Unmasking advisers

Agood network of contacts is crucial in any business, particularly so in the sensitive world of private banking and wealth management, where trust is at the very heart of the client-adviser relationship. A high net worth individual will have to put his faith in a private banker or adviser for the management of the money he or his family may have built up over decades. When the adviser is introduced to him by someone he trusts, such as a friend or a professional he has had a long term business relationship with, he will feel partly reassured on his decision.

Although most institutions make direct contact with potential prospects and use intermediaries such as lawyers and accountancy firms to source new clients, they particularly welcome the referrals they get from existing customers and are keen to exploit all the connections they have within their internal networks. This is especially true in the case of integrated or multi-disciplined banks, such as Citi. “Access to qualified referrals or warm leads, afforded by the major banks’ networks, is a high quality source of new business for private banks,” says David Poole, head of Citi Private Bank in the UK.

“Clients don’t have to take the leap of faith inherent in direct or intermediated business, as they will be familiar with the brand and the service ethos of the house concerned.”

Mr Poole believes the effectiveness of internal referrals is dependent on the level of familiarity each business has with the other, the faith each has in the others’ business and on the personal relationships individuals in every part of the bank foster with one another. “Internal communications can be as necessary as external messaging to exploit this channel effectively,” he says.

A favourable structure

The corporate structure also assists the process, he believes, and it is mostly favourable when the private banking sits with the corporate and investment divisions. “Furthermore, physical proximity to colleagues in other business units enables ease of information flow on specific client prospecting opportunities,” says Mr Poole.

At Barclays Wealth, around 60 to 70 per cent of new clients come through internal network connections with the retail or corporate bank, while only the remaining 30 or 40 per cent comes through introduction from law firms or accounting practices, as well as direct contacts, explains Phil Smith, managing director at Barclays Wealth in the UK. With 20 per cent of the UK adult population having a Barclays retail account, the bank’s retail branches prove to be a great source of new business for the private banking division.

“Asset size is a good indicator that somebody might benefit form private banking, which is all about bespoke solutions. The initial filter is £500,000 (€570,000) but this figure is not applied rigidly. Extra filters such as ability to earn future high income, profession, age and residence all fall into the propensity modelling, which identifies the propensity of a particular client or a segment of clients to require private bank services,” says Mr Smith.

Barclays Wealth, which manages £151bn in clients’ assets, of which a third is sourced from the UK, applies this strategy wherever it has a retail and private banking presence. “We have always had this approach, but we’ve got better in identifying the right clients just by refining the modelling we use to identify their propensity, and by continuously improving our offering to the private bank,” he says.

What is also key is to make sure that private and retail bankers work closely together. Private bankers go out to Barclays’ retail branches and engage with the relationship managers, to ensure they know how to identify which of their clients could potentially benefit from private banking.

“All of our private bankers are ‘mapped’ to a number of retail bankers. We try to cover as many as we can, but as we are smaller than the retail world, we try to ensure that each of our private bankers works with a sufficient number of retail bankers without being over-stretched,” says Mr Smith.

Personal contact between advisers is something crucial in the information and marketing process. “What is quite powerful is that the retail bankers not only understand the private banking proposition, but they also get to know the person their client will be dealing with, because people always buy into people,” he says.

What drives any adviser to introduce their client to private banking or other services within the group is the desire to make sure the client must have the right proposition for his aims and objectives, he says. “Barclays’ ethos is about always giving the client the right proposition. The reason for the introduction is client driven, not pay driven. People are really passionate about clients and they want to make sure that if they have for example a good corporate relationship, they maintain it, and part of that is ensuring that everybody is looked after in the right way,” adds Mr Smith.

Christophe Gruenig, Vontobel

“Developing client relationships within the bank is a very successful model and it is easier than approaching clients directly,” states Christophe Gruenig, head of wealth management in the private banking division at Vontobel.

The Swiss private bank, which sits in the same integrated banking group alongside its asset management and investment banking arms, greatly benefits from the proximity of its other two divisions. “We are very close together, each entity knows the other very well and we have a general approach of helping each other. Each entity knows this is mutually beneficial, and we will be remunerated in the long run doing good business,” he says.

An entrepreneur looking to float his business is the sort of investment banking client that is a good lead for a private banker, as he can help him identify his needs, and provide advice on how to manage the cash that has been made. The asset management arm, on the other side, is often in contact with semi-institutional clients such as family offices, who can also benefit from private banking services, such as advice on intergenerational transfer of wealth, or advice on tax or regulation, explains Mr Gruenig.

In Switzerland, independent asset managers are becoming important intermediaries for sourcing new clients, he says. These smaller institutions base their success on the long-term relationship based on trust between the adviser and the client, which is strengthened by the low turnover of personnel they enjoy, but they have to rely on external larger parties to provide them with services and products. “The world is more complex, as there are more markets open for investment; there are today more instruments available and regulatory changes, also on the tax side. A lot of them increasingly need more help from third-party providers who can meet their clients’ requirements,” says Mr Gruenig.

