Managers cosy up to private banks

Ask leading fund manufacturers and multi-management houses which type of third-party clients they are trying to reach, and the answers are beginning to converge on one type of institution: private banks.

Customers of retail banks are still not seen as prime candidates for open architecture solutions. But in the fast-changing private client world, wealthy individuals and families are increasingly demanding investment solutions, which choose funds from outside their bank’s manufacturing unit.

US multi-management group SEI has a new campaign to sign up private banking houses across Europe. It works with private client names such as HSBC and Commerzbank. But the latest move aims to provide more sophisticated portfolio allocation tools, with the technological back-up this entails.

Ask around the smaller Swiss private players, and many will admit they want to sell third-party funds, but they don’t really know how to do it.

One chief executive of a medium-sized Geneva-based outfit was slightly bewildered when questioned about the issue by PWM. Like a drunk man who knows he has a house, but can’t find his way home, there was a momentary recognition of the concept of delegation to outside fund managers, but very little knowledge of any specifics.

These problems have been addressed by some of the larger players. Credit Suisse, UBS, Société Générale and BNP Paribas have all set up sophisticated fund selection systems to choose the best of external strategies available. In some instances, these are combined with expert advisory work, where clients are first given a full assessment of needs and risk tolerances.

In other cases, there is a sense of factory-selected funds being imposed on private bankers. Yet there is a case for some standardisation of selection criteria and processes. And a robust selection system can also help private bankers to avoid selling dangerous products during inclement market conditions. Other banks have struggled to set up a selection process and to install expensive technology, which allows client advisers electronic links to points of sale at external fund manufacturers.

That’s why SEI’s arch-rival Frank Russell is also promoting partnerships with private banks, particularly those in a state of flux due to changing corporate ownership, regulations and demographics.

Russell has recently set up bespoke multi-manager solutions for Lloyds TSB and Rothschild. It claims to be able to train bank staff in the concepts of multi-strategy investing. Their belief is that selling funds off the shelf is bad for clients. There is no comeback for customers if the wrong funds are sold, and it is difficult to switch out of the wrong products into the right ones.