ABN Amro is set to personalize wealth management for private banking clients. Starting in October, clients with managed portfolios will allocate 10 percent of their portfolio to at least three self-selected themes. To achieve this, the bank invests in structured products, ensuring that a client cannot lose more than 5 percent of their investment per theme.
Demand for investment opportunities in themes such as defense and renewable energy has grown among wealth management clients in recent years, said Jan Willem Hofland, head of investment sales at ABN Amro, in an interview with Investment Officer. Opinions, however, are deeply divided: one client wants to invest in defense to strengthen Europe’s security, while another specifically does not want defense in their portfolio due to wars such as those in Ukraine and Gaza.
How the bank could meet clients’ desire for more personalized choices in their portfolio has “kept ABN Amro busy for quite some time”, Hofland explained. Ultimately, the bank developed a new structure for wealth management: 90 percent of the portfolio remains in the chosen mandate, while 10 percent is invested in themes.
Wealth management clients with at least 1 million euro in investable assets can choose from six themes: infrastructure, defense, AI, gaming & leisure, renewable energy, and fossil fuels. Each theme requires a minimum investment of 50,000 euro, with a product maturity of roughly three years.
Because ABN Amro uses capital-protected structured products, a client cannot lose more than 5 percent of their investment per theme over those three years, while the projected annual return is 8 to 9 percent. The exact investment approach differs per theme and is managed by a 12-member team focused on structured products. Hofland: “It always involves a bond that accrues to 95 percent, with the remainder invested in options on the theme and the underlying asset with the most exposure or best tradability. For defense, this might be a basket of individual names, while in other themes it could be options on an ETF.”
The reason for choosing structured products is the risk that comes with less diversification. Hofland: “Take AI, which has performed spectacularly. Over the next three years, the sector could double, but it could also fall 80 percent. That kind of risk does not suit a wealth management client, so we wanted a downside floor through capital protection products.” At the same time, adding three themes to a portfolio lowers its risk profile, according to the bank’s models. “While the return expectations remain unchanged,” Hofland added.
Client meetings and knowledge tests
Last summer, ABN Amro’s private bankers began client meetings about the new product, and clients completed the required knowledge tests for structured products. Subscriptions take place at the end of September, and on October 1 all interested clients will be invested. Later entry is possible, though Hofland stressed that as time passes, a theme may become less appealing. Early exit is also possible, but in that case the investor receives the market price on that day. Capital protection only applies at maturity.
Client enthusiasm for the new product is very high, Hofland noted. Defense, AI, and infrastructure are particularly popular. “We’ve also seen strong demand for fossil fuels, especially following the commodity price surge in 2022. From the core portfolios we don’t invest in fossil fuels, and many clients appreciate that. With the theme building blocks, clients can still make that choice themselves.”
Although this new form of wealth management will become the default, clients are not obliged to adopt it right away. Hofland expects about 60 to 70 percent of private banking clients to participate. The rollout starts with Dutch clients, extends to German clients in December, and to Belgian clients early next year.
Wealth management for smaller portfolios may also change, and more themes could be added if demand emerges. Hofland: “We’re taking a new path in wealth management and will see how it works.” The ultimate goal is to strengthen client relationships, he said. “The stronger the bond between a client and their portfolio, the longer they will stay with the bank. The advantage of a large bank is that we can offer such a proposition while securing favorable terms per theme.”