No easy wins for those galácticos still in wealth management game

Global banks are re-shaping offerings for rich entrepreneurs and their families, according to Citi Private Bank.

Not only have major competitors such as Merrill Lynch and Morgan Stanley pulled out of European markets, but they have been replaced by national boutique players with regional strength and deepening footprints. Others have decided private banking outside home markets is no longer a core service.

This provides a new set of challenges for US banks including Citi, Goldman Sachs and JP Morgan. Clearly there are new opportunities, but business will not be a shoe-in for these galácticos of wealth management. A raft of robo-advisers at one end and newly-invigorated family offices at the other are scrapping it out for the same book of business.

Citi bosses claim family offices – both of the single and multi-varieties – are not really competition to global private banks. Even if there are a few springing up to go it alone or pull in assets in the billions for wealthy families, numbers are dwarfed by wealth created by others keen to use larger banks, says Citi’s Emea boss Luigi Pigorini.

This is despite evidence from consultants that MFO competition is finally beginning to provide a headache for banks. They believe banks will no longer have it so easy and must raise their game to keep family clients.

Among improvements at Citi will be re-enforced targeting of customer segments, such as global Indian families, presenting them with a unified bank with one contact point, rather than a separate unit for each region.

Keeping ratios of clients per private banker as low as possible will be crucial to success. At Citi, that number is currently 23 for Emea. If there is a big shock to markets from the political arena, how long does it take a banker to call every client to brief them? If the banker has, say, 100 to call, it could take two weeks to act on changing allocations or to seize opportunities based on events. This could be too late for time-sensitive opportunities.

Compliance with regulations and tax codes is also becoming crucial. “News about some banks not paying enough attention to tax transparency affects the whole industry,” believes Mr Pigorini.

Customers are now expecting their bank to abide by every regulation in the book, because potential penalties, years of litigation and sleepless nights which non-observance can lead to are no longer worth it.

Some players in Switzerland, by being slow to comply, have not only set a bad example for the industry, but let its image rub off on other jurisdictions. Practitioners in Guernsey, for instance, an island trying to make its way in the world as a hub for private equity managers and trust and company formation for clients from emerging markets, believe they are suffering for Swiss sins.  

But their succession planning services are clearly in demand from clients in Asia, the Middle East, Russia and surrounding countries affected by regional instability.

“Clients’ number one concern is ‘what do I do if things in my country go a bit pear shaped?’ All of them are focused on a contingency plan,” says Mr Pigorini. 

Those contingency plans, which have a habit of eventually becoming real plans, generally revolve around London. This is one reason why many private banking clients have been so concerned about the UK election. They want to be sure London’s financial services industry will continue to grow, innovate and maintain its expert edge. 

While Citi plays down client fears of a possible Brexit, these will likely surface as a referendum approaches. Deutsche Bank has already threatened to move chunks of its London operation to Germany and HSBC to Hong Kong.

Many private clients are increasingly forgetting about Switzerland, while expecting Singapore, New York and Dubai to play a less significant role. London is where most would like to see their private bank have a real centre of expertise.