Recruiting in hard times

Many relatively healthy wealth management businesses, fenced into a restrictive ‘one-bank’ structure with their underperforming investment banking colleagues, have been contaminated by the damaged reputation of their parent institutions, amidst the widespread mispricing of risk at the heart of the credit crisis.

So what has been the impact on recruitment for the huge private banking sales forces, which play such a pivotal role in the growth of the business? Have smaller, independent but seemingly safer, boutiques become more appealing to client advisers? How are large integrated banks fighting back in the war for talent?

“This is a better time for some of the smaller players to attract people, who might otherwise be in bigger organisations,” notes Michael Maslinski, a consultant in the private banking and wealth management sector.

Investment banks have mismanaged their own money so badly and conspicuously that, especially in large integrated firms, this has heavily affected perceptions of private banking divisions, although these tend to isolate themselves as much as they can.

Major global banks can go bust. Clients’ confidence has been undermined; this together with cost cutting and a “scary environment” in many of the big banks, has shifted the balance in favour of small organisations, says Mr Maslinski.

Radan Statkow, head of business development at family owned Bordier & Cie, a Geneva-headquartered private bank, confirms that since the start of the financial crisis in summer 2007, the pool from which they source relationship managers has definitely grown. “We see a flow of people coming from the larger institutions, this is for sure,” he says.

The Swiss private bank manages around SFr10bn (E6.2bn) and employs 40 advisers. “With a kind of opportunistic approach, the game for us is to try and pick good candidates amongst all the ones available on the market,” says Mr Statkow, explaining that hires from large institutions were recently made in Switzerland and Paris.

Growing the client base

“But what we must examine carefully in a new candidate is his ability to set up his own business,” says Mr Statkow.

It is important to differentiate between those advisers who, in large institutions, just inherited a portfolio of clients, perhaps from another manager leaving, and were in charge of retaining and serving them on a daily basis, and those who were able to set up their own book of business. A proactive and independent person will flourish in a small firm, which is a “more human” type of organisation. The adviser does not have to bear, for example, the pressure to reach a fixed daily or weekly target, which is often found in large organisations, he says. “In small banks you do not have a lot of politics; it is really about just focussing on your clients and growing the client base.”

The turmoil in the financial industry has increased the supply of people wishing to embrace the career of financial adviser, as private banking is widely considered as one of the areas with significant long term potential. While the collapse or shrinkage of the so-called ‘bulge-bracket’ banks has fed the market with an unprecedented number of investment bankers, they have not necessarily proved the most attractive candidates for private banks interested in managing long-term money rather than pursuing a transactional culture.

“We have no interest in hiring investment bankers because they do not have a network of contacts, although perhaps they have relations with institutions,” explains Mr Statkow. “For us the appeal of that kind of profile is quite low.”

While private bankers from rival institutions may be one of the best sources for client advisers, according to Reinhard Krafft, head of private wealth management at Sal. Oppenheim, the Luxembourg-headquartered private bank which manages E150bn of assets, investment bankers, lawyers, tax experts and other specialists are also in demand. Asset management firms are also a potential hunting-ground for recruiters.

“Investment bankers know how to pitch a deal, they know how to make things happen,” says Dr Krafft. “I would not hire a pure securities trader, because he does not have that long term view, but a M&A or a corporate person does and they fit our organisation well,” he says.

Sal. Oppenheim’s client base comprises mainly entrepreneurs and SMEs (small and medium companies), explains Dr Krafft. A sharp focus on the entrepreneurial side of the client is therefore requested. “When the client shows the adviser his factory, his balance sheet, the private banker immediately needs to get a feel for the business, so that he can discuss on an equal peer level with his client. That requires more corporate banking, corporate finance and M&A background than a standard private banker might have.”

“We strive to have our private banker recognised in the city as an expert in his field and become a magnet for entrepreneurs and wealthy families in the wealth-planning field. This only happens when he is competent, visible, present in the circle of decision makers in a city and personally liked,” he says. “These are personal traits that not everybody has.”

