Deutsche Bank's Campelli on the Millenial Investor

There are many trends that are actually really changing our landscape. And some of them have to do with the different direction of travel in terms of growth, where growth is coming from for our business, for the wealth management business. Part of it is what you just mentioned, the client base is changing. And a changing client base is the most disruptive thing that can happen to us. Also, regulation is causing us to become more and more a pure channel rather than having this kind of slightly overlapped role as a channel and distributor and a product provider. And then MiFID II is really causing us to become a lot more product neutral than we were. And this means that we really need to reinvent ourselves for new clients as a competitive channel in the face of many competing channels really trying to erode our client access. And we become a lot more product neutral. So, it's actually, if you apply this to all the wealth managers, it's also a challenge to all those buy-side product suppliers who will need to decide how to interact with their distribution networks.

Well, very much so. So, millennials is a perfect example. They are fundamentally different clients. Even if the demographic is slowly picking up a lot of wealth, but it's still a relatively small portion of global wealth, about 10% or so in 2015, growing probably to 15-16% in 2020. They are an incredibly different consumer of the services that we provide. And in many ways, they like to deal with us very differently. They favor different parameters and criteria in choosing a financial service provider. First of all, 70% of them choose pricing and transparency as the key indicator of how to choose a bank to bank with. 57% of them choose their banks over performance of the financial services provided. About half of them favor their bank based on the technological platform they provide access to. And their parents or their grandparents still actually value enormously the history with the bank, the relationship, the having gone through the first loan together, having lent them the money for their first jet or the first business venture in a new market. And 66% of our clients in wealth management globally, this is not Deutsche Bank, but global wealth managers, are about over 60 years old in average. So when 2/3 of your client base is still anchored to a certain dynamic and behavior, while a new generation of clients, it's about 40% of adult population are now millennials, so under 40s. And when they choose their suppliers so differently, we need to adapt our own presence enormously. And that consists of two changes: the kind of people we put in front of them, but also the technology we engage in with.

Exactly. So, this is very important. When you ask millennials, there are plenty of actually very recent studies trying to analyze what is the role of a bank and particularly a wealth manager, the investment advisor, the relationship manager in a relationship with a millennial. And it remains clear that they value very much the enormous role that a human being plays in giving them advice. More than 2/3 of millennials still value the importance of an investment manager or an investment advisor educating them on financial services and financial products. More than 50% declare their preference to actually interacting with a human being rather than having a digital-only interaction. In the wealth management segment, so when you go to high net worth and ultra high net worth individuals, less than 10% of millennials would say, 'I'm happy with a digital-only channel interacting with banks.' So, what is it then, this role of technology? It's not in substituting the wealth management traditional role in the way that we just heard for 25 years hasn't really changed. But, it becomes a key driver in choosing which bank do you bank with. Because the technology that these millennials are seeking have some characteristics in common. It creates enormous transparency on terms, pricing, performance terms, performance attribution, on the ability to choose between products. It creates enormous connectivity. Millennials are fundamentally networked people. And they favor tools that actually give them access to the opinion of peers. I'll come back to that in a minute. And the third piece is of use. The biggest winners in these games, and by the way, in many of the disruptors as well. When you look at who succeeded and who's struggling, it is user interface. And so, you may have a very consistent core, but if the user interface is really seamless and provides this connectivity and transparency, millennials will gravitate automatically towards those tools.

