Private banks bid to win over the wealth creators

Entrepreneurs’ needs in the digital age are changing and evolving fast. If they are to remain relevant, traditional wealth managers must adapt their approach and skillset to serve this key constituency and gain market share, or face extinction.

The secret is to be able to strike a fine balance between human interaction and technology, between empathy for clients’ often complex requirements and specific industry expertise, providing customised advisory solutions which leverage on innovative digital platforms and mobile apps. Digital tools enable advisers to deepen their relationship with clients, and meet the demands of increasingly tech-savvy individuals, particularly among entrepreneurs. 

Banks such as Northern Trust in the US are leading the way in this transformation. They have moved away from simply offering products to entrepreneurs, long a bugbear for business start-ups looking for a true understanding of their business by wealth managers.

What is common to ‘serial entrepreneurs’ is their desire for flexibility, innovation and information, says Henry Johnson, president of Northern Trust Wealth Management, east region, based in New York. “Packaged solutions simply do not work for entrepreneurs, what they are really interested in is customised advice,” he says.

Rather than beginning with offering a product, a perspective on markets or tax changes, wealth managers must listen to what clients are trying to accomplish, explains Mr Johnson. 

Over the past 10 years, Northern Trust has developed a methodology called Goals Driven Wealth Management, which provides a framework to approach clients in a consistent way. 

Through this platform, also available on advisers’ iPads, it is possible to build out each family member’s entire balance sheet of assets and goals and measure performance based not only on investment returns, but on the client’s progress towards achieving their goals, be they related to their children, estate planning or philanthropy. 

“In many cases, this approach helps them articulate those goals,” says Steve Bell, president, west region at Northern Trust, based in San Francisco. 

“What is key is the conversation we have with the entrepreneur. If we ask the right questions, listen well and uncover their stories, we really help them write their future chapters, yet still give them the ability to do what their passion is, which is to be a serial entrepreneur.”

In many cases, entrepreneurs do not retire, as they need to continue to have intellectual stimulation in what they love: ideas, innovation and new investments, explains Mr Bell. 

It is therefore vital to hire capable professionals – including investment specialists, people with fiduciary trust and estate planning backgrounds, as well as income tax and estate tax planning experts.  “You take your expertise as a team not as an individual, and as a team you start to craft the ideas and solutions for the entrepreneurs.”

At the US bank, the wealth management business is built around clients’ levels of complexity, rather than any industry or market place. 

“You can have a serial entrepreneur operating in the technology sector, with an extraordinary complexity, and another one in the same sector whose structure and wealth is very simple,” says Mr Johnson.

Familiar territory

Multi-millionaire entrepreneurs generally feel compelled to continue to achieve success in these sectors in which they have previously specialised.

The top three industries for wealth creation are information technology, online/mobile/digital and manufacturing. Almost 20 per cent of ‘elite entrepreneurs’ – who hold a net worth of around $15m and have created 3.5 companies on average – are looking to start a future business in the IT or online/mobile/digital  space, according to a recent study from BNP Paribas Wealth Management and Scorpio Partnership.

As entrepreneurs often do not distinguish between their personal and business wealth, offering a multitude of services that cover all their needs is the aim of many global private banks.

“Our mission is to be ‘one bank’, a one-stop shop for entrepreneurs to build a bridge between their professional and personal projects and ambitions,” states Vincent Lecomte, co-CEO at BNP Paribas Wealth Management. 

In order to implement and enhance this integrated model, which has become its mantra, BNP Paribas focuses its efforts on training advisers and making them aware of the capabilities of the group, including the corporate bank, investment bank and real estate group. 

The French bank has traditionally supported a large number of client events, believing in the value of sharing and networking opportunities. Working in conjunction with Stanford University, last year, for example, it launched a programme of training and mentoring for women, aimed at promoting entrepreneurship. 

But it is in the digital space the institution has made most progress. The launch of a new initiative late last year, co-created with clients and fintechs in ‘factories’ or incubators in Europe and Asia, aims at designing an improved client experience “fit for a world where digital interactions have come to enhance human ones”. 

New services include myAdvisory, boosting clients’ investments management and providing personalised financial advice directly via a smartphone, and myBioPass, which enables clients to easily access online banking services via biometrics. 

Particularly relevant for entrepreneurs is the new Leaders’ Connection app, bringing into the digital space the Leaders’ Club event, which the bank launched a few years ago, to meet ultra-high clients’ demands to connect and share investment ideas. Available on smartphone and tablet, the new app creates a virtual community of ultra-rich individuals, facilitating co-investments, while providing the opportunity to share views on “exclusive” private investment opportunities. 

The app was launched on the back of the success of the NextGen Club app, dedicated to millennial entrepreneurs. 

“The goal is to use digital tools as enablers to further engage and deepen the relationship with clients throughout the cycle, from onboarding, profiling, investing, reporting and receiving feedback from them,” says Mr Lecomte. 

These initiatives follow the launch of the OpenUp app, which aims to foster business cooperation between BNP Paribas and start-ups worldwide, addressing specific business challenges.

Offering entrepreneurs innovative solutions to help them run their business is also the focus of ING Private Banking in Belgium.

“We strive to find ways of adding value to our client entrepreneurs, which goes beyond banking, and makes their lives easier,” says Thierry Van Alphen, head of private banking in Belgium. 