Resources essential

Private bankers leave large organisations to join smaller organisations where they can stand out and can specialise, says Dr Krafft. But at the same time private bankers believe that in order to attract the client they like, they need to have a good product range and large enough resources available to do those big transactions. “You need a certain size to attract those private bankers, otherwise you will get nowhere,” he says.

In a move which aims to serve these larger entrepreneurial clients, Sal. Oppenheim last year decided to merge its investment banking and private banking operations in a new division of asset management, with an institutional type of approach. “Of our private banking clients, 80 per cent are semi-institutional or institutional type, so the rationale for the merger was to service these clients out of one hand in a very professional manner,” he says.

Having a completely open, not just guided, open architecture platform, enables advisers to serve clients well, Dr Krafft explains. “In the portfolios we build for our clients, less than 20 per cent of products are our own products.” That is the advantage of having a family as an owner who does not expect you to deliver an increase in sales of 5 per cent every quarter, regardless of market conditions, he says.

“This kind of unrealistic objective exerts a pressure on the quality of advice,” says Dr Krafft, “and this is something that good relationship managers, who want to build a long-term relationship, cannot stand.”

Big firms can still be attractive

That people move towards smaller firms, or set up their own boutiques or hedge funds, looking to have some self determination and some direct impact on the business, is not a new phenomenon, says Rhian-Anwen Hamill, co-founder of London-based executive search firm RAH Partners. Although this has certainly been exacerbated by the credit crunch, there is still plenty of room for the larger firms, says Ms Hamill.

“Some of the large firms are still doing very well and many of the best private bankers want to be at large firms, because they get access to services across the board, to a greater product range and investment banking services.”

Particularly in the last year, private wealth management has also emerged as a popular destination for employees who are coming out of the other parts of financial services, which have been shedding staff, she says.

“It is true that you get a lot more unsolicited approaches from people, from corporate finance and other parts of the investment banking capital markets. Very often they have applicable skills, but often they do not,” says Ms Hamill. In addition to passionate knowledge about markets, which is a great building block, potential private bankers need to have that ability to gain people’s trust and deal with them in a sort of responsible, fiduciary way and talk to them about their needs.”

Also, she says, people who want to make that transition often want to join the new firm at the level in which they left their previous role. “No matter how excellent you will be eventually, there is always a sense of beginning again.” So in the final analysis they are not prepared to make the shift themselves, because they see how their financial situation will change in the short-term, she says.

“However, I see increasingly banks very prepared to consider those kinds of lateral hires, because they know it is not a buyer’s market,” adds Ms Hamill.

War for talent

Moreover, the number of banks that are jumping on the wealth management bandwagon is continuously growing.

So the demand for good people, who are already in short supply, is getting tighter. At Credit Suisse, the war for talent in wealth management was officially reignited by the ambitions recruiting plans of Mr Walter Berchtold, global chief executive officer, private banking, who, at the beginning of the year, declared that by the end of 2010 the bank would hire 1000 new relationship managers globally.

To achieve that, dedicated business support functions, working alongside human resources, were recently set up. Stephanie Ashmore, vice president strategic recruitment at Credit Suisse in the UK, runs a headhunting team sitting in-house, which also work with external head-hunters.

“Strategic recruitment spends time analysing the market place, looking at our competitors and working out where quality talent sits,” she says.

Ironically, the ability to keep the amount of assets written down to a lower level, relatively to other competitors, has drawn the interest of potential candidates. Credit Suisse registered net write-downs in leveraged finance and structured products for a total of SFr5.3bn in the first six months of the year.

Unlike some larger competitors which share the ‘one bank’ model, more than 50 per cent of group revenues come from private banking and candidates have confidence in Credit Suisse retaining and developing its private banking arm, says Ms Ashmore.

“There is an increased interest in what Credit Suisse is trying to achieve. People from other organisations will entertain conversations with us, where perhaps in the past they wouldn’t have,” she says.

“We spend a lot of time ensuring the economics of the business plan for each hire are right. Experienced advisers tend to break even after around 12 to 18 months.”

