Does size matter for private banks?

Benefits of boutiques

Tindaro Siragusano

Head of private banking and asset management, Berenberg Bank

There are a number of factors that differentiate the private banking activities of a well-run institution. Experience shows that owner-managed private banks with a long-term perspective are better placed to manage wealth than larger houses which are shareholder-led and require management to focus more on short-term, quarterly results.

Today’s private banker still acts primarily as an adviser and service provider. In order to preserve long-term client relationships, it is vital to build upon trust, credibility and ensure transparency as the essential foundations. At boutiques and smaller banks led by personally liable partners, the concepts of trust and responsibility are well engrained, offering a clear alignment with clients’ interests. Heritage can also bring a sense of perspective and duty of care to clients. Trust is earned over time, which is why, at Berenberg, we commit to long-term, sustainable strategies rather than short-term gains.

At truely ‘private’ banks, partners’ personal assets are pledged to cover their liability, which helps to concentrate minds on risk. This creates a greater sense of trust with clients and a more closely maintained relationship than is the case with major banks, which are rarely in a position to offer clients such a degree of closeness and confidence.

One way trust is maintained is by providing transparency through communicating with clients and by making clear how one manages clients’ assets and the services and investments on offer. Those institutions that manage this will be better positioned to meet the individual needs of a client than the larger banking houses. Both entrepreneurs and wealthy private investors are increasingly demanding independent advice and bespoke services. Reporting must be concise, clear and comprehensive, providing both performance and risk measures as well as a clear breakdown of fees.

Advisers must remain close to their clients, actively offering advice and maintaining regular contact, especially during challenging market periods. Clients expect comprehensive and bespoke advice from their wealth managers. There should be a responsibility to choose the right investment for clients, suited to their specific requirements, and also the aim to source the best available investments in the market.

Today, it is more important than ever to focus on the quality of the service provided and aim to provide a level of quality unrivalled by other institutions. A private banker not only provides advice on investments and other financial matters, but also assists in providing introductions and creating networks and connections between investors, entrepreneurs, specialists and advisors.

Private bankers are well-placed to assist entrepreneurs who face the challenge of managing multiple responsibilities, as they are able to assist with both the owner’s personal wealth issues and those of the business, taking account of funding requirements and any operational risk of the business. Those who will be the most successful will have created a service offering to work with clients alongside their core wealth management and solve these difficulties facing entrepreneurs.

Be it succession planning, family cash management, real estate consulting, partner financing or co-investments, pooling an organisation’s resources and working with specialist third parties according to a client’s individual needs is an important element.

Smaller organisations like ours need to remain true to the principle of only deploying their resources where they firmly believe they are among the best and can offer clients genuine added value. As a private bank, we do not have to offer everything – instead, we should focus on being especially good in particular areas.

Blake Shorthouse, Credit Suisse

Bigger is better

Blake Shorthouse

Head, ultra high net worth, Europe Middle East Africa, Credit Suisse

Around the world, the wealthiest entrepreneurs, families and family offices turn to large, global private banks for their complex financial needs.

Large private banks offer clients long-term partnerships backed by strong institutions, expertise across all investment disciplines, and the global reach necessary for clients to pursue their international business objectives. In addition, large private banks have the financial stability and balance sheet strength that investors require from a counterparty.

Clients value the relationships and trust they establish with their bankers – this is a differentiating factor when clients consider who to bank with. They want an experienced and proactive adviser who listens and understands them, and provides them with real advice.

But beyond that, clients also want a strong institution behind their banker and coverage team – an institution that values a relationship focus and can provide them with multiple touch points across geography and divisions in the bank. Ideally the bank also connects the client to like-minded peers with whom they can network.

Many of the largest clients are entrepreneurs, founders and owners of successful businesses. What they want from a bank is advice and a multi-disciplinary approach that spans the spectrum of their financial needs – from private to corporate and from asset to liability.

Successful execution against these client needs requires a leading global investment banking franchise and a first class asset management capability. And these capabilities are best delivered through a stable, long-term relationship within the private bank. The combined expertise of private banking, investment banking and asset management is not easily replicated by smaller firms.

Clients having global business interests and a global investment perspective typically want to partner with a firm that has global reach, not a parochial focus on one country or region. While a presence in all major markets, onshore and cross-border is important, it is equally important that a firm connects well internally across these geographies and divisions.

As an example, Credit Suisse has an Emerging Markets Council that it set up in 2009. It is made up of senior professionals across the bank who collaborate to connect clients, better connect people within the bank, execute global goals in local markets and expand client businesses.

In the current market environment, clients have placed understanding counterparty risk at the centre of their requirements when choosing a bank. Clients now look at the track record of financial stability and current balance sheet strength of their banks as never before.

Firms which have proved robust and prudent through the crisis – as well as having strong capital ratios relative to the industry – are often those which clients have continued to increase assets with. But net new asset growth must also be coupled with a continued ability to lend, where appropriate, to clients.

To summarise, sophisticated global investors with complex requirements look to large banks for long-term partnerships backed by expert teams and a strong institution. They value the integrated bank model that can deliver across private banking, investment banking and asset management.