Going the distance with complex products
Wealth management has become the focus of both fund management groups and stand-alone banking divisions. The turning point came in March this year. Schroders’ then chief executive, David Salisbury, announced that the UK institutional funds business had matured. Large-scale expansion would now come from private banking and fund distribution areas, particularly in continental Europe. Fees generated from these “under-developed franchises” are much higher than institutional levies. Currently these wealth management streams make up around 15 per cent of Schroders’ Ł123bn assets. This is expected to rise to 40 per cent within five years. Schroders now has offices in every European country apart from Greece, with Zurich and Geneva boasting 120 staff between them. The haunts of the Italian “glitterati”, Milan, Rome and Padua, are also well served. But Schroders strategists have been moving in this direction for three years. Others have quickly developed new wealth management units to satisfy customer demand and offload cart-loads of complex products. Some will go the distance. The most interesting scrap will likely be between UBS, the world’s biggest private bank, and Citigroup, the world’s largest financial services conglomerate. Preparing for the epic tussle, Citigroup has amalgamated its European private bank with the European private client operation of Salomon Smith Barney. The new single wealth management division is headquartered in the private banking nirvana of Geneva. Peter Scaturro, chief executive of Citigroup Private Bank, has already voiced his displeasure at his division’s lack of market share. Even with $31bn under management, this still falls behind the likes of Julius Baer and Pictet. The latter has been barnstorming the Italian market with its hedge fund offerings, encouraged by a savings ratio close to 10 per cent. Zurich Financial Services has entered the lower end of the market – servicing clients with at least Ł150,000 to invest – together with 7IM, part of stockbroker Killick & Co. Crédit Agricole, one of the best-known retail brands in Europe is about to be floated. It runs more than E160bn, with E2bn of this in high-fee attracting hedge fund and private equity products. Many of these are ultimately bought by high net worth individuals. Paul-Henri de La Porte du Theil, normally inscrutable chief executive of asset management, nods knowingly when he says: “Our main clients are private banks.” Other more ambitious projects have enjoyed a shakier start. Online wealth management joint venture, Merrill Lynch HSBC, has already decided to pull out of Germany, concentrating instead on the UK, Canada and Australia. The competition in Europe has been so intense that 2001 has been described as an “annus horribilis” for retail broking. And Lazard has shut down its exclusive service aiming for the $10m plus club, just 18 months after the launch.
