March 6, 2024

How to begin personalised investments: A guide for banks

In an era where one-size-fits-all solutions are becoming obsolete, banks are redefining their approach to meet the unique financial appetites of their customers. This article serves as an easy guide for banks getting into personalised investments, focusing on setting internal goals and really understanding their diverse customer base.

To start with personalised investments, a bank should first set clear goals for itself. Identifying the target market is crucial in the overall banking strategy. Using structured securities, which give exposure to different types of assets, becomes a versatile tool to meet various risk preferences. Whether it’s a retail customer seeking exposure to popular equities like Google or Amazon or a sophisticated investor desiring exposure to FX, interest rates, or cryptocurrencies, the bank needs a clear vision.

Moreover, consideration of funding sources and costs is crucial. If the bank aims to attract deposits and grow revenues through the net interest margin, incorporating bespoke investments into the product range can be instrumental in achieving these goals.

To effectively align personalised investments with customer needs, banks must address four fundamental questions:

  • Investment goal: What is the customer’s primary investment goal? Whether it’s wealth accumulation, income generation, or a balanced approach, understanding this aspect is vital for crafting suitable investment strategies.
  • Risk appetite: Assessing the customer’s risk profile is essential. Structured securities come in various risk levels, with some providing full capital protection and others exposing the entire capital to risk. While sophisticated investors may be comfortable with riskier products, retail investors should seek guidance from financial advisors or relationship managers.
  • Investment horizon: Understanding the customer’s investment horizon is crucial. Some investors seek long-term growth over five to ten years, while others may prefer quicker returns. Tailoring investment options to align with these timelines ensures customer satisfaction.
  • MiFID classification: Compliance with the Markets in Financial Instruments Directive (MiFID) is imperative. Banks must classify customers as retail clients, professional clients, or eligible counterparties based on their expertise, experience, and knowledge. This classification ensures that customers receive the appropriate level of protection and transparency.

In wrapping up, the journey towards providing personalised investments requires careful consideration of internal goals and a deep understanding of the customer. By aligning investment strategies with customer needs and ensuring compliance with regulatory directives like MiFID, banks can navigate the personalised investment landscape successfully. As the financial industry continues to evolve, banks must adapt to meet the dynamic demands of their clientele and provide tailored solutions that drive mutual success.

Discover how your bank can offer bespoke investment. Arrange a demo today!