Mike Judith: «Client Advice Will Become Unaffordable»

Mike Judith, DNB Asset Management

Banks are set to significantly increase the cost of individual client advice in the near future. As a result, most clients will be priced out and will have to get by without advice. That is the prediction of Mike Judith of Norwegian DNB Asset Management.

The financial sector is under pressure from a pincer movement: Increasing regulation is burdening the banks with high compliance costs on one side. And on the earnings side, the central banks are severely narrowing margins with their ongoing policy of low and negative interest rates.

The banks are suffering less from the third major current running through the sector – digitization. Although this trend is forcing institutions into difficult management and restructuring processes, when these changes are successful, the result for banks as well as clients is positive.

Added Value for Both Sides

«Digitization in the banking sector brings added value – for both sides. Banks can work more cost effectively and clients get services tailored to their needs,» Mike Judith, head of sales und portfolio management in asset management at the Norwegian bank DNB told finews.asia.

Because digitization structurally leads to a reduction in branches and head count, institutions save on costs. At the same time, thanks to the digitization of sales and distribution channels, the potential to increase market penetration rises.

Earning Dilemma Unchanged

For clients, digitization means better conditions overall, Judith believes. Contact with the bank is more practical, and administration when selling services is easier.

But successful digitization of processes changes little or nothing in the earnings dilemma facing financial institutions. «The existing difficulties come from the central bank-led low or negative interest rates environment,» Judith said.

One way banks are reacting to falling interest rate margins is by launching new advice and charging models. But as long as the current monetary policy is trapped in the vicious circle of ineffectiveness, lending remains weak and the banks have to pay to park their high cash holdings, the earnings situation will not improve.

Simply Unaffordable

The consequences of this will be that clients will have to pay, around the time when banks begin to offset their negative interest rates. And when banking services become more expensive.

«Already in the medium-term, banks will be obliged to increase costs for individual client advice. That means most clients will have to manage without advice because it will be simply unaffordable,» Judith predicts.

Give Up or Search for Niches

This development is already happening. Private banking is concentrating all its forces on the wealthy clientele, while numerous banks are developing robo-advisor models for retail clients. Smaller and especially medium-sized banks, as well as asset managers, will be forced to give up.

But this also offers opportunities for niche operators like DNB, Judith says. «Our asset management is possibly an example of how the sector can approach the new conditions – a clear niche focus as well as a small agile team for portfolio management and sales. That’s how you can distinguish yourself and keep the cost pool low.»


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