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Balancing act: what makes nine private bank bosses tick

Running a private banking business is certainly a balancing act. Here, nine bosses open up about the challenges and opportunities within the private banking world.

Running a private banking business is certainly a balancing act. From handling regulatory pressures to growing their client base, chief executives have a difficult job to do.

All this while continuously investing in the business and maintaining profitability. We caught up with nine UK private bank bosses to see what is on their minds. It seems that, despite Brexit, all are continuing to expand their UK operations and focusing on organic growth.

We also find out what they believe is the biggest lesson private banks have learned since the financial crisis and how much in assets they would expect a new recruit to bring across with them.

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Running a private banking business is certainly a balancing act. From handling regulatory pressures to growing their client base, chief executives have a difficult job to do.

All this while continuously investing in the business and maintaining profitability. We caught up with nine UK private bank bosses to see what is on their minds. It seems that, despite Brexit, all are continuing to expand their UK operations and focusing on organic growth.

We also find out what they believe is the biggest lesson private banks have learned since the financial crisis and how much in assets they would expect a new recruit to bring across with them.

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Eva Lindholm, CEO, UBS Wealth Management UK

Since she took over as chief executive of UBS Wealth’s UK and Jersey business a year ago, Eva Lindholm has been clear about her ambitions for the business, namely doubling the bank’s market share from 4% to 8%.

‘Expanding our business in the regions outside of London is particularly important to me. Cumulatively, our five offices across Edinburgh, Newcastle, Leeds, Manchester and Birmingham have already doubled assets under management in the past five years,’ she says.

In 2012, UBS made the strategic decision to put wealth management at the heart of its business. Since then it has focused on building up the offering globally, which has included a restructure to create UBS Global Wealth Management.

The growth in the UK will continue to be organic, Lindholm says, as she looks to recruit ‘the right people’ from other industries and diverse backgrounds, rather than focusing on how much in client assets they can bring.

‘Bringing over client assets is a model of the past. My experience is that there is no shortage of qualified people in our industry. My
goal is to increase our interdisciplinary thinking through strategic recruitment.’

UBS has an open architecture platform, therefore clients can access a number of products, according to the bank’s CIO house views. At the time of the firm’s last results, over a third of the bank’s invested asset base globally, which is CHF 2.4 trillion (£1.7 trillion), was invested in contracted mandates. UBS is targeting for this to be more than 40% by the end of 2021.

Lindholm says approximately 15% of comparable non-contracted portfolios have outperformed UBS discretionary solutions since 2013, while 45% underperformed.

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David Durlacher, CEO, Julius Baer International

David Durlacher, CEO of Julius Baer International, admits that the private bank is ‘not unique, with some genius product’, but he believes it is ‘increasingly rare’ in the focus it places on both its clients and employees.

‘We obsess around client service and getting it right and the other obsession is around concentrating on the employee experience,’ he says.

‘We want the best people in the industry working here, but we also want them to enjoy working here.’

The strategy appears to be paying off. The Swiss bank has made waves with its decision to expand into the regions, recruiting heavily to staff new offices in Manchester, Leeds and Edinburgh, while also establishing small teams in Belfast and Newcastle.

‘We are focusing on expansion, but it isn’t just in the regions, we are seeing good opportunities in London and the South East,’ Durlacher stresses.

Such has been the pace of growth at Julius Baer International, the firm has opened more client accounts in 2018 than it has in the last two years combined.

When hiring for the new offices, he had no set target number, saying the focus was on recruiting ‘people with real talent who share our concerns for the client'.

Similarly he does not have a number in mind when considering what percentage of clients might follow an individual private banker over to Julius Baer International.

‘Some people do say the amount of assets they expect to come with the recruit, but I try not to do that. If you have the right people and deliver the environment that clients feel is right for them, you will find that your business will succeed,’ he says.

Julius Baer announced group assets under management rose by 3% to CHF400 billion (£307 billion) in the six months to the end of June.

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Guy Healey, Head of private banking, Brown Shipley

Brown Shipley head of private banking Guy Healey says when the company hires an individual he would expect anything between 20% and 70% of their client book to move
over three years.

‘This is a broad range as in reality the percentage depends entirely on the individual and our objectives,' he says.

‘We typically hire individual talent, not teams, as it is challenging to find consistent excellence across all members of a team. We have a strong culture and way of doing business, so while we are always open to new ideas and suggestions, it is easier to hire individuals rather than whole teams.’

Healey says the business has made good progress over the last five years, with both organic growth and acquisitions contributing. The firm’s organic growth is averaging a steady 5% per year.

‘We have a comprehensive plan in place to expand our wealth management operations. Our view is that clients value an adviser who provides a comprehensive range of services to support the management of their financial affairs. We therefore continually focus on enhancing the way in which we deliver our wealth planning, investment management and lending services to clients.’