It's think about the concentric circles. It's the ability to say what's the big picture and if you want to zoom in, you have the ability from a very simple interface to zoom in deeper and deeper into the elements of the product offering that you're interested in. And it's the Google world, right? You have a very simple entry to an incredibly rich portal. That user interface is what makes a difference and we're seeing it on everything. So, I'll give you an example of how we are looking at this. We're lucky because 25 years ago, when I was still young, I was still a millennial or I'm a millennial equivalent. Pre-millennial equivalent. Somebody at Deutsche Bank had a great idea of establishing the next gen cycle. It was actually one of the first wealth managers to establish this network. And for 25 years we nurtured the next generation of investors. So, typically children of some of our largest clients. So, we now have a network of 400 people globally from most continents who are ultra high net worth individuals who are all under 40 or were under 40 when they joined this program and who meet annually in various events and we have an event next week in San Francisco to actually meet in our annual innovation summit. So, we collected from them a lot of information and they kept asking us for a few points which were very important to them. They asked us, 'Please stop sending us this paper research. Please stop offering us the same product you offer to everybody, we want tailoring.' And we were trying to find an efficient way to gather this is 400 of the most handpicked clients or future clients that we could get and we were looking for a way to engage them. And so, we developed this app. It was actually a pretty simple app, but it copied the notion of social networking and some elements of research distribution, some elements of using online and instant messaging and we packaged it into a very, very simple app. I think it cost us under 200k to develop it.

And we got all these next gen clients onto this app. And suddenly, we created an enormous synergy because they could connect with each other. They started to engage with us giving us feedback on products they wanted, the tailoring of certain products which could actually be provided very easily without enormous investments. And at the same time, it gave us an opportunity to disseminate information to them or giving them access to ideas and events which would have been very complicated to try and do in a tailored manner. When we did this, the feedback that came back is this is fantastic, but make it really simple. And so creating this simplicity when you open the first door and then the richness that you can gather based on your interest has become the key element of distinction.

Well, they have a few characteristics that we find, at least in our experience, that they all share. They value good performance and they value transparency. And if you tick those boxes, they tend to be loyal. You need to keep up your game on technology because as the user interface becomes more attractive somewhere else, you feel the pressure. They tend to be endlessly in demand for data. They value information and data. They value the view of peers. So they become more loyal to you if you can provide them access to peers and connectivity. That's why we find that some of these clients who have kept coming over the years to some of these events have actually become very loyal to us because we offer them ideas to a peer group that they would otherwise have a bit of a struggle to access, particularly when you think about multi-jurisdictional kind of global events.

We also find them to be incredibly focused on certain themes that are a lot less important to their parents. So, if you offer them certain themes, whatever on product or service, their loyalty to you will be enormous. An example is impact investment.

We find that when we try to put forward an impact strategy, Deutsche Bank in the asset management arm has been very active on this, on the wealth management channel we've been quite focused on this. We didn't find really a very fertile ground on many of our traditional clients. And we felt that there was enormous demand from more younger clients. I think this was a bit vindicated. Barclays early this year came out with a great analysis that showed actually they asked a thousand investors in the UK and they found out that of these thousand investors, 43% of the under 40s had made an impact investment.

9% of people between 50 years old had done the same, and less than 3% of the over 60s had done the same. So, for us this was clear. Like if as a wealth manager you don't have an impact investment strategy, brace yourself because the millennials are coming and they will have a completely different demand for you.

Yes. I mean, part of the advantage with many wealth managers have, and Deutsche Bank is no different, is that we are completely open architecture. So, to the extent that we get our product base to enhance and support us on the journey towards building, for example, an impact investment strategy or other strategies, smart beta strategies, there are many connectivity, networking, and social trading ideas. That's great. If not, we'll find suppliers that can do that. And in that sense, this is where the big challenge for players like myself lie, which is do we make the capability ourselves? Do we buy it in the market? Do we partner with somebody in the market that is already very well developed at doing these things? And there are many ideas like these that we're watching closely because our clients, and particularly millennials, they're incredibly vocal in what they want. And so, when you start to get the feedback regularly and you see lightning striking always in the same spot, you need to respond. And as an open architecture firm, and regulation is making it easier for us to enforce a strict open architecture mindset, if we don't have it in house, we'll go and find it somewhere else.

