Melanie Stern is Section Editor of Families in Business magazine.
For an industry that makes money from good relationships, the professionals that create and maintain private banking and family business client relationships are key. Melanie Stern examines the sector's frontline
"Our greatest asset is our people" – how frequently we hear this from the business world. Not all the proponents of this popular phrase manage to prove their commitment to it, but for the private banking industry, people are among the greatest assets.
The industry has long leveraged intimate, discrete and enduring relationships with its private clients as its most important competitive edge. While clients favour this less now than in the past, it still remains important.
For family business clients, these relationships are even more important. Families are notoriously protective of their private lives and information about their personal and collective wealth, more so than other private clients whose personal details will not automatically be of public interest alongside their business life. Family business advisors within the private banking industry serve some of the largest and most complex family structures on the planet, shouldering the responsibility to preserve or expand wealth as the future of the family business – and future generations – depends on it. Additionally, family businesses' product and service needs are becoming more diverse. So, advisors need to be at their best. This makes locating, screening and training such individuals a crucial part of any private bank's remit.
Hiring the help
In healthier times, private banks looked to the investment banking industry for new talent, and would pick a star performer to invest specialist family business and private client training. The prolonged economic depression and subsequent layoffs, seen so commonly in the commercial and investment banking industries in recent years, is working its way through private banking in 2003, and there simply isn't the time or the money to make such risky investments. "In the past 12 months, the wealth management sector has narrowed down its recruitment focus onto those who are already working in their sector at a private bank or a private client fund manager," Harry Pilkington of executive search firm Armstrong International, tells Families In Business. "There has been very little lateral hiring outside that universe because banks cannot afford to train someone for a year, then wait and see if they make a good private banker." This translates well for the families, being managed by experts in their own field who can theoretically tune into what they need with greater ease than an investment banker new to the sector.
For the past two years private banks have stuck to hiring what Pilkington calls a 'no-brainer' – those with an established client base and relationships, who produce revenue and are credible in private wealth or private banking already. "Very few banks are still hiring investment bankers or fund managers; they just want to buy into relationships they don't already have," he says.
In other words, banks are only looking for those who come with a ready-made Rolodex; indeed a no-brainer, and particularly so considering that book of business transfer statistics have shrunk in line with reduced family-to-advisor loyalty.
Sell-side industry opinions about hiring from the investment bank community illustrate the divergence between larger and smaller players in the market. Dr Henry Hirzel, head of Wealth Management Solutions and Family Business at UBS, explains the dichotomy he faces when looking for family business advisors. "The challenge for us is that we often look for people with very strong institutional background knowledge – in corporate finance for example, where people work closely with listed companies – but that are also capable of dealing with the Patron, the family business owner," Hirzel says. "In the current environment, we see lots of talent from our competitors and the big names – more so than from the independent names." UBS is currently looking to expand on the 300 (not including those in the five independently run private banks UBS owns) advisors dedicated to family business clients it already has across Switzerland and the world.
Switzerland's Banque Franck, however, is quite a different story. A small private bank 100% owned by the Johnson family, it has longstanding family ethics that put a strong accent on the way this institution selects family business advisors. The firm makes a point of advertising its devotion to a 'personalised service' and says it aims to select staff who "embody the ethical traditions of the Johnson family" – but how is this realised?
The bank's US/UK portfolio and marketing manager, Mason de Chochar, explains. "Back in 1927, Herbert Johnson Sr said that the goodwill of people is the only enduring thing in business, and the rest is 'shadow'. The Johnsons always felt they would never have succeeded in building what they had and sustained it for five generations if they had not carefully attended to the moral fabric of the company. The people we hire – and we're talking about intangibles here – are extremely personable, customer and people-oriented. People from larger banking institutions – those people who are quantitative number crunchers will typically work for larger institutions and are only interested in the marketing aspects of the business – do not embody that kind of thinking," de Chocar continues.
"We look for people who have worked for smaller institutions or worked closely with families, as we often don't find a good fit between ourselves and those who have worked for large banks.
"We don't want to criticise our peers, but it could be that the larger private banks are becoming so large that they resemble some of the more impersonal financial institutions. One wonders if these institutions are in keeping with the personalised aspects of private banking."
