Why honesty is back in banking fashion

Mention the phrase ‘open architecture’ to Eric Barnett, managing director of SG Private Banking in London, and you see him visibly cringe. While many institutions are just starting to use the phrase, or are killing it through overuse, veterans are beginning to realise that it may put off potential clients. They are also asking whether its implementation is as thorough as claimed. There is a new fashion for honesty amongst private bankers. Gone are the black-box solutions, where bankers offered a product claiming great returns, but nobody knew why. Today, wealthy clients are more like institutions. They want to know which products are used, and how they make money. If you are using external funds, they want to understand the selection process. Mr Barnett’s ultimate boss in Paris, Pierre Mathé, fields queries about the private bank’s fund selection system. His team explain to private clients how the computerised selection and asset allocation service – pioneered by Mr Barnett’s colleagues in London and the Channel Islands – operates from day to day. Rather than open architecture, Mr Barnett prefers to describe the bank’s philosophy as an “open-minded view of which products to use”. A small bank, claiming to use open architecture and shouting loudly about it, he says, is the least likely to actually implement it. The acid test of how open the bank is, rests on the percentage of external funds sold to private clients. Just 6 per cent of the ?60bn in assets held for clients by SG Private Banking are currently channelled into internal funds managed by SGAM. Some clients are even apparently shocked that more of their money is not pumped into house favourites. Schroders Private Bank is another institution that no longer bandies around the phrase it did so much to popularise. Managing director Rupert Robinson prefers a “Schroder Plus” approach, combining products of the UK group – which has enjoyed good performance of late – with the best of the rest. Where possible, his advisers will channel clients into group products. Schroders’ partnership with multi-manager Russell, originally touted as the future for private wealth management, has been downgraded. Why subject clients to an extra level of fees if you have the resources to manage money yourself, and can perform just as well? If you want real open architecture, a selection of absolutely everything on the market, go to UBS, says Mr Robinson. But his hunch is there are many niche customers in the private client world who do not want it any more.