How Private Banks Can Withstand Recession
Topics: Wealth Management Jobs, Asset Management Jobs, Private Banking Jobs
The industry today bears little resemblance to the one that weathered the previous recession 20 years ago. The products, the banking institutions, the locations, tax domiciles and even the perception of wealth have changed beyond all recognition. The wealth industry has more scale - and is potentially more robust, Graham Harvey, a senior associate at industry consultants, Scorpio Partnership, told WealthBriefing. Asset management solutions are more diversified than 20 years ago, he said.
Scorpio believes that the firms that will last relatively well through this recession will be those that offer fees, independent of product, for advice creating what it calls a healthy barrier between the two. However, as the proportion of firms currently offering fees for ongoing advice as a core of their proposition are such a small proportion of the market, this would require a truly colossal shift, said Mr Harvey.
The issue of public perceptions of wealth is very important. If the recession is deep and prolonged, there may well be a social and political backlash against the wealthy. Wealth managers will need new advisory solutions that take into account the fact that the offshore market has also changed beyond recognition since the last major recession, Catherine Tillotson, a partner at Scorpio, added.
Michael Maslinski, another prominent consultant to the wealth management industry, believes that the industry has become over reliant upon on the sale of high margin investment products to the detriment of basic traditional private banking. Private banks should think about refocusing on the banking aspect of private banking, Mr Maslinski said.
Phil McIlwraith group commercial director, SG Hambros private banking arm, agrees with that analysis. Being a bank is often seen as the less interesting side of being a wealth manager, but taking money on deposit, lending and providing other treasury services, including foreign exchange, brings you closer still to the client and other aspects of their needs, which is one reason why weve persisted with the model, said Mr McIIwraith.
The investment banking model is finished and many big names that have focused on private banking aligned to their investment banking model will fall by the wayside and others will re-emerge in different guises, said Nader Goodarzi, head of wealth management at Ansbacher.
Specialisation has become key as private clients have moved their assets from one firm to another, he said.
Niche players and mid-tier private banks such as EFG and Julius Baer will do well along with other similar pure play private banks and attract private client assets, Mr Goodarzi said. He also sees a growing role for family offices that manage multiple relationships on behalf of increasing numbers of wealthy individuals who do not want all their eggs in one basket.
Some firms and consultants predict that those firms with an unlimited liability partnership structure are more likely to withstand a recession. C Hoare & Co, the UKs oldest private bank founded in 1672, has remained independent where many of its peers have sold out to larger institutions, for example.
Our unlimited liability structure means that our partners stand to lose more than any client so there is an alignment of interests, said chief executive, Alexander Hoare. We are not answerable to external shareholders, so we are not pressed to meet any short-term profit objectives. We have chosen to have no products to sell anyway, he said.
Swiss-based Pictet & Cie, which is owned and managed by seven general partners who are personally liable for the bank’s commitments, said in a recent announcement that this provides it with the freedom to pursue a long-term strategy, focused on developing stable relationships with clients, as opposed to following fads in pursuit of short-term profit maximisation.
There is speculation that recession will mark further fragmentation in the wealth management industry and that this increased competition will impact fees.
I can honestly see the investment management world changing completely and what recent events have shown is that no institution is sacrosanct. Assets will continue to dissipate and regional banks will pick up assets, Ansbachers Mr Goodarzi told WealthBriefing.
Clients are likely to see this as an opportunity to drive down their asset management fees. If firms are able to position advisory fee alternatives as a healthy alternative to pure product fees they may be able to defend margins added Scorpios Ms Tillotson.
And, according to Mr Maslinski, profits are likely to largely go out of the window short-term for those firms building a business asset for the future.
Tearing up targets needs to be a high level management decision, Mr Maslinski said. The firms that weather this recession most successfully will be those that tear up profit targets and focus on building the business. It takes 5, 10 even 15 years to build and reap the rewards of a loyal client base. Those firms that run around squeezing more money out of clients to meet targets will find that someone else benefits when the upturn comes, he said.
SG Hambros Mr McIlwraith acknowledges that fees are likely to come down in a recession due to assets under management falling in line with markets, but believes that there are other ways of meeting client needs such as extending credit, financial planning and structuring.
Every business has to deliver a return to stakeholders, but the benefit of a diversified business model is that we have other ways of keeping overall revenues in a straighter line, he said.
On the whole, experts are positive about the outlook for the wealth management industry. Mr Maslinski observes that the majority of firms are not cutting back in private banking, seeing it as an important discipline for the future.
Scorpio also believes that private banks are, on the whole, in a good position to weather the recession as to some extent, private clients are the only ones with any money at the moment. Those with cash will be looking for large deals on distressed assets and almost everything is distressed at the moment which puts private banks in an interesting position, said Mr Harvey.
There is some evidence to suggest that private clients are making substantial acquisitions in very select opportunities and this may generate M&A activity and lead firms to participate in increased co-investing activity.
