Next-generation wealth requires a new business model – not more advisers

Banks talk about growth, the democratisation of wealth and historically large intergenerational transfers. Many view their Private Banking business as a locomotive for lucrative growth. But beneath the surface, Private Banking is grappling with a more fundamental problem. The business model is running out of clients with wealth of sufficient complexity, scale and willingness to pay to sustain it in its current form.

Denmark does not lack wealth. Quite the opposite. But it does lack enough wealthy families to sustain Private Banking businesses as they are built today. Over time, existing fortunes are divided among heirs who neither have the same needs, patience nor willingness to pay for traditional advisory services as their parents.

This is a structural problem, and it is hitting the industry in the solar plexus right now. The average client is approaching retirement age, while the next generation wants something entirely different.

Yet much of Private Banking continues to operate on the assumption that relationships are inherited, and that the personal adviser remains business-critical. But relationships are not inherited. They must be won anew. Heirs expect digital journeys, faster responses and far greater flexibility than any previous generation. International studies show that 70% of heirs change wealth manager within one year of inheriting. The same applies to 60% of widows.

If the industry fails to adapt now, it risks watching its most lucrative segment crumble between its fingers.

Digital pressure and price competition are squeezing the business

While the client base is changing, digitalisation is sweeping through the industry. Clients use mobile banking for all the simple tasks, leaving advisers with fewer but significantly more complex cases. At the same time, compliance requirements are exploding, and digital-first investment solutions without the provision of advice but at lower cost have captured large portions of assets under management from the banks.

Price pressure is relentless. A client with DKK 20 million is typically presented with a low-cost digital offering alongside a more expensive, advice-heavy alternative. The industry must accept that transparency around price and value has become a competitive parameter. Clients want to understand exactly what they are paying for, and when advice creates real added value. Banks that fail to make this clear will see clients migrate towards more price-competitive alternatives. Why pay between 1% and 3% in fees for advice and investment services if the bank’s investment arm does not outperform the market year after year?

This leaves banks facing a paradox. Clients want advice, documentation and tailored solutions, but they want to pay as if everything were standardised.

Private Banking is currently balancing on the edge of a business model that no longer adds up economically.

The best advisers move to the big cities – and take clients with them

The talent market is hurting the industry. Outside the largest cities, it is almost impossible to retain experienced advisers, and when a key individual leaves a team, it can take months to replace them with someone equally qualified.

During that time, relationships slowly slip through the bank’s fingers.

Advice is a trust-based product. And trust cannot be transferred in an Excel spreadsheet.

As fortunes are divided among heirs, one stable portfolio becomes several smaller ones. Each heir has their own views on risk, sustainability, service and price. Many are unwilling to pay for the type of advice their parents considered a given.

For years, the industry has viewed relationships as its most stable asset. In reality, relationships are the most fragile – especially when they must be reinvented for each new generation.

Clients want digital – just not all the way

Although many clients say they prefer physical meetings, their behaviour tells a different story. When processes are simple and well explained, most choose digital meetings, digital signatures and digital follow-up. They only want to meet in person when decisions are genuinely complex.

A modern annual review might look like this: an evening video meeting. Investment strategy agreed online. All material gathered in the app. And a short physical meeting the following week to address the most difficult questions.

It feels modern. It is efficient. And it is exactly the flexibility the next generation expects as standard.

This cannot be solved by hiring more advisers, hosting more events or offering even more personalised service. It requires a fundamental overhaul of both the client experience and the engine behind the business.

The industry must build a digital and personalised client experience that genuinely drives decisions. It must deal with its technology debt and simplify across platforms. It must use data and AI as the foundation for both advice and compliance. It must attract talent on new terms, and recruit beyond the major cities. And it must foster a culture that rewards quality over volume.

Banks talk about market share, scale and growth. But in Private Banking, the next five years will not be decided by who attracts the most clients, but by who can make money from them without the organisation burning out.

The banks that act now will be among the few with a profitable Private Banking business in five years’ time. The rest risk being reduced to technical custodians of wealth that slowly disappears.

Read the article in Børsen in Danish.