Grab and grow

High-net-worth individuals (HNWIs), and their even richer counterparts, ultra-HNWIs, are more international, sophisticated, and demanding than ever. So how can a private bank or wealth manager become a big fish in this lucrative, but very competitive, pond?

Two approaches stand out: acquisition (eating the other fish) or organic growth. But which is better? Neither, it turns out. Or, rather, both. The major players regard the two strategies as entirely complementary.

Fortis Private Bank, which has boosted its asset growth to E70.5bn from less than E50bn two years ago, did so through a combination of organic growth and acquisitions to push up critical mass, according to Pim Mol,

member of the bank’s global managing board. Last year’s acquisition of Dryden Wealth Management, which has offices in seven countries, “gave us enough critical mass in Asia, where we are now a top-15 private bank, as well as entry to the UK and critical mass in Switzerland.”

UBS set up wealth management offices businesses in the UK, Germany, France, Italy and Spain at the end of the last decade, and has since added operations in Belgium and Austria. It handles wealth of SFr130bn (E82bn) in Europe outside its home country of Switzerland.

“You have to have organic growth at the centre of your strategy,” says Matthew Brumsen, head of wealth management at UBS for the UK, and Northern and Eastern Europe. “You can’t rely on acquisitions being available in the right location at the right time and at the right price. We are also open to acquisitions but see it as complementing organic growth.”

According to Eva Castillo, head of global private clients (GPC) for the UK and Europe at Merrill Lynch, the US bank seeks to expand its GPC business through organic growth, driven by providing the right services, and through acquisitions and joint ventures as and when they are appropriate.

Knoop: easiest wins come from established relationships

And Julius Baer has driven what Boris Collardi, chief operating officer for private banking, describes as a “rapid growth strategy” by last year’s acquisition of Ehinger and Armand von Ernst, Ferrier Lullin and Banco di Lugano, with combined assets under management of SFr52bn (E33bn).

Getting it right

Acquisition, to work, requires the right target. Mr Brumsen explains: “We are very aware of the importance of the cultural integration.” UBS’s UK acquisitions over the past few years have included Scott Goodman Harris, enabling the bank to offer life and pensions advice to clients, and traditional UK stock broker Laing and Cruikshank, which bought scale as well as additional capabilities in UK equities.

Fortis has “strict financial criteria,” according to Mr Mol, “and of course they have to fit our strategy”. He cites the 2002 acquisition of Intertrust, which “increased our critical mass but also provided a number of new countries relevant for trust services.”

When it comes to organic growth, there are two, compatible approaches, according to Sven-Erik Knoop, head of European retail distribution at DWS. Essentially, a private bank or wealth manager can get more assets from existing clients, or get more clients, or both.

Indeed, he splits expansion strategies along these lines, rather than according to the acquisition-organic growth divide. “There are two different business models,” he explains. “On the one hand, there’s the asset gathering model – a bank that is trying to make its buck through client acquisition and winning new business, and less dedicated to optimising its existing business. Some other banks are poor in client acquisition but for them the trading activity is key. They try to advise clients to invest in certain markets. They optimise profit and loss through decent turnover.”

The point, Mr Knoop adds, is that “the easiest win is if you already have established a relationship with the client – the best thing is to optimise the share of those clients’ portfolios that you can get”. But, by keeping existing clients happy, a private bank may also get new ones: “If you treat customers fairly and have adequate coverage, the easiest way to win new clients is via referrals.”

To achieve this, he stresses, the right adviser, as well as the right products and services, is essential. “From our perspective, the wealth manager who is successful is the one who is able to provide a good personal relationship manager who is speaking the client’s language, and who perhaps has a similar personal situation to the client. As a 65-year-old, if you are being given advice by a 25-year-old who has never had grandchildren, it’s tricky.”

Getting the right people is all-important. “The wealth management industry is changing as clients grow more sophisticated,” says Mr Brumsen. “We hire a significant proportion of advisers from outside the industry. We are looking to inject the DNA of investment bankers and other top quality professionals into the wealth management business.”

Julius Baer’s focus on attracting and developing talent has, Mr Collardi says, prompted the establishment of the Julius Baer Academy, focused on training and developing of employees.

‘Almost everyone in this business has learnt a lesson from 2000. Preservation of capital together with a more holistic approach to wealth is now a priority’ - Eva Costillo, Merrill Lynch

Another approach to organic growth, for the bigger players, is to exploit the existing competencies and relationships of the parent organisation. According to Mr Brumsen, UBS’s wealth management arm has “benefited hugely from being linked with a top quality investment bank and asset manager”.

Fortis has gone one step further, positioning its commercial bank and private bank in the same business and, says Mr Mol, “linking the two together as far as possible”. He explains: “On the trust business side, we speak to a lot of entrepreneurs. In general they are asset rich, cash poor. There are a couple of moments in the cycle that we are able to transfer assets to the private wealth side.”

Such moments would include the sale of a business or other transferral of assets, for example because of structuring for the next generation.

A holistic approach

Ultimately, however, a private bank or wealth manager is only as good as the services it offers. And for those seeking a share of the cross-border asset pool, those services have to be very sophisticated indeed.

Equity and bonds, as Mr Knoop puts it, “are not even a differentiator”. Wealth managers have to be able to offer access to alternative and exotic investment products and, Mr Mol stresses, to offer it to the best of those products.

Only weeks after Fortis Private Bank’s announcement that it will outsource all global large cap equity research to Standard and Poor’s, he explains: “You need to choose from the best providers. To bring the best products to clients, we don’t do it ourselves. We get the best in the field.”

According to Bernard Coucke, head of ING Private Banking in Europe, ING differentiates itself from smaller private banks by offering “hard to find products” as well as top of the range investment skills.

Getting the most innovative and best investment products is, however, only a part of the challenge. Portfolio management forms but one pillar of a “holistic” approach, according to Ms Castillo, with the other two being advisory and wealth structuring, which includes financial planning and generational planning.

“Almost everyone in this business has learnt a lesson from 2000,” she explains. “Preservation of capital together with a more holistic approach to wealth is now a priority.”

Mr Mol concurs. “For quite some time, the focus was very much on the investment side,” he says. “But over the last few years we have developed holistic services, with five competencies: wealth structuring; wealth financing; investments; a cross-border real estate team; and insurance.”

This wider approach extends to far-from-traditional services. According to Mr Brumsen, UBS offers, on top of investments, not only life and pensions and help with family governance issues, but also wine and art banking.

Merrill Lynch, with an eye to the future, even runs a programme providing financial education for the children of its clients, who are very much the HNW and ultra-HNW end of the market. “We choose themes for them to start to understand how they can run businesses in the future and what resourcing tools they can use, including us,” explains Ms Castillo. “It’s good for them, for their parents, and for us.”