While there will inevitably be fewer liquidity events, Mr Harvey believes that some private banks have a truly historic opportunity whereby they can facilitate the growth of their clients’ businesses by lending to them. They can go back to being institutions that grow with their clients, he said. As much of the rest of the financial markets deleverage this is an opportunity for a select group of private banks with means to lend to separate themselves from the wider market.
Ansbachers Mr Goodarzi is also confident. I am hugely optimistic for the private banking sector. It is not leveraged and whereas investment banking is all about the one off deal, private banks do not rely on capital to create a revenue stream.
Those firms that are prepared to adapt to meet changing client needs in a recessionary environment look set to best withstand the storm.
Tom Burroughes, Editor, WealthCareers.com Specialists in Wealth Management Jobs, Asset Management Jobs and Private Banking Jobs - www.wealthcareers.com
Previous Articles Highlighter:
How Does Stock Market Manipulation Work? (1)
Look in your own household for great products then check out the company itself. The best companies out there rarely deal with market manipulation; it's the penny stock and small start-ups that cost greedy investors a fortune.
How Real Estate Sellers Choose An Agent To List Their Home (2)
Then the homeowner takes the business card and ponders later over how fortuitous it was to have bumped into a real estate agent when he was just thinking that he was going to start looking for one!
India Holds Great Promise For Wealth Industry (3)
Such solutions often involve a tie-up such as that between UBI and Belgium based KBC this year. 2008 also saw Credit Suisse and Barclays Wealth moving into Indias wealth management market.
Forex For Dummies; Such An Easy Way To Make Money Trading FX Anybody Can Be A Millionaire Overnight (4)
In fact, if your like me and use multiple trading methods daily, this is also a great way to increase your profits. The reason for this is that it does not take much time, usually only fifteen minutes to a half hour each day to improve your income.
Lowering Property Taxes Via Reassessment (5)
As a rule, many county tax assessors wait until a house is sold or a homeowner performs a major value enhancing alteration, such as a major kitchen remodel, before reassessing a property.
4 Tips To Help Save Money Today (6)
Topics: save money, save money at home, easy ways to save, money saving tips, how to save money Money is an important part of everyone's life, unfortunately some individuals are careless with their money and end up going through difficult times because of it.
Learn Forex Trading Online Is The First Step To Financial Prosperity And Independence (7)
Do you what to know what being right seventy-four percent of the time in the currency markets buys you? Anything you want is the answer! William R. Alheim, Jr.
Important Concepts For Financial Planning In The 21st Century (8)
You minimize unnecessary risk by avoiding dishonest people. If you are doing business with honest people your results will likely be better. Deal only with competent people. It is your responsibility to satisfy yourself as to their competency.
Purchase Reverse Mortgages: Enjoying No Payments In 2009 (9)
We have heard from almost as many who told us that they found their existing home just did not suit their needs any longer but they could not see any way of moving to a new home so they felt that they either had to remain in the home with which they no longer felt comfortable or their only other option was to sell it and rent an apartment somewhere and that option just was not very appealing to them.
Your Short Term Health Insurance Options (10)
If a person does not have the option of buying into an employer-sponsored group health insurance plan, he will usually look into purchasing an individual health insurance plan or state-sponsored health insurance plan.
Important 1031 Exchange Rules (11)
This is not that much time to make sure that you do all of the proper due diligence on the new investment. So make sure that you are trying very hard to locate a few different potential investments and begin the closing process as quickly as possible.
The Best Forex Training Is Right At Your Finger Tips, If You Only Knew Which Way To Look (12)
William R. Alheim, Jr. possesses a Masters of Accounting Degree from Florida International University. He is a Certificated Public Accountant license issued by the state of Florida.
An Investors Guide To Romania (13)
The Danube marks the southern border. Bucharest, the capital, is in the south and home to 2m Romanians. Other major cities include Arad, Oradea and Timisoara to the far west, the Black Sea town of Constanta (the country's largest port) to the east, and the centrally situated Brasov and Sibiu.
Will Closing My Credit Card Account Affect My Credit Score? (14)
This is not the case and here's why. Let's say you have two cards or more from the same credit card company. You do not want to close these accounts.
Don't Be A Victim Of The Market When Trading (15)
There is really never any accurate method in which to make predictions where the market is concerned. You do what you can to make the most educated decisions that you can, but over all, you are bound to find that there will be signs along the way which can make a trade you just made suddenly look like a bad idea.
9 Simple Tips For Keeping California Insurance Rates Low (16)
1) Turn on your headlights and buckle up. Even in daylight your headlights can help other drivers see you approaching. 2) Avoid driving during rush hours if possible.
Real Estate Caused The Economy Slow Down (17)
Why, because millions of americans were trying to leverage and make easy money from owning a home. Now all the equity even the modest home owner had received is all but gone.
