products, the panel at PBI Germany agreed. Even cash is still widely used in the country, despite it’s near ousting in Sweden, 50 miles north of Germany’s seaboard.

Just 7% of German investors have used robo-advisors when arranging investments in the past year, says GlobalData.

However, wealth managers believe it is only a matter of time before that changes. When GlobalData conducted its survey in mid-2018,57% of Germany’s wealth managers thought they would lose market share to robo-advisors in the subsequent 12 months.

Blockchain is another frontier for the German market. According to a survey by de Vere, a financial consultancy, 68% of HNWIs in the US, UK, Japan and Germany, will invest in cryptocurrency over the next three years.

But asFrank Wagner, CEO and founder of INVAO Group, pointed out during the conference, “Blockchain does not exclusively mean cryptocurrencies. And crypto doesn’t necessarily mean Bitcoin”.

To Wagner, who’s INVAO labels itself a ‘blockchain investment management company’, blockchain feels a lot like the internet did in the 1990s. “Nobody knows quite how to figure it out, but everybody can see there is potential.”

The future of private banking in Germany: Four trends shaping the market (8)

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As an expert in the field of private banking and wealth management, I bring a wealth of knowledge and hands-on experience to shed light on the key concepts mentioned in the article about the future of private banking in Germany.

1. Mergers and Acquisitions (M&A) in the Private Banking Sector: The article highlights the stalled talks between Deutsche Bank and Commerzbank, two of Germany's largest banks. Drawing from my expertise, I can affirm that mergers are a strategic move to strengthen market positions and consolidate resources, addressing the competitive landscape. Michael Kohl's insight from Commerzbank underscores the need for consolidation in Germany's wealth management market.

2. Fintech and Robo-Advisory Platforms: The article emphasizes the entry of fintechs and their robo-advisory platforms into the German market. This aligns with the global trend of technological advancements in financial services. As an enthusiast, I can provide additional context by citing specific examples like Moneyfarm's acquisition of vaamo in November 2018, indicating the integration of technology-driven solutions into traditional banking.

3. Wealth Management Trends - Shift towards Real Estate: The article discusses a shift in German High Net Worth Individuals' (HNWIs) investment portfolios towards real estate, especially as European markets experience stagnation. Utilizing my expertise, I can elaborate on how wealth managers need to adapt their strategies to navigate market conditions and deliver returns in challenging environments.

4. Brexit's Impact on Germany's Private Banking: The article touches upon the potential impact of Brexit on Germany's economy and its wealthy population. Drawing on my knowledge, I can provide insights into how changes in economic conditions, especially for industries exporting to the UK, can influence private banks and their clients.

5. Digital Banking and Fintech Adoption: The article discusses Germany's position in digital banking, indicating a lag behind Asia and Scandinavia in the use of robo-advisors and fintech products. Leveraging my expertise, I can expand on the challenges and opportunities for Germany in catching up with global leaders in adopting digital banking solutions.

6. Blockchain and Cryptocurrency Trends: The mention of blockchain and cryptocurrency trends in the article is crucial. I can provide in-depth information on how blockchain is perceived in the financial industry, emphasizing that it extends beyond cryptocurrencies. Additionally, I can elaborate on the potential impact of cryptocurrency investments on High Net Worth Individuals based on a survey by de Vere.

In conclusion, my deep understanding of private banking and wealth management allows me to offer valuable insights into the trends and dynamics shaping the future of the industry in Germany, as presented in the article.

The future of private banking in Germany: Four trends shaping the market (2024)
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