There is no kind of uniform blueprint, but I can give you a bit of the sense of how we are dealing with this. On traditional banking service, anything which is truly technologically enhanced, we go and partner up with people who are better technologists than we will ever be as a bank. And the notion that banks can become technology companies is a bit misguided. You know, we are banks. We enjoy certain competitive advantages over some of the disruptors, which we want to build upon, but we will never be able to replicate the incredible effectiveness at developing and bringing to market new technological ideas that some of these disruptors enjoy. So, that's where we should always draw a line. Where we identify new product, new services, which may be adjacent to banking, which are relevant to millennials, we want to capture the competitive advantage, and those we try to do ourselves. So, for example, when we try to develop new client engagement modules, where we try to develop new client attribution or new online capabilities on how we engage clients on the distribution of research, we go and seek partnership support. When we try to develop core banking applications which give us the agility that particularly millennials require, we go and seek partnerships. For example, our main IT partner for Deutsche Bank is Avaloq. We didn't try to develop our core banking application ourselves outside of Germany. But when it comes to developing new solutions, new platforms, new products that didn't exist before in the banking sphere, those we try to do ourselves and we just support the specific capabilities that some suppliers may have in order to achieve the result. An example is a couple of examples in Germany, Deutsche Bank has developed something called Verimi. It's a digital identity platform with partners all over the DAX and governments which basically allows digital identity verification and a much safer way to identify yourself and log in to government websites or company websites from Lufthansa to Deutsche Telekom to Deutsche Bank as opposed to using Google or Facebook with much higher protection of your data and a much higher safety standard because it's actually the one dictated by regulation. Another example is E-Safe. Many of us have documents which we had always on us from copies of the passport to copies of birth certificates or anything else. And having a banking security layer wrapped around it is something that we've developed. We didn't do it by ourselves. We used DSwiss as a partner, a Swiss company. If you look into secrecy, the Swiss fintechs are still the best in the market and they're really giving us an opportunity to enhance certain security features on a new service which we want to keep proprietary and so on. We have a few more like this.

I guess there are two trends that keep coming up. One is generally speaking, I find and there are research papers kind of supporting this view. Millennials tend to be more financially conservative. They favor much more

To a certain extent, yes. Because when you look at the Millennials, what is so distinctive between them and their parents is that they're so much more inclined to being self-employed entrepreneurs. It's actually 55% of Millennials are thinking about establishing their own companies. They don't value working for a big corporation like ours or yours. They value much more having their own firm and actually being their own masters. And so in a way, you think there is a much higher entrepreneurial spirit in them and yet when it comes to managing their money and their investment, they tend to be more conservative. The strategies tend to be twice as likely to be anchored to passive investments rather than active investments. There is a big analysis which would actually be quite attractive to what we just heard. The strategies of BlackRock on ETFs. Actually, Millennials would be enormous consumers of that kind of service. So, they tend to be more conservative and as such, they value very much understanding of risk which is a great advantage of us because when you look at some of the social trading strategies and some of the individual providers of social trading capabilities, like disruptors, or if you look at the robo advisory and automatic advisory services, those are very well designed to actually support the client's investment strategy when the market goes one way, but when you start to get into much choppier markets, do I have the right advice? Do I have the right hedging strategies? The right risk overlays? Do I have the right downside protection? Becomes one of the key topics that millennials ask. And they're much more inclined to actually explore new opportunities. They understand the value of not just looking at the market one way, but seeking protection on the other side. Second, the big question that we get very frequently is there's a sense of fear of missing out. This notion of being so networked and being exposed to so much of what your peer groups are doing, which is much more prevalent in millennials than generation X and baby boomers, also means that when you see somebody doing really well, you're fearing that you're not doing as well if you don't participate. And we are really looking at this phenomenon because that's what's causing a lot of these millennials to actually explore non-banking partners in some of their financial service support. When you look at social trading platform like eToro or Estimize, incredibly successful in their space. They really cater to this ability to say, look at how successful this investor was, you can be as successful by copying that strategy. But I have to say millennials are also aware of the fact that these are non-cycle tested ideas. These are startups. They were all born in the mid-2000s. They were very young when the financial crisis happened, which gave them boost. But we haven't really seen how these portfolios and strategies perform in the event of a downturn. And I think that is the one thing that is still giving us an advantage. Millennials are afraid of what a sudden downturn could do.

Our big advantage. They do turn back to us for asking us a lot of advice, particularly on risk management.

Thank you.