Custody lures the wealthy

Global custody is increasingly being presented as a viable alternative to portfolio aggregation, reports Yuri Bender.

Pictet, one of Switzerland’s largest private banks, makes no secret of using its institutional expertise in global custody to attract wealth management clients. Global custody of securities, previously seen as an unglamorous back-room operation, is fast becoming a viable alternative to the higher-profile portfolio aggregation. “Global custody for high net worth clients has a huge synergy with our family office activities,” says Jean-Francois Demole, partner at Pictet & Cie Banquiers in Geneva, which came top of the latest survey of custody service levels by R&M Consultants. “When family groups put their assets under our custody, they begin to open up to us and tell us what their wealth is made up of. We can then give them advice on strategic asset allocation and help them select external managers.” In an industry previously dominated by Swiss pension funds, high net worth assets have grown over the past three years and now account for 50 per cent of Pictet’s $117bn under custody. “Many high net worth clients are probably not aware that they need custody,” says Mr Demole. And even when the concept is explained to them, many prefer to retain their 10 or 15 existing banks rather than take the custody route. But, he adds: “There is a strong cost advantage – more efficient reporting of assets in one book.” He admits to competition from so-called aggregators, but stresses the problematic implications of collecting data from 10 different managers and custodians for one client – “if you miss just one piece of data, such as a code, then you need manual operators”. He claims that each aggregation provider has 25 operators manually typing in figures, but adds: “One day, when portfolio aggregation becomes more state of the art, it will be a more sensible route for clients to take.” Now that US giant State Street, a fellow custodian with family office pretensions, has entered the fray, the likes of Pictet could face serious competition from US brand names. But Mr Demole appears unphased. “They need to understand the needs of high net worth investors,” he says. “Their success will depend on the people they have for these business lines and the speed at which they can develop services for wealthy clients living in an untaxed environment.” US entrants do have one big advantage, in their efficient IT platforms. But Pictet has been in Switzerland since 1805, and it sees the family office as the best of both worlds – bringing institutional knowledge to bear on the high net worth market. “The difference is that we can use the psychology and knowledge we have from the private banking market,” says Mr Demole. The ultra-Swiss firm is certainly doing something right – even the biggest of players name it as a key competitor.