Dresdner plan to isolate PWM and retail unit

Things were much simpler 20 years ago, when Anton Simonet first joined Dresdner Bank. But the lack of derivatives, third party funds and scale in the private banking business meant his options in servicing clients were severely limited. Today, as global head of private wealth management at the Frankfurt-headquartered institution, he is happy to take frequent advantage of the investment banking and fund management expertise – plus international reach – offered from within the Allianz group. It is the derivative-based strategies which are particularly attractive to Mr Simonet, who is responsible for 2000 staff, managing E78bn for Dresdner’s private client business. “The bigger the private client and the more sophisticated he is, the more he becomes like an institutional or corporate client,” reflects Mr Simonet. “The best example of a big client would be a family office. Sometimes, in the past, they may have gone directly to an investment bank.” But with the right capital market products now available to his wealth management group, Mr Simonet feels he can tempt clients starting with $1m or E750,000 to invest, and rising right up to semi-institutional level. These products include tailor-made certificates and risk management tools, backed by quantitative research on asset allocation. “In certain situations in capital markets, people like to have more capital guaranteed products,” says Mr Simonet. “Emerging markets are a good example of this, and as an industry we need to offer them access right now.” Private split Soon after PWM’s interview with Mr Simonet, Dresdner Bank confirmed that together with its owner, Allianz, it was working on internal proposals to re-shape its business. The bank is likely to split into two divisions, one looking after private wealth management and retail clients, with the investment bank, Dresdner Kleinwort, out on its own. The investment bank has been a source of disappointment to Allianz, and the insurer has reportedly looked at separating it off, with a possible view to a sale or tie-up with an external partner, several times since purchasing the bank in 2001. In fact spectacular profits at the Private & Corporate Clients division are being impacted by losses in investment banking. “It will be happening, of course, but the legal structure, who will do what and how the hierarchy is organised is not yet decided,” said a spokesman for Dresdner in Frankfurt. A steering committee to examine the possibilities of a new group structure was set up on the day before the Easter break. Mr Simonet would not comment on the proposed changes. But how a wealth management group, depending on capital markets products can cope when access to them is restricted, remains to be seen. Dresdner admitted that the future possibility of having investment banking totally separate from wealth management would “make it a little more complicated” to create structured products for private clients than the current situation, where they are “under the same roof.” Future options might include giving increased power to the product selectors, so that external products are preferred, or setting up a unit within wealth management to create structured products. “They may need to get more done by themselves than before,” said the spokesman. Rich Germans are clearly investing in much more than just stocks, bonds and cash. Dresdner’s default allocation slates around 10 per cent in alternatives for its typical private client – much less than competing Swiss banks. This allocation looks even smaller when remembering that it encompasses not just hedge funds, but private equity, property and commodities. Crucially, all of the investment must be in securitised instruments. As well as an aversion to illiquidity, Mr Simonet has witnessed a reaction among Dresdner private clients to excessively complicated instruments. “It is difficult to sell volatility products to most clients. I have discussed this, and they find them difficult to understand,” he says. Dresdner launched its ‘Diva’ range in the UK, but has found it difficult to sell there, and almost impossible in Continental Europe. Clients are far more interested in more familiar, tangible concepts. “You can discuss private equity with most clients, as most own their own company and started it with venture capital backing. Most own property and want to invest in commercial property. They see these things and they understand them.” Open platform An open platform policy to source the best, structured solutions in the market is operated from Dresdner’s Zürich desk, which contacts all the investment banks to source both retail and tailor-made derivatives-based products. “We have close contact with our investment bank, Dresdner Kleinwort, but no exclusivity, so the range of products we have to offer is quite big,” reveals Mr Simonet. “Banks like ABN Amro are quite aggressive and have launched very interesting products with them.” There has also been co-operation with the “big French names”, plus UBS and Lehman. “In the research phase, we try to discuss ideas first with our own investment bank. The time to copy is quite short, shorter than in the past. Products can now be copied in days. When I started at the German stock exchange 23 years ago, there were no derivatives. But today, E2m or E3m in a tailored structured product for one client is quite possible.” While mutual funds are also frequently used, Mr Simonet’s enthusiasm for them is not as strong as his admiration for capital market products. “If you want to play quick trends on the topic, structured products are really the only solution,” he believes, adding that a basket of precious metals, such as gold, silver and platinum, backed by a capital guarantee, can be set up “immediately” for a private client. As for funds, it is always the Allianz group products which are presented to clients in the first instance. But there are also a number of preferred partners, whose funds can be offered, including Fidelity, Morgan Stanley, Schroders, DWS and UBS. “We discuss trends, such as global warming, for instance, with Allianz Global Investors, and then we create a product together. It’s always much easier to do this with an in-house company,” says Mr Simonet. Dresdner is always more likely to turn to big name groups, with broader product ranges, for client needs, rather than boutique fund houses which often run smaller funds. “You see some smaller ones, if they have good expertise,” he says. “But normally you have the big names. We do not invest in very small mutual funds. If we go into a $20m fund as big players from private wealth management, it can be difficult to divest.” As well as providing a huge source of internally-produced investment products to tap, the Allianz group has introduced other innovations, particularly a rigorous training programme. After staff have been recruited – and Mr Simonet admits it is currently impossible to train enough private bankers to keep up with eight per cent annual market growth – they can be certified in affluent private banking and then wealth management. After the merger with Allianz in 2001, English was controversially introduced as the group’s official language, signalling a huge corporate culture change to the German company. Staff are also exposed to huge international influences, and are able to swap information with Allianz counterparts in countries including India and Japan. With increased group expertise, Dresdner feels able to give more holistic advice to clients about their assets, including non-banking assets such as property, plus advice on credit, including property financing, which can “enhance share of wallet,” according to Mr Simonet. “It was all a lot easier 20 years ago,” he remembers, gazing wistfully out of his 32nd floor window at a City vastly changed since his much younger days. “But it’s still a lot of fun today.”

Simonet: working in a conservative environment