Our business is impacted by the world around us, and our strategy needs to reflect and respond to that.
The economy, society and environment in which we operate as a wealth manager, the regulatory landscape, the demands of our clients and prospects, the technological advances of our competitors, and the state of the labour market as a whole – all of these external developments have an impact on our business. So we take these into account when executing our strategy.
The reporting year 2020 started on a strong note economically: financial markets were still bullish, global economic growth was relatively strong, and unemployment was low. But in March, the spread of the Covid-19 pandemic turned the global economy on its head. Due to widespread lockdowns in the second quarter, we experienced the deepest recession since the Second World War.
But as soon as restrictions were lifted, the recovery (at least in some sectors) was just as swift. Economists saw a “K-shaped chart”, meaning that certain sectors – such as online retail, healthcare and tech – had a sharp upturn, while other sectors – such as air travel and high-street retail – had an equally sharp downturn. And this was reflected in the stock markets, too.
In order to stimulate economic recovery, central banks maintained low interest rates and created bigger balance sheets, while governments stepped in and invested huge amounts of money. In Europe, companies were able to borrow large sums in order to keep employment at economically and socially acceptable levels. In the US, the strategy was different, with companies quickly laying off staff while the US government doubled unemployment benefits for the people impacted. With so much government and central bank stimulus, it’s likely that the real effects of the recession won’t be felt until 2021 and beyond.
This means that despite the huge dip in March and April, the investment market did not in fact depreciate between the start and end of 2020. The European Central Bank’s temporary ban on dividend payments for banks, however, has had a material impact on their share prices – and by extension on shareholders. At the time of writing, the ban is expected to be lifted after September 2021. Because of the uncertainty caused by the pandemic, uncertainty surrounding economic projections has also increased – and it remains to be seen what the longer-term impact will be.
From a social perspective, the Covid-19 crisis led to huge upheaval in the way people live, work and maintain social contact. From a corporate point of view, it brought companies’ social conditions for employees and suppliers into sharp relief. The virus laid bare whether companies really were taking care of the people in their supply chain, paying attention to health and safety, and upholding labour standards. It also highlighted the need for holistic thinking around the role businesses play for their employees, clients and suppliers, as well as across complex supply chains.
From an environmental perspective, the lockdown measures brought in to curb the pandemic led to reductions in carbon emissions. While things may still return to “normal”, the situation proved to many people that measures such as reducing travel and limiting factory production could have a meaningful positive impact on the climate. And governments’ targets reflect this: there’s been a further shift towards ambitious net-zero emissions targets by 2050.
Our client groups – and those we wish to attract – are broad-ranging. They include private clients, such as wealthy individuals, entrepreneurs, professionals and first-time investors; wholesale & institutional clients, such as pension funds and insurance companies; corporate clients in our focus sectors (real estate, life sciences & healthcare, financial institutions & fintech, infrastructure, maritime & offshore, and local alpha); and other types of clients, such as charities, foundations and associations.
Each client group has different, evolving and increasing demands, but we also observe a few common wishes among all our client groups, such as omni-channel service, holistic advice, sustainable investments and advice on how to prepare for the future.
In terms of the way they do business with us, clients are looking for several differentiating factors. They want to be able to reach us wherever and whenever they like, via whichever channel they choose – and they expect personalised, tailor-made service. This means that while some clients might want to do everything online, others may prefer to discuss things over the phone – or a combination of both. They’re looking for personal knowledge of their specific circumstances from their contact coupled with easy, omni-channel service. Of course, we’ve seen the demand for digital tools increasing for several years – but the Covid-19 pandemic has accelerated this demand among all client groups.
Most of our clients are also looking for holistic advice rather than individual products. They expect thorough knowledge of all the solutions on offer across all our business lines, so that we can proactively advise them on the best options.
But of course the search for yield and returns is ongoing and requires product innovation as well. Clients are requesting access to asset classes that were previously the domain of only the most sophisticated of investors, such as private equity, land, infrastructure and private debt.
Sustainable investments are becoming the new normal among many of our client groups, both private and institutional. We’re rapidly moving towards a world in which complying with the highest ESG standards is part of our licence to operate rather than a differentiating factor.
And finally, our clients – like everyone in today’s world – are seeking certainty. When the first wave of the pandemic hit, they wanted to discuss the possible scenarios and how to meet their investment goals. As the crisis continued, they wanted to know how to prepare for the future and adapt to the new reality. Adaptability to change is key if we are to remain a trusted adviser to our clients.
The impact of the Covid-19 pandemic on regulators’ priorities was also felt. In 2020, the focus shifted to help banks ensure the continuity of their operations, including support to their clients.
This entailed postponing the implementation of certain regulations, such as Basel IV, and reviewing recently implemented regulations to reduce the administrative burden.
