There was a time when private bankers only looked after their clients' money. Today, as Karen Jones reports, not only are the clients themselves changing, but they also require their banker to act as confidant, find them a marriage partner and arrange the stag do.
Karen Jones is a freelance journalist based in the UK.
Private banking. The words bring to mind images of wood panelling, old master paintings and grey-haired men in pinstripe suits. It's a world not many have access to, and those that do all seem to come from the same bloodline, or at least the same tailor. But things are changing. Private banks, still "second homes" to the ultra-wealthy and their cash, are shedding some of their stuffiness. It's a move that seems to be prompted by their clients, many of whom are young, successful and even (gasp!) female.
Peter Ostacchini is head of banking at Duncan Lawrie. He joined the firm 23 years ago and has made a career with the bank. He looks after the relationship side of the business and also lending. Duncan Lawrie has overall assets under management of £600 million, with £150 million in deposits and around 300 clients in London. A traditional private bank and banker, Peter, like many others in the private banking
industry, is adapting to a new surge of female clients.
These are being introduced by family lawyers because of the recent favourable change in rulings by UK law courts on divorce settlements for women. Britain is now the top spot for women "forum shopping" for divorce. It is the only country that favours the wife, with British courts firmly refusing to take into account pre-nups. This means that even in a short marriage, if a party can prove finances have increased substantially because of their efforts in supporting the working member of the pair, 50% of the family fortune is now a likely payoff. Ostacchini says, "Some of the settlements are seven figure sums." Responding to this new client, Peter and Duncan Lawrie have developed a litigation loan service because "husbands may upkeep the house and children while divorcing, but they will rarely support a better lawyer to separate them from their money".
The Duncan Lawrie divorce loan service, developed after the first surprise rulings two to three years ago, enable women to support themselves when things turn nasty and to get what, according to UK law courts, is rightfully theirs. "Some husbands may even turn off all financial help to apply pressure. We support women for up to three years and understand that payoffs have to last a lifetime, so we invest money over the long-term," says Ostacchini. Is a different skill set needed for this new client? "I think the main skill needed is experience," he says, but adds that "hand holding" is also essential for wives going through divorce.
Ostacchini continues: "There is a great deal of disruption and people will suddenly be on their own, perhaps with children, needing to understand a great deal of financial advice. And then they have day-to-day dealings with things they aren't going to be used to. We think it's essential to meet the client and lawyer and help them to get through the awful position they are in."
Other clients hail from the entrepreneurial and publishing worlds. As many of these clients aren't salaried (but receive lump sums during their working lives), Duncan Lawrie supports authors and entrepreneurs through the lean times, paying tax bills as they await advances. "All banks want the rich when they are rich. We work with those on the way up the ladder so that authors or entrepreneurs can support themselves in the early days. We've had a few clients striking gold in IPOs worth multi-millions, but they've had substantially less money before this. We offer flexibility and instant decisions and are one of the few institutions who still offer this kind of banking," says Ostacchini.
He also believes a big sea change has come with pension reforms, which have meant clients having much more say in how their money is invested. To meet this increasing need for pensions information, Duncan Lawrie recently acquired Hill Martin, a financial planning company.
Bringing up baby
Divesh Makan, VP at Goldman Sachs in Los Angeles, could probably have a badge on his lapel saying "officially a new breed of private banker". At 35, he is a decade or so younger than the majority of his global, private banking peers and has seven years experience working with super-rich families. Makan says he doesn't have a typical client, but he often deals with the younger, ultra high net worths: "I'm finding that 'kids' (between 25–30 years-old) have a much higher interest in investments, particularly alternative ones. They want to know what the story is. They may not know about the allocation but are hungry for information."
"Kids also want information on generating more cash flow even when they don't need the money. They read the papers and watch TV so know names of companies to ask about," says Makan.
As well as demanding more information, Makan knows they also want trust. "They use me as a confidant to share personal problems that they don't want to speak to their parents about." In terms of the type of problems that younger clients have, Makan says, "They may want to rent a house or go to business school and ask how they fill in an application. It's not that they want to go against parents, more that they want to show that they can operate on their own initiative. Being taking advantage of by friends is also a big issue. Friends will set up hair-brained schemes and expect investment money. I take charge and will be the one to say, 'Sorry, no', so my younger family clients aren't in the firing line." Does he gets any unusual requests? "The wildest thing I've done so far is to arrange a stag party for twelve in Las Vegas," he says excitedly.
Another topic he is asked about by parents is help in finding a suitable marriage partner for children. (In the US, pre-nups are rock solid so there are no unpleasant financial surprises in divorce). Does he consider himself a marriage broker? He laughs, isn't quite sure how to respond, then finally agrees, "I guess I would."
But why would parents would ask a bank for that service? "They look at us not so much as a bank but as the only people they can talk to with complete openness, because we know so much about them personally. I think that culturally different people have different things on their minds. For instance, Asian parents may focus on getting kids married at 20 years old," says Makan.
Has he ever been set up? He laughs and says, "I'm taken, but I have introduced a couple of friends." And do partners need to be of specific race? "Sometimes they want race specific partners, but they usually prefer a 'good guy'."
Makan sees his clients often: "We see children more than the parents, probably once every two weeks." He has 40 key family groups under his and the Goldman Sachs' teams watchful eyes. He says of that group, 20 families will be seen around four times a year. And the others about twice a year.
Typically his family clients have around $20 million dollars, but they range up to $500 million. "Private equity is creating a lot more wealth. I spent six years in that industry previously, so my skills are useful now." He says clients can't understand why they are being offered so much money for their businesses, but explains, "If that's the case, then we should sell now." He says the main skills he needs are estate planning, financial markets, private equity and M&A.
So, it seems that clients and their needs have changed over the years, and private bankers need to adapt. Makan concurs: "Clients have changed a lot. It used to be about money management, but now this is a small part of running a family office. People care a lot more about us running their life. They want us to look after them these days."