With the increasing sophistication of family business investors, private banks are looking for people with an impressive résumé of experience and knowledge across an ever-widening array of areas. But, as consolidation rolls on, the same players are having to tussle for the same small market. "There is a strong belief among the leading institutions that those who have learned the business in a top US investment bank on the private client side have a broader and more in-depth knowledge and skill set. So family business advisors who have come from JP Morgan, Goldman Sachs, Morgan Stanley and Citigroup – specifically those four banks – are highly valued," Pilkington observes.
"In many private banking jurisdictions across the world, you will see UBS and Credit Suisse, and then two or three local market leaders where you can find good quality individuals – but in all those cases, banks are still only interested in hiring from within their own specific community."
More demanding customers has meant that private banks have had to ask much more of their advisors. Multi-skilling is the order of the day, as UBS' Hirzel illustrates. "We see very strong demand from clients for advisors that are knowledgeable in corporate finance or structured solutions. Clients ask for asset management knowledge including stocks, bonds, cash, hedge funds and private equity – therefore you need people with asset management background in the core, and additionally alternative asset classes, including strategic asset allocation," says Hirzel.
Banks are also being asked to provide consulting services to family businesses on non-traditional areas for such institutions, on issues like family governance. UBS reports that it turns to top-class companies like McKinsey and Pricewaterhouse Coopers in response to this demand, hiring those with some 20 years of experience behind them.
This compares to Banque Franck's requirement of a 10-year record of working with family business clients for all their family business advisors.
The type of relationship between advisor and client is another clear area of difference between small and large institutions. At Banque Franck, the importance of old-style devotion plays a pivotal part in the selection of suitable advisors, and the extent of the service clients receive from them. Devotion at Banque Franck extends to managing the client's personal and non-business needs; de Chochar himself reports he has been on the lookout for a suitable university for the daughter of one of his own family clients. Corporates may not see the value in this, since the value is another intangible – it simply serves to strengthen the bond between the bank and the client, which makes weathering tough times – like falling portfolio returns – less traumatic for a long-term relationship. De Chocar concurs, "The relationship is still what counts – if it weren't, we would have had a very tough three years."
The portfolio manager admits that performance is a bigger focus now, as younger family generations pay more attention to it, but insists relationships are still primarily the best way to understand what is really important to the client. Banque Franck does not favour recruiting family business advisors from a big banking background. The bank's ideals are fulfilled by hiring from family offices, younger generations from family businesses themselves, or in some cases, "frustrated private bankers at large institutions who feel they want to move to a smaller one". Specialist private banking and family office headhunters are available, though these are generally not favoured.
Conversely at UBS, the shift in importance from relationship to performance means that the bank concentrates on those who can understand this new psyche. "What I'm seeing is the next generation issue, which brings a different level of education, a different risk appetite and expectation of services than the post-war generation – even more so in Latin America and North America," Hirzel explains. "You deal with more creative, demanding and solution-oriented clients. They are very comfortable with multiple locations and banking relationships, so that old-fashioned loyalty is not going to happen. Therefore it is important to have people on board that are part of that dynamic." Hiring from its corporate contemporaries satisfies this.
Training and monitoring
To ensure their family business advisors remain abreast of their market's requirements and shifting trends, most private banks offer some training and make provision to ensure the development of an advisor's career.
At UBS, senior family business advisors in the private banking and asset management businesses attend case study days, looking at how an integrated family business model works, with real-life examples of family business cases or issues. It also employs role-play work, which is increasingly popular on the academic side of the family business sphere. The bank has relationships with many academic stalwarts in the field such as INSEAD in France and Kellogg in the US, who bring further suggestions on how advisors can better understand family businesses. At Banque Franck, education is not strictly formalised. New starters enter a 'buddy' system whereby they are paired up with a seasoned family business advisor at the bank for their first year, and performance – financial and general – is formally evaluated every quarter. Mentoring is structured in such a way that meetings between the mentor and the 'student' take place every week within the first year.
With the private banking industry in such a transition phase, gaining and keeping private client business is getting harder. A key part of succeeding in this challenge is indeed the people who represent the firm's interests, ethics and clients effectively, which will always require careful hiring and thoughtful development. That in turn requires investment of time and money.
What every private bank, large or small, needs to remember, is that the value and power of people in their industry is definitely not an intangible; rather, it is invaluable.