Lawyers, too, have always had an important role in the wealth management space. Assessing whether the terms offered by banks to their clients are the right ones, organising beauty contests of suitable wealth management institutions, setting up global custody arrangements, as well as reviewing the adequate contractual framework, is part of the advisory services that lawyers provide to high net worth individuals or family offices in the context of the core business of structuring or restructuring their activities or assets, explains Shelby du Pasquier, a lawyer in banking and financial services at law firm Lenz & Staehelin in Switzerland.

“In recommending an institution, the overriding factor is the client’s interests and needs,” says Mr du Pasquier. Lawyers need to have a good understanding of the main factors and issues involved in a firm selection, such as solvency of the institution, as well as the level of regulatory protection which is offered in the event of solvency, he says.

Indeed, in addition to change of personnel, perceived poor services and unsatisfactory performance, poor solvency of the institution became an important driver for changing a bank in the aftermath of the financial crisis, when client preference clearly went for institutions with the strongest balance sheet. “Typically in 2008 and at the beginning of 2009, the banks most affected by the outflows were those that had some commercial credit, while the institutions that were focused on private wealth management were the ones that benefited,” he says.

Lawyers also need to be familiar with the expertise that banks and institutions have developed in certain areas and assets, such as hedge funds, so they can advise clients accordingly. If clients are looking at more traditional types of investments, the institutions to consider will be different. The lawyer generally introduces three or four potential institutions to clients; a beauty parade will then lead to the selection of one or two of them. “Lawyers are instrumental in the beauty parade process, which is something that we do very regularly, but the client has the final say in the selection of the institution,” he says.

The lowering of private banking secrecy, on the other hand, has not been a critical development with regards to recommending a private bank or jurisdiction, he says.

“Confidentiality is key in the choice of the appropriate institution and held in high regards by wealthy families and high net worth individuals, but I do not think that the lowering of the level of banking secrecy has really impacted the relationship that clients have with their banks, or led them to change jurisdiction, because the changes are happening everywhere.” There is no material difference in terms of confidentiality between countries like Switzerland, Singapore, Bahamas, Lichtenstein and even European jurisdictions, such as Luxembourg or Austria, which have also adopted the same level of transparency found in most other centres. “We should not overestimate lawyers’ influence on the choice of jurisdiction, as lawyers follow the flow rather than dictate it,” says Mr du Pasquier.

Some European investors, who may be concerned about having an undeclared account in a European centre, tend to believe that by shifting their assets to jurisdictions such as the Bahamas or Singapore they will reduce the risk. “There is the perception that a European tax authority, for example, is less likely to request information from more distant and non European jurisdictions, such as Hong Kong or Singapore than they would from the Swiss government, as cultural, linguistic and geographical distance comes into play, but the rules are not materially different in reality,” he says.

The tax amnesty plan that the Italian government launched in September last year – which, in the first three months, provided €100bn in repatriated funds, of which €5bn went to treasury coffers – provided the opportunity of successful partnerships between private bankers and industry professionals, says Gianmaria Mossa, head of marketing and private banking at Banca Fideuram. The Italian bank, owned by the country’s largest retail bank Intesa Sanpaolo, is in the process of making an initial public offering, expected by June 2010.

“In September and October last year, we met with more than 2,000 accountancy practices, who introduced us to their clients having requirements related to the tax amnesty. In that sense, we have generated new business thanks to these professional figures,” says Mr Mossa. Through the amnesty plan, the bank got €2.4bn of new money during the last three months of 2009 and gained 1,500 new private clients. Very high confidentiality levels, partnerships with the best accountancy practices and a dedicated private banking line, as well as an adequate knowledge of the issues related to the amnesty plan, were paramount to attracting interest from new clients, says Mr Mossa.

The timing of the tax amnesty was indeed a lucky coincidence for Banca Fideuram, which manages roughly €68bn in clients’ assets. Having traditionally focused on the upper affluent segment of the market, during 2009 the firm launched a dedicated private banking service line for those clients who have at least €2.5m with the bank or, if it is less, have the potential to increase. In the last year, Banca Fideuram invested €20m to support the launch of its financial advisory solutions and private service line.

The new private banking service line included the opening of private centres in Milan and Turin, and the development of dedicated products and services. Promotori finanziari, or private bankers, are now able to leverage on dedicated investment professionals that support them in their relationship with the client. “We have built this new dedicated private banking line to develop our existing clients and gain new ones, specifically for all wealthy individuals that have more complex requirements, which are both financial and non financial,” says Mr Mossa. The private bankers themselves introduce the clients they believe are suitable to this new broader offering.

“Our private bankers are our best marketing vehicles, as well as our existing clients who already benefit from this service,” he adds. Other source of new clients include high level events organised regularly to make sure the bank can meet its clients, referrals or potential prospects, while cold calling or direct approach is not considered appropriate at all and is not employed, he says.