Since the financial crisis, Healey says the most important lesson all financial services firms should have learned is ‘the need for a constant focus on good outcomes for their clients’.

Less than 5% of client portfolios are held through Brown Shipley’s in-house fund range. The firm, which is part of the KBL Group, has six offices across the UK with a total of 350 employees. It has close to £8 billion in assets under management and reported a profit before tax of £5 million in 2017, down from £7.5 million in 2016.

According to its results, profitability was impacted by £3.2 million of one-off costs in relation to the acquisition of Insinger de Beaufort’s London office, Mifid II preparations and an IT platform move which is expected to take place in 2019.

 

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Quentin Marshall, Head of private banking, Weatherbys

‘The combination of increased sophistication among clients and greater pressure from regulators has exposed many business models,’ says Quentin Marshall, head of private banking at Weatherbys.

So for private banks, ‘truly aligning yourself with your clients’ interests and delivering value for money are essential’.

Marshall was appointed to his current role in June 2015 and has focused on building organic growth, which is expected to continue apace.

‘We follow a simple, yet powerful, strategy: do the right thing by our clients, don’t be greedy and short-termist and deliver an excellent service. By sticking to this focus, we’re delivering consistent double-digit growth. I see this continuing into the future. We don’t need to change our business model in line with the latest fad, we keep up to date with technology and changing demands, but the core of our proposition remains unaltered: service,’ he explains.

The family-owned bank saw its assets rise 20% to £759 million in 2017, according to the latest available accounts. Over the year, operating income rose by £3.3 million to £26.4 million, while administrative expenses increased by 18% to £19.3 million following investment in staff and technology. 

The business continued its recruitment drive, bringing in Jacqui Low to its advisory board and Aidan Faik from rival C Hoare as a senior banker.

Marshall says when recruiting individuals he would expect no more than 20% of their clients to move over, adding that it will be ‘most likely less’.

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Graeme Hartop, CEO, Hampden & Co

Hampden & Co boss Graeme Hartop is on the lookout for both staff and businesses, with the Edinburgh-based private bank firmly in growth mode.

The UK’s newest private bank, Hampden reported a 138% surge in income to £3.9 million during its second full-year of trading, though losses widened to £6.4 million as it invests in people, systems and operations. Its assets under management stand at around £300 million.

Hartop, who joined two years before the bank opened its doors in 2015, says he will look to grow its headcount in both its Edinburgh base and its office in London’s West End, taking experienced private bankers from larger rivals who feel their relationship with their clients are changing for the worse. Currently it has 95 employees.

He adds that some new staff will end up taking clients with them from their previous employers, but it is not a mandatory requirement in the recruitment process.

Hartop says: ‘There are quite a lot of competitors that are reducing their relationship focus, and so we think there’s a lot of opportunity there.

‘We’ve got a new and fresh proposition, with no issue of a large parent company dictating strategy, so we think that’s attractive for [staff and clients].’

While organic growth is Hampden’s main focus, Hartop is ‘very conscious that opportunities could arise’ and so keeps ‘a watching brief’ for potential acquisitions – though none are currently in the pipeline.

Elsewhere, the bank is also looking to up the quality and quantity of people needed to deal with the increasing regulation, which Hartop describes as a ‘continuing challenge’.

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Christian Berchem, CEO, Credit Suisse UK

Christian Berchem took up the role of CEO at Credit Suisse UK in June 2017 after spending five years with Barclays Wealth as the head of its private bank in London.

Having had stints at other high profile institutions, including JPMorgan, Merrill Lynch and Morgan Stanley, in a number of roles in both investment banking and global markets, Berchem has seen a lot.

He says the core lesson for private banks since the financial crisis has been ‘to always focus on the needs of clients’.

Berchem adds: ‘We need to have the full understanding of the demands and requirements that individual clients have, with advice-led propositions to provide holistic wealth management rather than being transaction-based.’

He says he is looking to grow the UK business by gaining market share in both high net worth and ultra-high net worth segments.

‘Our focus has been to improve our client offering while de-risking the business. We have also made significant hires of relationship managers and investment consultants. These efforts ultimately position us to accelerate our growth momentum,’ he explains.

He says the bank has been focusing on organic growth in recent years by expanding the team and running a number of business development initiatives to attract more clients.

The minimum account size for clients at Credit Suisse UK is £3 million, with regular reviews being conducted to make sure the relationship manager assigned to a client is appropriate.

When recruiting, Berchem says he looks at an individual’s ‘multi-year business plans to grow their book and how they plan to optimise our product capabilities’.

Credit Suisse published its third quarter results last week and the private client division reported a 16% increase in pre-tax income, driven in part by higher relationship manager productivity. Pre-tax income in private banking rose 13% over the period to CHF 1.1 billion (£770 million). Net new assets totalled CHF 3 billion over the three months, reaching CHF 13.7 billion in nine months.

