Have private bankers become a pointless relic or do they still offer a uniquely useful service for wealthy clients, asks Christopher Silvester
With the markets in disarray, the past year has proved a challenging period for private bankers. For the most part the criticism has been, put crudely, that they have become product pushers.
For example, Sir Keith Mills, the multimillionaire founder of the Nectar card business, is suing Coutts & Co, one of the oldest UK private banks, for selling him a supposedly low-risk product, namely AIG Life Premier Bonds, which may have lost him £30 million.
‘I think the private banks have a huge problem,’ says Sir Keith. ‘Their credibility has been completely destroyed. Companies like Coutts have been badly damaged. It has taken them 200 years to build it up, and now they have blown it.’
Perry Littleboy, a senior client partner at RBS Coutts, now the international private-banking arm of Coutts, admits that some private banks have become product pushers and that merely ‘the fact that people are talking about it damages the integrity of private banks’.
For his own part, and notwithstanding Sir Keith Mills’s lawsuit against Coutts’s domestic operation, Littleboy is adamant that RBS Coutts has not
lost touch with the service ethos of private banking. ‘I do absolutely and passionately believe that this business is about giving advice and not about products,’ he says.
‘It’s all about long-term relationships and it’s not about trying to shoehorn people into the products that you have because you are the distribution arm of a product manufacturer.’
Adrian Laycock, executive director of Fortis Bank UK, understands the negative perception that has developed over the trade in structured products. ‘Undoubtedly, there is the view held by some clients that some banks have been into product pushing,’ he says.
‘I hear that all the time. What you can’t do is find out what a client’s risk profile is, pop them into some sort of portfolio, clear off for a year and then review it, which I think is largely what happened. What we have recognised at Fortis is that things are much more short-term, much more defensive, and that clients need considerable TLC in such times, a greater frequency of meetings, a greater frequency of ideas, particularly defensive, as the markets have become more volatile.
‘It’s part of that ethos of being ever closer to the client, both in terms of depth and frequency of contact. All too often the criticism from clients has been that private bankers run off and hide in the bad times, and flog them a load of products in the good times.’
Over at Barclays Private Bank, executive director Heather Maizels insists that her subsidiary organisation remains independent and objective. ‘We don’t actually have products in the private bank — our product is advice,’ she says.
‘If people come to me with cash, because very often they’re disappointed with Barclays’ rates of interest, the first thing I’d do anyway would be to place that cash outside Barclays. So that would show that I wasn’t just selling Barclays products. We’ve always focused on giving independent advice, but that has become a bit blurred with product advice. We recognise the situation that the industry is in.’
Hoare & Co has seen a considerable inflow of new business, including a more than usual number of wholly new relationships with refugees from other private banks. Bella Hopewell, a partner there, says: ‘Some of them have been coming to us for precisely that shift from a product culture.
‘They don’t feel there’s really a lot of discretion on the part of the private banker, that they’re just there as a funnel to feed product through, and they’ve become dissatisfied with that. And some of the influx has been through concern over the stability of organisations. Do I really want to be in a private bank which is effectively a government-owned organisation?’
Hopewell highlights two key features of the Hoare & Co private-banking style which appeal to clients. ‘One is that by being independent one of the decisions we took several years ago is that we would resist making any products of our own. It’s not so much open architecture, it really is better breed — whatever is out there.
‘We’re never comparing a product with our own because we don’t have any. That whole conflict of interest we just don’t have to deal with. The other is that relationships are for the long term and we will recommend that a customer does something if it’s in the customer’s interest, even if in the short term that hurts our bottom line.’
Despite the opinion of Sir Keith Mills, Perry Littleboy believes that RBS Coutts is ‘incredibly lucky with our brand, and brand really does matter in this game. The trust the brand evokes as an emotion among the clients is really important. The international arm of Coutts was rebranded a year ago as RBS Coutts.
‘Coutts is a powerful brand in Anglophone countries, less powerful in other areas. RBS was doing quite a lot of brand awareness, so we linked RBS and Coutts internationally. We’ve got a strong footprint in the offshore markets, Switzerland, the Middle East and Asia. Those are the key areas where the brand works.’
If the market crisis of recent months has shown one thing, it is the benefit of ensuring greater communication with clients. ‘Private bankers have bent over backwards to reassure clients during the recent market turbulence and the crisis in the banking community, and clients absolutely respond to that,’ says Littleboy. ‘You can never have enough communication about markets or the safety of clients’ wealth.’
Jamie Black, head of the private-client team at asset-management firm Sarasin & Partners, again emphasises the need to reassure clients. Otherwise, he lays great emphasis on the benefits of liquidity for private portfolios, a sometimes unrecognised benefit of holding global equities.
‘Our investment process for equities is generally focused on large cap stocks, which remain perfectly liquid,’ he explains. ‘Ironically, in the last quarter of 2008 quoted stocks provided one of the few exits for over-leveraged institutions and hedge funds seeking to offload risk and raise cash, with equity prices suffering accordingly.
‘Throughout the crisis much of the market in corporate bonds and commercial paper and almost every asset-backed mortgage have simply ceased to trade, whereas large cap global equities have continued to trade efficiently and in extraordinary volumes.
‘Certainly when looking after private money I do think this issue of liquidity is crucial and even if the underlying performance of the asset class is disappointing, the fact that one knows that one is able to turn it into cash on the same day is a great comfort and probably encourages clients to take a longer-term view and sit out the difficult markets. They’re more inclined to run for cash if they actually feel there’s some question mark over the return of their asset, let alone the return on it.’
Yet whatever asset-management strategy is applied, there is still the traditional hand-holding role of the private banker to consider, and here, according to Hoare & Co’s Bella Hopewell, the British style scores over the Swiss style. ‘We still do banking, whereas the Swiss don’t do banking any more, certainly not internationally,’ she says.
‘The Swiss model is very much an asset-management model, whereby you meet once a year to talk about the performance of the portfolio. There’s not a lot more in the relationship than that. Our model, which is a full-service organisation, has several advantages.
‘It gives you many more occasions on which to interact with the customer, because routine banking involves more chatting about what’s going on in the client’s life. This gives you a much better ability to build a relationship with a customer, because you talk to them more often.’