In Denmark, where approaching potential clients directly is actually illegal, Danske Bank, the largest bank in the country, has found new ways to raise awareness of private banking, explains Anne Buchardt, head of group private banking at the Nordic bank.

“Over the past one and half years we have made marketing efforts in Denmark, Norway and Finland, both in print and online. We noticed that people are still uncertain on what of kind of services a private bank offers, whether these are relevant to them and whether they fit in the target group. Indeed what has been successful for us is driving potential customers to our company web-site to take an online test, which would assess whether they may be a potential private banking customer. Through this channel we got quite many leads and it has given us new customers within the last 18 months,” she says.

It makes sense to use this mass marketing campaign, explains Ms Buchardt, because the bank targets a relatively broad segment of clients, where the starting level of assets is between €300,000 and €500,000. For many customers asset size is not the main criterion. “We try and identify customers who have complex advisory needs; clients may have many different types of assets, many types of liabilities, where different tax rules apply, and therefore it may be difficult to get an overview of their total situation or risk. In this case, tools in private banking help generate that overview, and we very much focus on providing holistic wealth management services,” she says.

Both the retail and corporate banking departments are important sources for new business. “At central level, we identify relevant prospects within the bank looking at the data we already have about our customers,” explains Ms Buchardt. “If we can identify that they have relevant assets, high income or a business of a certain size, then we would use that as a lead for our regional unit, who would contact the customer. The business owner is a very interesting customer for us, because he needs a lot of complex advice and we are able to build a very strong relation with them before the day they actually sell their company.”

The major challenge for the private banking group at Danske is that there are many different business units meeting potential private banking clients. “We are really striving to make referrals to private banking as something natural, despite being a rather big organisation. We try to make sure that all of them have available information on the private banking offer, and to make it clear how they can refer a customer who could be interested in these services.”

Personal touch

Visiting important branches is also key, says Ms Buchardt. “We find that internal referrals work a lot better when there is a personal relationship between the business units and our private bankers. It is important they get a personal impression of what they would refer their customers to.”

Although the Nordic bank’s main goal is to attract new customers overall, the main focus remains on internal referrals, she says. “We still have potential within our organisation and I expect it to continue in the near future,” she says, explaining that currently more than 50 per cent of new customers come from internal networks.

If referrals and personal relationships are important in private banking, they are just the irreplaceable foundations to the life of a boutique, explains Carlo Michienzi, co-CEO at BCM & Partners. The London-based boutique investment manager, which manages around €750m, was founded in 2005 by a team of senior former Morgan Stanley professionals, with experience in asset management and discretionary mandates for ultra high net worth individuals,

“In a boutique like ours, where the average discretionary portfolio ranges between €30 and €40m, satisfaction of our existing clients is our real marketing instrument. At those levels of wealth, personal contact is really important as the relationship is based on trust and transparency. Wealthy individuals who come to a structure like ours want to have a tailor made suit, and avoid the standardised approach to money management typical of a large private bank,” says Mr Michienzi, who was previously co-head of the Italian team at the Private Wealth Division of Morgan Stanley.

The majority of clients at BCM are wealthy individuals that Mr Michienzi brought to Morgan Stanley and who followed him to his new company, or clients linked to the partners. “We prefer to limit the number of clients and focus on performance and quality of service,” he says, explaining they serve only a dozen ultra-high wealthy families.

Boutiques like theirs are more oriented towards old money, or wealth that has been built over time, where people typically will have already had experience of private banks, both large and small. Only the most sophisticated clients used to interacting with the private banker embraces the concept of independent boutique, he says. “Clients with that level of wealth are so few that either you are introduced to them, in this selected club where everybody knows each other – and you need to sow quality, professionalism and good performance – or other otherwise it is very difficult to gain access, as old money moves to another firm only when it sees a very strong difference in terms of quality.”

Individuals who have suddenly come into a large amount of money do not have experience in money management and tend to rely on the brand and generally give a number of mandates. But when they start seeing the qualitative difference, they tend to move on to a more a tailor made service, he says. “Like a sportive man, who starts wearing suits, the first one he buys is a prêt -a-porter, but after the third or fourth he wants tailor-made,” says Mr Michienzi.

Large, big brands are “war machines” in their active search for new clients, as they mainly rely on their reputation to attract new money and one of the jobs of the marketer is to make cold calls, he says. Typically what these big brands intercept very well is the new money, as dedicated teams are allocated to make direct contact typically with entrepreneurs who have just sold their business. The investment banking division feeds private bankers with new leads, but the process of introducing clients is not such a smooth process as it may seem.

“I noticed that very often, what drives human beings is personal interest,” says Mr Michienzi. “Not only does the investment banker not see a direct immediate return in him introducing his client to the private banker but he sees a risk. If the private banker, for a reason or another, loses the money for his client, the investment banker risks his relationship with the client for nothing.”