Ultra high net worth families of the world unite ...in Dubai

Arguing the case among senior private bankers and their management for the establishment of client focus groups among individuals with net worth in excess of $10m (e7.6m) is still, typically, futile. The common response, given to Scorpio Partnership, is that ultra high net worth individuals (UHNWIs) do not want to come together.

However, UHNWI clients are consumers of financial products and, crucially, they are increasingly uniting independently to review their financial situations. This is happening through the creation of clubs, forums, syndicates and non-profit groups.

The purpose of these gatherings for UHNWIs is to share ideas on investments, risk management, aggregation, philanthropy and broader market issues such as, for example, the merit of constructing independent financial offices for families. To many attendants, it also provides an outlet to compare notes on their private wealth needs as well as their providers. More importantly, it often provides an opportunity to meet like-minded individuals that are also, for instance, captains of industry. In this context, UHNWI communities worldwide are being established with their attendance growing rapidly.

The strategic consequence of not clustering UHNWI clients and respecting their views collectively is that private banks are rapidly outside the club looking in. They are prompting their own disintermediation. Where private bankers were once in poll position as gatekeepers to fortunes, they are now rapidly becoming commoditised product suppliers. One recent example of conventions of UHNWIs is the Wharton Global Family Alliance Conference (WGFA).

The WFGA inaugural annual event in Dubai hosted 300 wealthy families and their advisers. The collective family net worth was comfortably in the billion-dollar zone. The initiative was supported by Istithmar, a Dubai-based investment holding company and corporate advisory business, led by Sultan Ahmed bin Sulayem, a well-placed UHNWI and financier in the region. Intriguingly, Wharton is also rumoured to have been tasked to devise the structure of the family investment office for the Sultan of Brunei.

Meanwhile, in Europe there are at least five groups of UHNW investors known to Scorpio Partnership with membership totals between 20 and 100 with individual’s net wealth exceeding $30m. One group, for instance, has 50 families with well over $100m each in net wealth. These groups have been convened by clients, or in some cases, a specific family office.

Solidarity chapters

Other examples of client clustering at the UHNW level include public groups such as the World Presidents’ Organization (WPO) and the World Entrepreneurs’ Organization (WEO). Both have chapters worldwide, membership numbers in the thousands and, of note, both are highly segmented in their audiences with strict guidelines on entry conditions linked to earnings, age and corporate influence. Better still, they both have feeder groups for younger members – the Young Presidents’ Organization and the Young Entrepreneurs’ Organization. All four have no services around wealth management.

A significant recent trend is that many syndicates and clubs are realising that while they may have established under non-profit auspices focused on peer referencing and knowledge exchange, there are beneficial financial services spin offs to be considered.

Scorpio Partnership is now actively researching this space to identify opportunities. One club has recently proposed the idea of members setting up a private banking facility. Another entrepreneur club has a current focus on structuring corporate assets for future succession issues.

The outcome of this trend towards clients, and potential clients, clustering outside the grasp of wealth management is they are independently forming their opinions of the value-added of private banks. It is also spawning the establishment of a strong independent advisory community to support individuals targeting the private banking industry for product and service.

This is particularly a feature in the US and Europe. Indeed, while private bank management focus almost entirely on the manufacturer-distributor debate to impose a variable cost regime, they would also do well to consider how to re-integrate themselves with the target market.

Moreover, if banks can show themselves to be interested in their client opinions then this could lead to a future deepening of trust and, perhaps, a deepening of wallet share. The recent global UHNW client survey initiative undertaken by Citigroup Private Bank with the assistance of McKinsey may be a small step in the right direction to regain the lost knowledge of the UHNWI characteristics. Little surprise then that initiative was undertaken by a bank that is widely recognised as the market leading consumer bank.

Sebastian Dovey is managing partner at wealth management strategy think-tank Scorpio Partnership