Since the fall from grace of the Gordon Gekkos of investment banking, the more
sedate (and responsible) world of private bankers has started to attract high-fliers, says Giulia Cambieri
There's a reason no one has made a film about private bankers. Wall Street (1 and 2), The Wolf of Wall Street, Boiler Room, Rogue Trader: all are about ruthless young alpha males playing for high stakes under high pressure.
Private banking, by contrast, has always seemed slower, older, gentler -- not exactly the stuff of cinema. But in the wake of the financial crisis, investment banking is now giving ground as a career -- and lifestyle choice -- even as private banking becomes more desirable.
David Rosier, chairman of Thurleigh Investment Managers, has seen a 'huge' change in how wealth managers are perceived since he joined the industry 36 years ago. 'When I started in the industry with SG Warburg in 1978, the crème de la crème were the people who did corporate finance. [Wealth managers] were definitely second- or even third-class citizens. This has completely changed now --the brightest people want to go into wealth management.'
Perhaps the first reason is that investment banking has been struggling under the weight of blame for the financial crisis, for infecting other divisions within the same company and the financial system as a whole. This has led to dramatic cuts in investment banks, whether because demand for their services collapsed in the recession or because their activity was felt superfluous or even harmful to the rest of the bank.
UBS, one of the banks that was hardest hit by the crash and had to be bailed out by the Swiss government, cut 10,000 jobs worldwide in 2012, including over 5,000 in the investment division (a third of its staff), as it shifted focus to its prime private banking business. (UBS has said it is keeping its investment bank as a resource for its private-banking clients.)
Credit Suisse, Barclays, Deutsche Bank and Royal Bank of Scotland have also cut tens of thousands of jobs and scaled back their investment banking divisions in the past few years.
People tend to go where the jobs are, and jobs at the moment are in wealth management because there are so many more HNWs today than in 2008. That year saw a fall by 15 per cent to 8.6 million, according to the World Wealth Report; by 2012, there were 12 million. Wealth needing to be managed has gone in the same period from $32.8 trillion to $46.2 trillion.
Growth in the industry is also likely to continue in the next few years: according to the World Wealth Report, by 2015 total wealth will be $55.8 trillion, driven by China and emerging markets. And in its Global Private Banking Survey 2013, McKinsey forecast that the profit pools of the private banking sector worldwide would grow by more than 10 per cent annually to exceed $70 billion by 2016.
In order to capture and manage some of this burgeoning sector, last year a number of firms went on a hiring spree, including Edmond de Rothschild and JP Morgan Private Bank, which tried to boost their London-based teams to take advantage of the country's growing HNW market.
‘It's a very attractive sector of finance to be in, and one which is growing,' says Luigi Pigorini, CEO of Europe, Middle East and Africa at Citi Private Bank. 'It's one of the few places which are growing.' Citi Private Bank has seen an increase in the volume of job applications it has received since the crisis, both for junior and senior positions.
Applicants to the graduate programme have risen by 40 per cent since 2010, while the number of candidates for more senior roles has doubled from 2011. 'We are seeing a lot of applications from other sectors of finance, including investment banking, corporate banking and asset management,' says Pigorini.
It's something that smaller wealth management firms like Thurleigh have also witnessed. 'Since the crisis of 2008, we saw -- and I'm sure our competition did too -- a very high volume of very bright, often really well qualified people trying to get jobs in the industry,' says David Rosier.
According to Oliver Stanley, founder of Oliver Stanley Partners, a recruitment firm specialising in private investment companies and family offices, private banking has seen 10-15 per cent more applicants since the crisis.
It isn't the first time interest in private client business has increased following a financial crisis. After the early-Eighties recession, a number of firms were established in London, including JO Hambro (now Waverton) and Ruffer.
A shift towards private banking has also happened because the industry now requires people with a wider set of skills than before and is thus more capacious. Bandish Gudka, an investment manager at Vestra Wealth, reckons more people are interested in working in private banking because the industry has absorbed some of the competencies of investment banking.
'Tax regimes in the Western world have changed and a lot of clients are now holding assets and company shareholdings in their own names and therefore require the investment banking specialism within their private portfolios,' he says.
Increasing competition, regulatory requirements and the fact that clients now tend to keep a closer eye on how their portfolios are allocated mean the industry needs to attract more and better graduates and professionals, often grabbing them from other sectors. Credit Suisse, for example, promoted Thomas Gottstein, then head of investment banking in Switzerland, to lead its UHNW business last November.
It's not difficult for talented people from other industries to make the move to wealth management, as the skill set needed to make it in the industry is easily transferable.
‘Private banking is really a relationship-driven business,' says Dina de Angelo, a director at Pictet who is often involved in the bank's recruiting.
'No matter what the investment performance is, if the relationship is not good, the business does not survive. And what skills do you need to make it work? Trust, the ability to think under pressure, to multi-task, to put the right team and services around the client, sometimes great leadership skills. And those are all skills that you can gain in other industries.'
Together with these adjustments it's the way private bankers are seen that has changed, as the industry is viewed as safer than corporate finance and able to provide a better work/life balance.
'Private banking has somewhat a different reputation among junior bankers,' says Pigorini. 'There is more stability in earnings and the perception of a more stable working life and better lifestyle,' says Stanley. 'You work really hard, but you are not leaving the office at midnight every night.'
Investment bankers, in the meantime, have been asked to tighten their belts (or their braces), with bonuses being cut and corporate entertainment reduced. 'The days of the 1980s,' says David Rosier, 'when greed was good and every investment banker drove a Porsche, have gone.'