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Tracey Davidson, CEO, Handelsbanken Wealth Management

At Handelsbanken, the team found a way to turn the challenges of new regulation into an opportunity.

Tracey Davidson, CEO of Handelsbanken Wealth Management, says that in preparation for Mifid II, the bank decided to combine the enhanced reporting requirements with a new digital reporting platform. 

‘Our new dynamic reporting tool sets us above the industry standard for reporting and is market leading in its functionality. It delivers real benefits to our clients and the professional intermediaries who have provided our solutions to their clients,’ she explains.

Handelsbanken has over 200 branches across the UK and offers wealth management services as well throughout the network. Davidson believes face to face relationships are still very important and sees a ‘lot of scope for expansion through the branch network supported with online and digital services’. 

She expects the distribution of the bank’s fund range to grow over the coming years as well. Future expansion may include the development of digital solutions or establishing new products and services to meet client needs.

Pointing out that the industry has gone through many changes since 2008, she says Handelsbanken’s business actually grew during the last financial crisis.

With a focus on becoming the ‘trusted adviser of choice for clients’, Davidson says ‘customers need to be able to depend on their bank and I think at that time people were attracted to our more prudent and consistent approach. It offered them a greater degree of stability’.

Since Handelsbanken acquired Heartwood in 2013, the firm’s growth has been organic and Davidson expects to continue to grow the business customer by customer.

‘Having satisfied customers is an absolute priority at Handelsbanken and is core to our approach. We have had the most satisfied and loyal customers of all British high street banks for the 10th year in a row, according to EPSI Rating. This reputation is key to our offering – and to our growth.’

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Michael Morley, CEO, Deutsche Bank WM UK

Deutsche Bank Wealth Management UK chief executive Michael Morley admits Brexit could damage the UK's status as a leading global wealth centre, but flags his company’s commitment to London, with its global wealth business being headquartered in the capital.

‘It depends on the type of Brexit we eventually agree on and there are obviously a range of different options. A disruptive and uncoordinated Brexit will probably do nothing to enhance the capacity of London as the convening centre for international private client capital,’ he says.

Morley believes that the UK has been at the forefront of regulatory change and the professionalisation of the industry and regardless of which way Brexit goes, London must strive to maintain that reputation as an international private client hub.

He highlights the wave of new rules that have come in to clean up banking, in the aftermath of the financial crisis, with the UK introducing additional measures, such as the retail distribution review, as well as adopting EU standards like Mifid II and GDPR.

He says: ‘They are all designed to ensure we do a good job in looking after our clients properly, that we give them good advice, that we stand by that advice and that we protect their confidentiality and data.

‘It’s that end objective of ensuring London and the UK sets the standard for what good should look like for advising private clients, both resident or non-domiciled, and I think broadly that is what we do.’

Brexit aside, Morley has ambitious plans for Deutsche, which he says is still a relative minnow compared to its peers.

He is currently looking to expand its private banking team, having put in place a new management team since he joined as CEO last July, and plugged in a new back office, which he says now gives the bank a platform for growth. The initial focus will be on London, with no immediate plans to open regional offices.

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Paul Kearney, Head of private banking, Kleinwort Hambros

Having £16 billion in assets under management would put any company in the ‘large firm’ bucket, but Paul Kearney, head of private banking at Kleinwort Hambros still has ambitious plans for further growth.

Over the next few years, he says the private bank’s goal is to become one of the leading UK players, in terms of assets under management, geographical reach and client base.

This may mean expanding into the North West and South West, where the bank currently does not have a physical presence, as well as building up existing offices.

However, he says: ‘Any expansion needs to be achieved while delivering consistency of service and maintaining our high levels of client satisfaction.’

He adds that the team also wants to offer its services to a wider range of clients.

They currently comprise a range of entrepreneurs, senior executives and multi-generational families. The bank is currently reviewing its minimum client size to make sure clients have access to the right services and the appropriate private banker.

Following the merger of Kleinwort Benson and SGPB Hambros in 2016, Kearney became responsible for defining the strategic direction of the private banking business across the UK, Channel Islands and Gibraltar.

‘In the face of the rising cost of doing business, primarily driven by increasing regulatory demands, we believe that if you want to offer a full range of private banking services to clients, you need sufficient scale,’ he says.

‘For Kleinwort Hambros, the merger created the perfect opportunity for us to have a greater presence in the private banking sector.’

Aside from increasing the bank’s regional footprint, Kearney adds that recruitment is also a focus.

‘In a relationship-driven business, it is vital that we continue to stick to our core strengths.  As such, our approach is a hybrid blend of physical and digital – we call it “phygital”.’

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