Adapting to clients’ hands-on approach

Wealth managers are reporting a more intensive involvement in investments by the rich families who pay for their services. A post-crisis suspicion of highly engineered financial products and subsequent move to real assets and investment in businesses, though not necessarily through private equity, has encouraged families to move closer to the core of their investments. “If we look at Madoff, private clients were never sure where their money actually was and who was overseeing it,” comments Aïda Molineux, CEO of the Emea wealth management business at Northern Trust. “People don’t want to give up that control.” She reports European-based families dispatching members to China to do their own due diligence on the companies, real estate or regional funds they want to invest in. A large number of family offices, expected to eventually offer a multi-family capacity, are also setting up in the Middle East. They are increasingly taking on investment decisions and asset allocation responsibilities, leaving the more mundane duties of supervising trades and overseeing custody arrangements to the private banks. This is part of a general movement away from discretionary to advisory models of service offered by private banks. Often facilitated by forums hosted by the banks themselves, these wealthy families are increasingly talking to each other and swapping ideas. The way in which one family interacts with private bankers is soon copied by another. When Vestra Wealth, set up by ex-UBS advisers, recently held a client party in London, lords, business leaders, restauranteurs and other members of high society compared notes about their experiences with various wealth managers. None of their accounts were too complimentary. Winning back fees Private banks, already shaken by the demise of banking secrecy and costs of moving to intensive onshore service models, understand they need to get back some of this trust and gradually switch investors back to a discretionary, or hybrid model, if they are to win back fees. The likes of Northern Trust, who concentrate on advising the wealthiest families can continue to prosper on a custody-led model. Their fees might be lower, but they deliver a cut of a larger asset pool. Also the operational model is leveraged from an institutional client-base, so the system is an efficient one. Other, more diverse institutions including UniCredit, Kleinwort Benson and Vontobel are already tackling this problem internally. They know that eventually, they need to tempt clients back away from money market funds into what they call “sustainable” strategies. How private banks respond to this crisis of confidence and the move to asset allocation-based offerings, centred on cheap and easy to buy exchange traded funds, is expected to determine the industry’s long-term future.