Richard Willsher is a finance and business writer with a background in international investment banking. www.richardwillsher.com
Competition is hotting up in the wealth management business, which means a greater choice of products, with banks battling for clients. Richard Willsher examines a few of the new entrants, and some old players, and asks what they can offer family businesses
What private banks offer family businesses in the UK varies considerably in terms of the services they provide and way they do business, though all are competing tooth and nail for business.
"Family businesses in the UK are a large market that is underserved by private banks," says Mark Evans who heads up the family business team at Coutts. "We know that up to three quarters of all firms are family-owned yet I think Coutts is the only private bank that has a dedicated team in the UK."
He outlines the key issues that concern family businesses as being succession, conflict management, raising liquidity from a private company, and training the next generation of family members to take over the business. "Our offering is therefore threefold: to help family businesses plan for the future, keeping family business owners up-to-date with the latest thinking on things that can help them be more effective: like family councils, family constitutions, family charters. And thirdly, creating a network of like-minded family business owners."
So for Coutts, the family business offering is an additional service that runs alongside their teams providing private banking services such as current accounts, investment management or borrowing.
Investec Private Bank
A contrasting offering comes from Investec Private Bank, a much newer kid on the private banking block. It describes its service as "offering wealth and creating opportunities… in a broad range of markets including: cash deposits, specialised lending, property finance, investment management, growth finance and trust services." Linda McBain, who heads Investec's banking and treasury services area, describes the cash handling capabilities of the bank and how it operates a best of breed approach across all its services, wheeling in their specialists to discuss the most appropriate package of services to suit the client's needs. "We have a very entrepreneurial approach and we tend to attract clients who are very entrepreneurial. We are quick and efficient in our execution and in the way we provide structured products to our clients."
A different flavour is offered by Clydesdale Bank. Although it would probably not appear on anyone's list of private banks its "integrated financial solutions" offer to family businesses is more akin to private banking than to run of the mill clearing banking. Calling them 'members' rather than clients or customers, it invites high net worth business people with £100,000 worth of investible assets to discuss the totality of their business and personal affairs with a locally based banker or 'partner'. It embraces its members "whole life experience", says managing partner for the Exeter and Plymouth region David Bird, and seeks to address their financial and even their work/life balance concerns as part of its holistic service.
Citigroup Private Bank, part of the world's largest financial services giant sees entrepreneurs and family businesses as a key target market, according to director James Holder. "Our offering is suited to key wealth creators. We feel that we are particularly skilled at looking after sophisticated, dynamic families that are looking for a range of more complex solutions." Citigroup's other main target groups are real estate investors and financial sponsors.
James Holder describes his firm's strengths as being the large, stable, highly rated Citigroup franchise. Its global outlook appeals to family businesses with a similar outlook and its "institutional platform" means it can provide investors with access to investment banking products and services.
The language is very different at Butterfield Private Bank, owned by NT Butterfield, its Bermuda-based parent where Paul Turtle is managing director. Butterfield, which bought Leopold Joseph in 2004, and operates from its London offices, is much lower key and prides itself on its personal service to clients. "The big players in this market are all chasing wealth management, but as a smaller player we have an edge in the expertise and quality of our service", says Turtle.
"I think this is the root of private banking as it has always been in the past. Much of what we do is in the area of preservation of wealth. We tend to deal with the sons and daughters and heirs of family fortunes so we are dealing very much on a family office basis. We tend to manage all their financial activities, and act as a conduit for their financial affairs." He also sees the practice among some institutions of aggressively targeting the client with cross-selling opportunities as something that is inappropriate to the type of private bank he runs. "We have to balance the expectations of our clients, our shareholders and our staff and get the size of the organisation right for our clients. It shouldn't be skewed towards the shareholder all the time. It's all about the trust of your clients without which you don't have a business."
There is definite contrast in scale with Barclays Wealth which Mark Kibblewhite, managing director of the UK Private Banking division, describes as an "umbrella… bring[ing] together private banking, asset management, online brokerage, wealth structuring and financial planning services into one offering". He refers to the scale of Barclays as the UK's "leading wealth manager with £84 billion of assets under management" which places it "in the driving seat" in terms of accessing third party funds at optimal prices.
He adds an interesting perspective on the private banking market. "The private banking world is very fragmented. No single company at this stage has a more than a 4% share in the private banking industry. So in terms of being able to grow and have a larger share, we need a relevant number of staff of the highest calibre," he says.
Hoare & Co
One house where growing headcount does not seem to figure as a significant goal is C Hoare and Co, the 300-year old private bank with offices in London's Fleet Street and Lowndes Street. It has 250 staff and 12 members of the founding family still work at the bank. When Alexander Hoare (an 11th generation member) and current CEO says that the bank is "quite good" at understanding the intergenerational issues that may face family businesses, it has the ring of truth about it. Their work typically involves the use of trusts, and managing the assets and income of the family. Lending may be involved where families have large estates that produce relatively little income. Debts, inheritance planning, tax and deposit-taking all form part of the picture.
Asked how a small private bank competes with the larger powerhouses such as Barclays, UBS, Citigroup and others Mr Hoare says that on a certain level all banks are the same but that "it all depends how you do it. We have considerable personal experience and have 6,000 families banking with us".
He continues, "we are not trying to make money. Like our clients we are trying to perpetuate a family business and that's completely different. Time will tell, whether banks that are currently moving into private banking and wealth management area really care about their clients as people rather than as wallets to be fleeced".
Lord North Street Limited
Caroline Butler is a director at Lord North Street Limited, the private investment office. Her firm specialises in designing and implementing strategies for wealthy families and charities. Lord North Street is not a bank at all and she points out that many banks, especially the larger ones, face particular types of internal conflict when advising their clients.
"It is very difficult to advise clients if you are also a distributor. Most of the private banks are torn in the sense that the way their revenues are earned are through fees derived from investments made in particular types of product. These products stem either from the asset management division or their investment banking division, whether its structured products, hedge funds, or private equity. That exposes very difficult choices for them." She says that many of her firm's clients have "been through the private banking mill". Butler adds that in their drive to build their client bases they have tried not to take their eye off the clients they already have. "I think it all comes down to the calibre of the people that clients talk to – their integrity, whether you like them and whether they are looking after you."
And, of course, it all comes down to what the client is looking for in a private bank. Here we have spoken to several organisations but there are many others: from the big hitters such as UBS and HSBC to smaller players such as Rothschilds or Flemings. Such is the range of styles and approaches offered by private banks that another question might be, what is a private bank? What is for sure is that there is increasing competition, with many new entrants calling themselves private bankers and targeting wealth management. This has a lot to do with the changing distribution of wealth but also with banking regulation and capital adequacy rules which make 'non-asset dependent' income, ie non-lending, fee-earning business more attractive. The bankers have their own agenda but at least it means greater choice for clients and fiercer competition for their business, which ought to be good for high net worth family business people, at least in the short-term.