At the same time, we’ve seen further harmonisation of supervisory regulations in Europe, as well as more detailed descriptions of how to define and implement certain rules.
During the reporting year, financial institutions continued to prepare for the large number of regulations that are scheduled to come into force going forward – albeit some later than originally planned. Financial institutions are still working on the Basel IV package of reforms, which involves collecting a lot more data but whose impact on lending procedures and capital is relatively limited. The need to prepare for the cessation of LIBOR at the end of 2021 has meant assessing exposure to LIBOR-linked products and making robust plans. The fifth anti-money laundering (AML) directive introduces an ultimate beneficial owner register which is currently being implemented in the Netherlands. The sixth AML directive contains minimum rules on criminal liability for money laundering. Client due diligence and transaction monitoring remain important priorities for the industry as a whole.
From a sustainability perspective, we’ve seen a clear external push from the regulators, especially in Europe. The EU has the ambition to make Europe a climate-neutral economy with net-zero greenhouse gas emissions by 2050, and has come up with plans that touch every sector – including financial services. For example, the action plan on sustainable financial growth contains a set of new regulations. The EU has created a harmonised framework, which will come into force step by step and develop over time. The new framework introduces a classification system for sustainable activities and investments as well as new disclosure requirements for financial institutions to bring more clarity to end-investors and prevent “greenwashing”. There is also a focus on mainstreaming management of sustainability risks and fostering transparency for listed companies and shareholder long-termism.
The challenge for Van Lanschot Kempen (and for all financial institutions) is to efficiently implement these rules and to source meaningful environmental, social and governance (ESG) data.
With the EU and the UK finally reaching a deal in the dying days of 2020, a no-deal Brexit was averted. For the financial industry, however, the proposed EU/UK Trade and Cooperation Agreement does not contain much detail so far. In this context, we are no longer expecting permanent equivalence decisions with respect to UK central clearing parties, or third-country exemption regimes being applied to UK-based counterparties, for example. Clarity on these matters will be most welcome.
In the first few days of 2021, we saw some memoranda of understanding between supervisory authorities, which will form a basis for future cooperation between the UK and the EU with respect to supervision of financial markets and their participants. Uncertainty still remains as to whether, over time, future regulation in the UK may gradually diverge from EU regulatory standards and may as a result become an unsurpassable hurdle for the application of third-country recognition or equivalence regimes.
Clients’ expectations are partially driven by what they have come to expect from other companies, both within and outside the financial services sector. These include the big tech firms, which provide excellent customer experience; universal banks, which meet high standards in terms of day-to-day banking functionality; and fintechs, which use algorithms in their processes as well as application programming interfaces (APIs) to enable value-added services. These expectations lead to increasing demand for digitalisation of services.
In the technology domain, we’ve seen continued developments in 2020 – a couple of which are of
particular relevance to our strategy. On the one hand, the rise in cloud-based services has precipitated a move from traditional “on premises” applications to the cloud, or software as a service (SaaS). On the other, low-code applications and robotic process automation (RPA) systems are increasingly automating manual tasks, without deep coding knowledge being required.
The increasing speed at which both technological developments are advancing and client needs are evolving requires organisations to be quick and nimble, taking an agile approach.
In the financial services industry, competition for talent in the labour market is as fierce as ever. All companies in our sector rely on the knowledge, experience and professionalism of their employees – and there’s significant crossover with other sectors in terms of the skills required. So attracting, retaining and developing the best people is crucial.
At the same time, the labour market has increasingly high expectations when it comes to personal and professional development. Employees and potential candidates are demanding not just technical training but also creative work and ways to improve their well-being. We need to keep up with these demands to stay competitive as an employer.
Meanwhile, the Covid-19 pandemic forced organisations such as ours to operate completely differently: working from home became the new norm. People were forced to engage differently with their managers, employees and colleagues. And everyone needed to adapt to online technologies – fast. While a toll on people’s emotional well-being was inevitable, there were some positive side effects: travel time was all but eliminated, which increased time-efficiency; the digital savviness of the workforce paid off; and (perhaps ironically) absence due to illness went down. On the flip side, the lack of personal interaction between colleagues began to have an impact on people's sense of belonging.
The digitalisation and remote working trends accelerated by the pandemic also play into the competition for talent. Physical location and travel are becoming less and less important, making it easier for talented professionals to switch roles and take advantage of opportunities that are not necessarily close to home.
Finally, our stakeholders – including shareholders, clients and employees – continue to see diversity as an ongoing priority. This has been reflected in the upcoming regulations, which also place more emphasis on employing a diverse workforce in all sectors, including ours. We of course aim to comply with these regulations.
Would you like to know more about specific subjects that featured in 2020? Download our reports regarding our financial year 2020. If you are looking for more information on our performance in previous years, you can find historic reports in our archive.