The Aftermath of a Crisis: Tectonic Shifts in Private Banking for Family Offices
Family Office Insider (FOI) | May 2023
Hello, and welcome to this month’s premium edition of Family Office Insider (FOI) from GPFO.
📢 Our announcement: Introducing the Members Portal for GPFO Association Members.
Thank you to all those that signed up to beta test. The feedback and suggestions have been hugely valuable and new features and resources coming each month.
📅 The Summer Investment Club is next week.
GPFO Association Members can register here, non-members can request an invitation here. The keynote will be given by Colonel Robert Cundy and will hear presentations from; Christian Vogel-Claussen & Matthew Shenkman (Alanda Capital), Owen Thompson (Cambridge Future Tech), Anthony Aho (PB&B), Tim Bevan & George Michalowski (ETC Group), Val Krivenko (Angara).
At a glance:
Adjusting to the new banking landscape
How banks are rebuilding trust and confidence
What family offices can expect navigating the transformed ecosystem
Several months have passed since a significant banking crisis shook the industry (a selection of the articles at the time), impacting major institutions such as Credit Suisse, Silicon Valley Bank, First Republic Bank, and Signature Bank. In this article, we explore the enduring consequences of the crisis on family offices, examining how the absorption of these failed banks by larger institutions continues to reshape the private banking, wealth management, and investment banking landscape that family offices rely upon.
Adjusting to the New Banking Landscape:
Assessing the lasting impact of the crisis on the availability and structure of private banking services for family offices.
Examining how the absorption of failed banks by larger institutions has influenced the depth of relationships, customized solutions, and tailored wealth management offerings available to family office clients.
The banking crisis has left a lasting impact on the availability and structure of private banking services, triggering a fundamental shift in the dynamics between family offices and their financial partners. The absorption of failed banks by larger institutions has played a pivotal role in shaping this new landscape.
One of the most tangible changes experienced by some family offices is the recalibration of relationships with their private banking providers. Family offices often foster close-knit partnerships, built upon trust, and nurtured over years. However, the consolidation of banks has disrupted these longstanding alliances in many cases. Family offices now find themselves adjusting to new points of contact, navigating fresh layers of bureaucracy and compliance, and reestablishing rapport with different teams within the larger institutions.
This can impact the customized solutions and tailored wealth management strategies that family offices once enjoyed, some are even undergoing a metamorphosis in this transformed banking landscape. The absorption of failed banks has prompted a reevaluation of product offerings and service portfolios. Larger institutions, burdened with the integration of acquired entities, are compelled to streamline their staff and offerings as well as reassessing the feasibility of maintaining the same level of customization and tailored approaches that family offices have become accustomed to.
While this recalibration may initially pose challenges, it also presents opportunities for family offices to reassess their own needs and objectives. By engaging in open dialogues with their banking partners, family offices can proactively communicate their sometimes unique requirements.
Rebuilding Trust and Confidence:
Analyzing the steps taken by larger banks to rebuild trust and restore confidence post-crisis.
Discussing ongoing efforts to enhance risk management practices, regulatory compliance, and transparency in order to regain trust in the industry.
Larger banks have faced the hard task of rebuilding trust and restoring confidence from their clientbase, especially those they hold high levels of cash for. The latest Goldman Sachs family office report suggested that cash and cash-equivalent holdings currently stand at around 12% of family office portfolios. Recognizing the paramount importance of trust as the bedrock of successful banking relationships, these institutions have in some instances undertaken significant steps to regain the faith and loyalty of their valued clientele.
The first crucial step taken by larger banks is a reassessment of their risk management practices. Drawing upon the lessons learned from the most recent crisis, these institutions have implemented rigorous risk assessment frameworks and internal controls to prevent a recurrence of similar issues. Robust stress testing measures were already in place from the 2008 crisis, but updates to these are expected from regulators in order to identify vulnerabilities earlier.
Furthermore, regulatory compliance will become an even more burdensome part of the post-crisis banking landscape. Larger banks will refocus on stringent adherence to regulatory guidelines and requirements, and this will impact product availability and lending criteria in the short term. They have invested substantial resources in compliance departments over the past decade, bolstering their capacity to monitor and report on regulatory matters effectively. Expect increased marketing and communication around these topics as these banks aim to provide family offices and the financial markets with a sense of security and reassurance.
Transparency has emerged as another cornerstone of the efforts to rebuild trust and confidence. Larger banks have adopted a proactive approach to enhancing transparency in their operations, financial reporting, and communication with family offices. They understand the significance of clear and open communication channels, providing family offices with pertinent information, and access to key decision-makers within the institution. Transparent disclosure of risks, fees, and potential conflicts of interest is prioritized to foster an environment of trust and confidence. This should be a boon to banks clients, if done well.
To further enhance trust and confidence, larger banks have actively sought feedback from family offices and incorporated their insights into strategic decision-making processes. Regular dialogue, surveys, and client feedback mechanisms serve as invaluable tools for banks to gauge client satisfaction, identify areas for improvement, and demonstrate responsiveness to the concerns and preferences of family offices.
Keep reading with a 7-day free trial
Subscribe to Family Office Insider (FOI) to keep reading this post and get 7 days of free access to the full post archives.