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The massive surge in wealth management over the last few years has prompted the most important shift in money management since the introduction of mutual funds. It marks a major turning point in banking history. Analysts expect worldwide high net worth financial wealth to reach more than $40 trn by 2008. The main issue in private banking today is that it is no longer enough to provide wealth management as an 'add on’ or niche service. The demands of the market are such that to be in this space requires extreme foresight in crafting both a business and a people strategy to ensure long-term success in a changing world.
The challenge for banks in this era is to define their product specialisation and hire the right mix of talent to achieve ppropriate diversification for their clients. The big global brands have embraced a level of diversification that challenges the traditional private banks. These gentlemanly providers face some crucial strategic decisions.
Either they remain home to HNW individuals - who have typically inherited their wealth - or they capitalise on their historical position as wealth managers to embrace the UHNW entrepreneur community and increase their share of the mass affluent. In order to make the right strategic decision, the traditional private banks will need to take a close look at their desired client base and the people they need to hire to service them. First, let’s look at the changing client base.
The increase in wealth among high networth individuals and the mass affluent has been driven by a variety of factors, notably the success of private equity, hedge funds and an increase in the price of commodities. As mentioned above, HNW individuals have often made rather than inherited their wealth. As a result, they often have an entrepreneuial mind-set; they are financially astute, demanding and worldly.
Those who have personally achieved 'billionaires club’ level are demanding access to specialised disciplines such as foreign exchange, equities, fixed income, M&A, corporate finance and derivatives, stretching even to fine art. They are also setting up their own hedge funds and private equity funds. High net-worth and mass affluent individuals with a greater comprehension of financial markets are demanding access to the same asset classes through their private banks. Banks keen to prevent their clients migrating to competitors will need to offer comparable services, provided by teams of specialised wealth managers.
Institutions such as Barclays Wealth, Citigroup, Credit Suisse, Merrill Lynch and UBS are already attracting talent across a number of disciplines to address the needs of a more financially sophisticated and demanding set of private clients. These players are establishing the benchmark whereby there can be no holding back for those with an active client base they need to service.
As wealth continues to mushroom in existing markets and new, the ability to win business is a prerequisite. However, for the bigger institutions heavily invested in product specialists, it is the ability to introduce additional client business that will distinguish the real winners. For example, one leading institution is sharpening its focus on hiring former capital markets executives - such as M&A bankers - who can lead a client through an IPO, or other capital events, maximising the bank’s exposure to additional revenue from existing sources. Client relationship management in this context requires exceptional team performance and cross referring - identifying potential capital events and introducing the specialists able to see them through.
Successful private banks where growth has been strong boast a pool of exceptional private bankers. However, they don’t move easily. In keeping with others driven to succeed, wealth managers are motivated more by their work than their remuneration. A large institution offering a private banker access to better clients, more relevant products, a strong brand and a better operating infrastructure, will 168 WORLDFINANCE attract managers motivated by delivering exceptional service.
Traditional private banks and smaller institutions which do not provide specialisation in-house pursue an 'open architecture’, whereby wealth managers offer products from other sources. This offering is more appropriate to the mass affluent, and as you go down the pyramid of wealth, the managers become more general. These wealth managers need to have a basic understanding of a wide range of products, and the ability to assess and manage external providers. The most sophisticated of these managers are potential candidates for leading the specialised teams in bigger institutions.
General wealth managers, as opposed to product specialists, are also highly sought after by traditional private banks serving family offices, for example Pictet, Lombard Odier Darier Hentsch, Coutts, Child & Co. and Hoare. The main difference in working with these organisations centres on career prospects. Traditional private banks have, to date, been unlikely to scale up their wealth management teams, preferring to depend on one to three excellent private bankers who source external services when required. However, in order to compete with the big global brands, these banks may need to redress the balance by hiring more product specialists.
Traditional private banks are, by nature, more personal and require a particular form of candidate fit. Increasingly, client service takes the form of providing 'concierge’ services for clients who need, say, a private jet to be available tomorrow, relocation support, instant tickets, or the latest technological device. 'Concierge’ services are not the preserve of the traditional private bank, although some services are specific to such clients, for example family dispute resolution and advice on succession planning. Large private banking institutions need to decide to what extent they want to emulate the traditional private banks in providing concierge services, and how relevant this is to their service differentiation.
In trying to keep up with the rate of growth and the need for more wealth managers, many institutions have made expensive, and sometimes inappropriate, hires. Those banks which have not been able to add sufficient product specialisation, or which have hired candidates with a poor organisational fit, court the danger of seeing their 'investments’ walk out of the door before sufficient returns have been made.
When the US no longer demanded a legal separation between banking and brokerage, firms such as Merrill Lynch, UBS and Citibank dedicated significant resources to training talented financial advisors to become private wealth advisors. For all private banking institutions, training has become an essential part of keeping up with the evolution of the industry, and many client relationship managers are open about their need for increased levels of training and development.
Private bankers, whether working for a large, global institution or a traditional private bank, are custodians of the world’s wealth as it passes through the generations. With sophisticated risk modelling, far more advanced than ever before, the preservation and growth of wealth is underpinned by calculated risk. The growth in philanthropy is directly related to the more successful and consistent management of private wealth today. For the banks, their future lies in how they continue to evolve their positions, and how they align themselves with their client base. Success will stem from a strategic hiring approach that enables continuing evolution geared to changing market dynamics.
The increase in demand for product specialists requires sector-specific understanding and focus. Boyden’s international private banking team is particularly active in the United States, the United Kingdom, Switzerland, France, Spain, Russia, Singapore, Hong Kong and India. The team adopts the same approach as many of their clients - each member offers a specialisation within financial markets, coupled with the experience of reading candidate quality, 'moveability’ and organisational fit.
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