The scramble to attract and retain the private banking business of the world’s wealthiest families has become that much more competitive amid the fall-out from the worst financial crisis in several generations.
According to the World Wealth Report, the annual survey compiled by Merrill Lynch and Capgemini, the global population of “high net worth individuals” fell by nearly 15 per cent in 2008, while their total wealth fell 20 per cent, leaving both measures at levels last seen at the end of 2005.
Private bankers say the downturn has ushered in a “back to basics” approach to wealth management, with a renewed focus on long-term client relationships, old-fashioned due diligence and more comprehensive assessment and management of risk.
“High net worth families will be less willing to compromise in the future than they have been in the past,” says Michael Lagopoulos, chief executive officer of the international arm of RBC Wealth Management.
“They want consistency, reliability and unbiased advice with a focus on what is right for them, rather than what is right for their banker or bank. Above all, clients will be looking to ensure that they are getting value for money on the services they use.”
One of the key issues facing the sector is how to meet client demand for improved service and heightened transparency, while many global financial groups remain mired in the more pedestrian task of rebuilding their banking franchises.
While economies appear to be improving across the globe, the personal wealth growth rates in China and across the Asia Pacific region continue to fast outpace the Western world, leaving adrift banking groups that lack the capacity to capitalise.
Private bankers insist that the unexpectedly swift resurgence of global stock markets has not altered the concerns of a chastened client base.
“Transparency and liquidity are now prerequisites for any product offered to the wealthy and very wealthy investor,” says Sally Tennant, chief executive officer of Lombard Odier in London.
“The days of products with ‘black box’ complexities are over.”
The current generation of rich individuals is undeniably more international in both outlook and activities than previous ones, whether in business, investments or personal affairs.
Particularly in emerging markets, the ranks of the “super-wealthy” are now dominated by entrepreneurs who have built up their own business empires, as opposed to inheriting their wealth over generations.
As a result, they expect a more hands-on approach and a more tailored product than the “traditional” private banking model offers, with its focus on investment advice and portfolio management, says Jane Fraser, head of Citi Private Bank.
“The coveted private banking client now expects a more holistic approach to wealth management,” she says.
Gerard Aquilina, vice-chairman at Barclays Wealth, says part of the service Barclays offers is more akin to a private investment bank, drawing on the resources of Barclays Capital, the investment banking division run by Bob Diamond.
Portfolio management is just one component of what Mr Aquilina calls the “tripod” of wealth management, which also includes estate and succession planning, and providing access to credit.
Global families are increasingly interested in gearing up to take advantage of specific investment opportunities or to expand their business interests, Mr Aquilina says.
”Most private banks either don’t have an investment banking arm or do not work well together. At Barclays Wealth, we view private investment banking as a strategic imperative.”
While the turmoil of the past 18 months is still fresh in the minds of most clients, many bankers say the resurgent markets have increased risk appetites much more quickly than they expected, particularly in Europe.
As confidence returns to the market, so too does the opportunity for initial public offerings or private equity buy-outs that would give liquidity to entrepreneurs.
Private bankers warn that wealthy individuals who fail to carry out a risk assessment of their portfolio, however, could repeat the same mistakes.
Research by Merrill Lynch and Capgemini reveals that in the past two downturns, the portfolios of rich people who undertook a comprehensive risk assessment fared far better than those who did not.
During the 2000-02 technology bubble downturn, for example, the portfolio of an individual who had completed a comprehensive assessment would have lost 6.1 per cent, whereas a more conventional risk assessment for the same person would have resulted in a 15.1 per cent loss.
Similarly, wealthy individuals who took advantage of a thorough risk assessment in 2008 suffered smaller losses than those people who did not, according to the Merrill Lynch Capgemini survey.