Banks getting the hang of family affairs
Both clients and asset managers are warming to the idea of multi-family offices, while the larger players are taking this threat very seriously
The concept of multi-family offices (MFOs), which pool money from wealthy clans and invest it in mainly alternative-type assets, is gaining traction across Europe.
PWM recently chaired a debate between two of these groups and Citi, one of the largest and best known global wealth management franchises, on the first day of the prestigious Fund Forum conference in Monaco.
There was clearly a huge contrast between the two mindsets, in terms of numbers of bankers, assets, business model, fee schedule and the general approach of the wealth manager to the client.
Citi no longer has a captive funds arm, so is able to present the best funds from external managers. It also decided to abolish commission-based rewards for relationship managers, well before the Retail Distribution Review (RDR) banned kickbacks in the UK. The talk is about “partnership” with clients.
Yet as an investment banking-led operation it is in the bank’s interests to bring in investment and corporate banking services to help manage wealth. These services do not come cheap and fees can typically be raised once clients have been hooked in.
It is easy for MFOs, typically staffed by ex private bankers, to present an alternative and potentially more attractive client-led model.
“The best managers are usually found in small outfits, often renegades from stultifying banks,” says Monaco panellist Adam Wethered, founder of Lord North Street, a private investment office which manages an estimated €5bn for around 50 wealthy families in Europe and Latin America.
He previously ran the closely-linked asset management and private banking practices at JP Morgan and had also been heavily involved in the group’s investment bank. Leaders such as himself, he insists, were restricted by organisations based around a selling and profit-making culture.
But today’s clients are becoming more aware of cross-selling of products, he says. “Private investors are increasingly attracted to firms which sit on their side of the table.”
Asset managers also increasingly prefer to work with these boutique players ahead of private banks. “Multi-family offices have a very strong client base of long-term wealth, driven by capital preservation,” says Andy Sowerby, director of distribution at Scottish fund house Martin Currie.
“They are as focused on the risk side of the equation as they are on returns. Historically, private banks have been more focused on returns than risks.”
The large banks are clearly well aware of the competition and have been beefing up their own family-led offerings accordingly
In reality, most private clients look for a combination of institutions and like to partner with four or five to manage their wealth, with the MFOs increasingly getting a look-in. The large banks are clearly well aware of the competition and have been beefing up their own family-led offerings accordingly, something which Citi has been particularly successful at.
As part of this fightback, banks are developing initiatives based around nurturing their largest clients, says Seb Dovey of wealth think-tank Scorpio. But the threat will not go away, with each MFO needing just 30 clients in order to make a viable profit, according to Scorpio’s calculations.
“Some of the more enlightened banks have started to react and are developing new business models with better aligned incentive structures,” says Oliver Wyman’s head of private banking business Stefan Jaecklin.
With Swiss banks fast shedding secrecy-led offerings to avoid falling foul of the US authorities, there may be an even greater reason for private clients to keep their business a “family affair”.
