At a networking event last year, I remember discussing the financial crisis with a chap from an international banking group. Did it bother him that his sector was being blamed for the crash, I asked. Was he annoyed that bankers’ reputation had slipped below that of telesales people and tobacco lobbyists? He wasn’t. ‘I’m not that kind of banker,’ he told me. ‘I’m in private banking.’
It wasn’t the first time that, reading between the lines, I had the impression that wealth managers and private bankers considered themselves assomehow separate from the broader financial services sector, distancing themselves from their greedy, reckless colleagues from the trading floors. But were they being successful?
The industry’s reputation undoubtedly took a hit after 2008. ‘Everybody is being held responsible for the financial crisis,’ Liz Field, CEO of the Wealth Management Association, tells me.’The wealth management sector played no part in the financial crisis but [our reputation has] been affected.’ (Since many HNWs lost money in the financial crisis, whether having been sold inappropriate investments or in the general malaise, some might disagree that wealth managers ‘played no part’.)
In the years following the crisis, the prospects for wealth management couldn’t have been more different from those for the rest of the industry. As investment banking jobs were being cut, a growing number of graduates became interested in careers in private banking. Although regulators wanted large banks to downsize, a string of mergers and acquisitions between wealth management firms in London was taking place; the big were getting smaller and the small were getting big.
And if traders preferred to keep quiet, private bankers became more vocal about defending their contribution to the country’s economy.Charles Hoare Nairne, investment adviser at C. Hoare & Co. and a member of the eleventh generation of the private bank’s founding family, points out that wealth management reflects the existence of a successful economy.
‘At a basic level, the existence of a wealth management industry at all indicates an economy creating wealth, not to mention a society underpinned by the rule of law, liberal democracy and everything else that implies,’ he says. It isn’t about the rich getting richer — if you have a successful economy, you will have a booming wealth management sector.
In October, research by the BBA, a trade association for the country’s banking and financial services industry, crunched numbers to highlight the importance of this contribution. The report, titled A Wealth of Opportunity, included interesting findings — and amusing comparisons. For example, it found that private banking and wealth management oversaw £524 billion of assets and directly or indirectly employed 65,700 people in 2013.
That’s one in every 490 jobs and is, the report adds, ‘roughly equal to employment in the entire economies of St Albans or Ipswich’. According to the research, the industry also paid £1.2 billion in taxes and contributed £5.5 billion to the UK’s economy, which is ‘equivalent to a city the size of Brighton and Hove’. (As serious as the figures are, there’s something always comic about Ipswich and Hove.)
Employees in wealth management sector had a combined disposable income of £980 million, the study also found. ‘Predominantly, that is going to be spent where people live and not necessarily where people work,’ says Field. ‘Seventy per cent of people who work in our sector in London also live in London.
But 30 per cent don’t — I’m one of those. Any income that we take from working in the sector is predominantly spent locally, wherever we come from. So that’s an ongoing cascade ripple effect of impact.’
Moreover, people with assets in the UK are more likely to invest and do business in the country. The BBA surveyed 250 HNW investors with a British wealth management or private banking relationship and found that 36 per cent of them were more likely to do
business here and 31 per cent were more likely to invest here.
The industry is far from perfect. Fees aren’t always transparent, some firms are too busy selling their own products to think about whether it’s a good fit for their clients and at a recent lunch I was reminded that private bankers are just as obsessed with profits. In November, Robert Taylor, head of wealth management and private banking supervision at the FCA, said private clients still feel ‘anxious’ about trusting their wealth managers and warned that this threatens the industry’s credibility and sustainability.
But with its slower pace and further time-horizon, dictated by the need to preserve wealth over the generations, there is certainly something the financial services industry could learn from its smaller sibling — if not from Ipswich or Hove.