Home Buyers Different Insurance Options (18)
It is recommended if you have a young family and you are the main earner. Premiums are usually quite manageable and vary depending on your age and the value of your mortgage.
Mortgage Rates Experience Historic Drop (19)
This was basically when Greenspan was cutting the fed rate to prevent the US from going into a recession. A lot of people now blame Greenspan for causing the housing bubble and our current problems.
Better Understanding Of Adjustable Rate Mortgage Loans (20)
ARM is a loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index. These are mortgages where the interest rate changes based on market conditions.
Newer Articles Highlighter:
How To Erase Credit Card Debt After Foreclosure (1)
Once the whirlwind of emotions passes, many people find themselves staring at their credit card balances wondering how to get out of debt and how to get on with their life.
Building Wealth Through Increased Tax Deductions (2)
This can be a simple, affordable business that requires little time or skill. Traditionally, travel agents operated out of storefronts, and handled the responsibility of planning and booking travel for their customers.
Financial Finesse: Tips For Using Electronic Bill Pay (3)
American Momentum Bank provides a wide array of online banking, personal banking and business banking options and banking solutions tailored to your individual needs. For more information, please visit www.AmericanMomentumBank.com.
Understanding Your Deductible Costs (4)
However, if you do have medical conditions you may choose to lower option. For more information, visit thehealthinsuranceshop.com for details about major medical health insurance and cheap health insurance quotes.
Adjustable Rate Mortgage And California Home Loans (5)
A home loan in California comes in many different forms and types so it depends on your circumstances where you need the loan. Some would refinance just so they can consolidate their debts and loans.
Easy Ways To Save On The Utility Bills (6)
If you turn it to low, then you will end up spending a great deal of money to re heat. Keep the sockets free. Unplug all your chargers.
Talent Shortage Main Headache As Singapore Booms (7)
Topics: Wealth Management Jobs, Asset Management Jobs, Private Banking Jobs The trick, however, is keeping up with strong demand without sacrificing quality - a tough challenge. A rising number of high net worth individuals is propelling the region and hence, Singapores attractions as a wealth management hub.
Know Details About Australia Home Loans (8)
Just log on to the website www.directmoneyhomeloans.com.au to get access to leading lenders and grab this golden opportunity to obtain best Australia home loans by saving time, effort and money.
Multi-Family Offices Can Go Global (9)
I dont think that any such businesses have been successful, he said. But Mr Scott is confident these offices can continue to expand, although he points out that there remain barriers to entry in setting up such operations.
Summary Of Popular Credit Cards (10)
These days there are many different credit cards available, with something to suit all needs and circumstances, and it is important that you look at the different credit card options in order to find the card that will best meet your needs.
Know About Various Home Loan Products (11)
In Australia they are funded by the NSW government which is administered by the Office of State Revenue and a grant of $7000 dollars is given for first home buyers in purchasing their homes.
Vehicle Leasing To Beat The Credit Crunch (12)
This is, of course, just a brief summary of the possible approaches on financing your car, or even fleet of cars, and each has many more details and plenty of companies willing to offer the best deal and advice on said method.
Minibus Insurance Advice- Information To Collect After An Accident (13)
Be aware of approaching traffic when exiting the minibus. If there are any injuries or the road has been blocked or damaged by the accident, call the emergency services immediately.
Taxi Minibus Insurance Advice (14)
Visit their website at www.minibusclub.co.uk to get a free quote for taxi minibus insurance or call their hotline on 0845 609 0323. See how much you could save on your minibus insurance.
Want To Know More About Home Mortgages In Australia (15)
The mortgage is usually not a loan as such, but a security for a debt to the lender in acquiring of a property. There are a hundred Australian home loan markets for Australians, so you got to find the best home loan for you.
Profiting From Penny Stocks - Computers Might Be The Answer (16)
So could this be the ultimate way to make profits in penny stocks without having to slog for years in the stock market? The Author's website buypennystocksonline.com features articles, tips and advice to help you understand penny stocks.
Property In Italy Is Architectural Eye Candy (17)
The quality of life the Italians enjoy is boosted by a stable economy, another good reason to relocate to this Mediterranean paradise. Staying in an Italian property is a great way to view some of the finest feats of structural engineering over the last two thousand years.
Increasing Your Credit Score (18)
Topics: Credit score, credit report, bad credit, credit repair By increasing your credit score you are effectively committing yourself to your accounts and creditors, you will also be portraying yourself as a diligent individual who takes control and responsibility and therefore someone that these creditors would like to do business with.
You Should Consider No Credit Loans During Emergencies (19)
One of the best ways to find these types of loans that don't require a check in order to get a personal loan or even get a limited credit card is to take some time to search on the internet for the options.
How To Recover From Identity Theft (20)
So that makes you the type of person identity thieves consider a goldmine. So the time to take action is now. Don't become oblivious to what the world is telling you.