The assets they can potentially bring from the previous company are important, she says. “New hires need to leverage previous relationships in order to kick start their business on the new platform.”

Ubs still attracting good advisers despite recent woes

UBS, which integrates in a one bank concept its three divisions of private banking, asset management and investment banking, is among one of the worst-hit by the subprime crisis, having written down some $43bn (E30bnbn) of its sub-prime related assets since the beginning of the turmoil, with 2600 staff having left its investment bank so far.

The global wealth management and business banking division has registered net outflows of SFr19.3bn in the first six months of the year and numerous defections of client advisers leaving the private bank or setting up their own independent businesses.

Raoul Weil, member of the group executive board, chairman and chief executive officer of UBS global wealth management and business banking remains confident that this situation is not having an impact on the ability of the firm to attract good advisers.

“This [crisis] has not substantially affected our capability to attract people that have their heart set on private wealth management. We had a couple of difficult months, but in the overall scheme of things, I think we will recover relatively quickly.”

Mr Weil explains that the expansion of the private bank on the adviser side is impressive, having doubled its sales force to 6000 agents, globally outside the US, in the past 3 years. “We lost some people recently,” admits Mr Weil, “but we also hired new ones and on average, the quality of those that are leaving is not as good as the quality of those who stay,” he says.

“That has to do with the meritocratic way we actually measure and pay our client advisers. The best ones get the best career opportunities,” he says and only the top talent would therefore be led to stay. “[This situation] has actually proved that our meritocratic system works,” he says, admitting that of course that there were people that he would have preferred not to lose.

For the future, says Mr Weil, “we are taking now a much more diligent and systematic approach. The whole selection and retention process is becoming a little more scientific than it was in the past. We have kind of raised the bar in respect to the quality of hires we do.”

The growth in the sales force be more modest than in a more favourable environment, with UBS having added new advisers at the rate of 15-20 per cent per year in the recent past. “But whenever I can get an excellent client adviser there are no restrictions in hiring,” he says.

“A good adviser is one that can build long term relationships with his clients, who shares our culture and values, which are client centric values and approach.”

Recruitment is done mainly from within the industry, but also from the corporate and investment banking side. “We have to test them whether they are suitable for the wealth management roles and then you have to train them.”

“We are getting a lot of referrals for client advisers from our own staff, who have friends and colleagues in the industry. A large chunk of the new recruits are actually recommendations from our own staff,” he says. “Secondly we have a very professional recruiting area, which is sourcing a lot of candidates. And we also use head-hunters around the globe, who are local.”

But did recent gloomy events affect the interest of advisers in joining the firm? “The core business of UBS is wealth management,” says Mr Weil. Around 70 per cent of group assets are in fact in wealth management (SFr2,000bn), while the institutional asset management arm manages roughly SFr700bn. The outflows in private banking represent less than one per cent of total assets managed by the bank and, if compared to the market or foreign exchange fluctuations, assumes a different perspective, says Mr Weil.

“People like to work in a place where their role and job is part of the core business, this is an important attraction,” he says. When they work with the top end of the market, advisers like to have preferred access into corporate finance and institutional asset management arm. “I think this is very attractive for a client adviser because you basically get the best of both worlds,” Mr Weil says.

On the threat of the investment bank’s mismanagement negatively affecting private banking, Mr Weil says that “UBS investment bank is one of the many providers that we use and they are all pre-screened by our own product specialists. We are not a distribution arm for proprietary products only,” he says. The private banking clients’ money has always been run in an open architecture fashion and in addition to their proprietary products they also use products from 200 other global providers.

UBS recently announced plans to give its three divisions greater autonomy. “The businesses will have to compete on a standalone basis in their peer groups. It certainly provides a small entrepreneurial flexibility. I think this is going to be a positive aspect. It also allows us to pay our people more along the lines of what they are really producing within their divisions. There is more accountability but there is also a direct link to the divisional results than before,” he says.

Reinhard Krafft