He stresses the importance of becoming trusted partners of entrepreneurs. “It is not so much the fiscal, legal and organisation framework, but helping them find their emotional balance which is very often the most difficult part,” particularly in the delicate phase of succession planning, he says. 

Last year the bank made the ING Invoice Solutions software available to SME clients, enabling them to control their invoices, while giving them access to factoring too. 

Generally only available for large companies, this e-invoice solution helps entrepreneurs, in particular start-ups, to complete their entire processing online and to access liquidity immediately. 

Thanks to Payconiq, an app released two years ago, mobile payments have increased significantly in Belgium, as the programme enables peer-to-peer payments which benefit business owners and SMEs, according to ING. Now other large Belgian banks, including KBC and Belfius, have joined the platform.

ING is particularly active with younger start-up clients, providing coaching programmes, and has partnerships with incubators and accelerators. In its Annual Week of the Entrepreneur, launched last year in Belgium, ING hosts more than 30 events in 10 cities across the country, with the aim of sharing economic trends, business models and other relevant topics with clients and prospects. 

“These kinds of initiatives contribute to build our brand and positioning,” says Mr Van Alphen.

Segmented approach

RBC Wealth Management has recently taken a more focused approach with regards to serving entrepreneurs. 

As part of its client segmentation exercise, started 18 months ago, the Canadian bank created a team specifically dedicated to serving business owners and entrepreneurs, who account for more than 50 per cent of its client base.

Further, it has implemented a sub-segmentation of clients by industry, which allows matching entrepreneurs with advisers and specialists with the required industry knowledge.

The mindset of an entrepreneur has been fairly constant over time, but the breadth of businesses being hatched in this modern age is expanding, notes John Younger, head of Business Owners & Entrepreneurs at RBC Wealth Management in London.  

“Our clients range from millennials, fintech hipsters with disruptive technologies to innovative baby boomers. We really have to up our game to be relevant to such a broad range of entrepreneurs,”he  says. 

The sub-segmentation by industry type is, to a large extent, in line with the group’s investment banking activities. The goal is to “bring the full breadth” of the organisation to clients, with the relationship manager being the key point of contact. 

“Many times entrepreneurs often struggle to distinguish between their business and personal wealth so we need to make sure we connect on both levels, on a business and personal basis,” says Mr Younger.

A “true spirit of partnership and collaboration within the bank” is essential to provide a good service to entrepreneurs. 

The sub-segmentation exercise cannot be a static one but has to be aligned with expectations for business growth. “Compared to 10 years ago, there are a variety of entrepreneurs entering the fintech space, and we need to make sure to have the skill set, people and solution to fit that sort of emerging business.” he says. 

“Alongside that, we are going to have to remain agile to adapt to where our customers will be coming from in the future.” 

Developing a network of like-minded individuals enables private bankers to tap into that network, and help them find solutions for key issues, also relevant to other clients, explains Mr Younger. 

Search for co-pilots

In an increasingly complex regulatory environment, delegating to external firms all the activities related to managing their own lives – in the areas of tax, structuring and legal advice – enables entrepreneurs, who are increasingly more global and operate in multiple jurisdictions, to focus on their core strength, which is managing their own business.

“Entrepreneurs are very headstrong people, but do like to have a sounding board, and often our first engagement with the entrepreneur is just providing that sort of healthy debate for ideas,” explains Steve Kettle, partner and head of client management at multi-family office Stonehage Fleming.

When it comes to managing money, entrepreneurs are different from other clients.  “Entrepreneurs are always engaged, and always have a reasonably strong view or skill that is expressed in their portfolio,” he says. 

The investment portfolio of an internet entrepreneur typically has very high allocations to technology companies, for example, says Mr Kettle. “Our job is to make sure the portfolio takes advantage of that clients’ knowledge and skill set, and balance it with more traditional types of investments.”

Also, entrepreneurs tend to want to invest in firms they understand thoroughly and with people they rate, he says, relating the story of a client running a multi-national company, who decides in which funds he wants to invest into depending on the impression he had of fund analysts that have interviewed him, as the CEO of that business. 

It is up to Stonehage Fleming’s analysts to then investigate the funds identified by the client, even if they are not on the firm’s platform. 

“Typically when they start investing money, most entrepreneurs are looking for a co-pilot. They want somebody to help them invest the money, but they are ultimately making the decisions.” 

But entrepreneurs are ahead of the curve, so if wealth managers can leverage that collective thinking, clients’ portfolios will tend to be ahead of the traditional asset management thinking, believes Mr Kettle. “Entrepreneurs are feeding back real life business economic experience. It is first hand insight.” 

Advisers’ specific attitude to life is more important than any industry sector knowledge, to liaise with this cohort, according to Stonehage. 

“We are hiring people that share the same energy level as entrepreneurs, and have the same enthusiasm for life, open mindedness and lateral thinking ability because that is what entrepreneurs are looking for in a wealth manager. The industry sector is almost secondary.”

Being 80 per cent staff owned, for the past 20 years Stonehage Fleming’s people have helped in building the business, which is now the largest multi-family office outside America, with £35bn ($43bn) of assets under advisory. “We are by nature entrepreneurs and that attracts entrepreneurial types,” claims Mr Kettle.

While most private banks believe in the power of networking events, he is quite sceptical.

“In my experience, entrepreneurs work very hard and you are unlikely to bump into them in a networking event,” says Mr Kettle. “The people you bump into in a networking event are other wealth managers.”