Seeking business excellence in wealth management

Yuri Bender: At Credit Suisse, you are disciples of the ‘one bank’ approach, as is your key rival, UBS. Are you convinced that the most efficient business model is based on this total interdependence of wealth management and investment banking?

Raffael Gasser With our roots as a bank for entrepreneurs, we need to be able to cover both the private needs as well as the corporate needs of our clients. And, as we are focusing, particularly in the European context, on very professional, semi-institutional clients, we get a lot of demand for sophisticated solutions where we need both our capital markets, as well as our wealth management capabilities. 

For example, our clients have multi-collateral lending needs, and we can provide lending on real asset collaterals such as aviation or real estate portfolios and create what we believe is very hard to obtain in the market place otherwise.

This is why we consider ourselves a wealth manager with strong investment banking capabilities. 

Yuri Bender: Paul, your institution is now part of large banking group Société Générale. It’s not very long ago that French bank bosses saw private banking purely as a distribution channel for investment banking. Are those days now firmly behind us?

Paul Kearney If we were seen by our clients as merely here to push products, our position in the market would be very fragile. At our core, we’re here to serve corporate clients and our goal is preservation of capital. A lot of our clients have created their wealth and they’re looking to work with us to ensure that that’s a secured legacy for their family for many decades.

One of the topics that clearly is shaping our industry is the cost of investing and the commoditisation of the investment management product. One way to control the cost of that is to deliver it yourself and to ensure that it’s true to the beliefs of your investment philosophy.

Yuri Bender: Sandaire Private Investment Office does not have asset management capabilities to create products internally. You have to buy them in. Is this an advantage or a handicap? 

Andrew Waldren The advantages are that we are able to buy from the whole of the market for our clients, but we then have the complexity of having to manage across different providers and different custodian models. That requires us to have a sophisticated infrastructure, which we deliver through outsourcing. Therefore, when going out to buy products and services, we’re able to focus on increasing the value of flexibility that our clients have and we have on their behalf.

Yuri Bender: If we look at the business model from the perspective of the financial centre where the bank is based, what would you say is the sweet spot for Malta, and for the firms that come to Malta, in terms of size, assets, and numbers of people that can operate from your jurisdiction? 

Joe Bannister We’d like to see more involvement of private banking, so that would expand the sector. There’s scope, particularly because of high net worth individuals retiring to Malta. They need good banking and good asset management. There is a programme for attracting foreign people to come and work in Malta, which is proving very good.

The issue is that custody operations are not sufficient, we need more.

The size of business operations vary, but essentially they have an average of 10 people. Some firms are bringing portfolio management from the UK to Malta, because of Brexit. 

There is scope for one or two operations to be large. I know of a big, well-known investment broker that is coming over, and they want to start with 20 people and then go up to 80. The same happened in administration. Generally, firms are small, but they are very reputable, good operations. Two or three of them have now exceeded 100 people. 

Kenneth Farrugia Compared to other jurisdictions, Malta is very competitive. When you compare the cost of setting up an operation or a product in Malta, with other jurisdictions in Europe, you’ll find that there’s a marked difference in the framework. That has clearly driven business to the island, particularly small, start-up operators, mindful of the importance of containing their total expense threshold.

Yuri Bender: Alex, you chose to base your operation in the Isle of Man. Is that because your clients were there or because of tax or cost reasons?

Alex Fray The genesis of Boston Multi-Family Office was being a single family office. The founding family, the Moore family, were living in the Isle of Man and they decided to set up a single family office for reasons of cost, quality and bespoke level of service, which they felt they could do more effectively themselves. 

A couple of years after Boston was formed, the family decided that what they were doing was sufficiently differentiated to what was being provided to the rest of the market, and there was a reason to roll out their services to other families. That’s how Boston grew.

Clearly, there are benefits to being in the Isle of Man or any other British Crown Dependency. As time goes on, we all look at our business and try to cover the horizon and see what’s coming next and how should we adapt. That was behind the decision to open an office in Malta in 2011. 

Something that the MFSA and FinanceMalta have done very well is to be innovative and adaptive, whilst remaining rigorous in rolling out a framework which is attractive to private wealth businesses and other sectors as well. And then, attracting practitioners to base themselves there.

The battle for talent is fierce. Also, relocating people means there’s more friction to those transactions, so recruitment within the Isle of Man and Malta increasingly is looking further afield.

Yuri Bender: How are businesses reacting to the recent assassination of a leading journalist in Malta? Are they concerned about the island’s reputation and are you concerned about the island’s reputation?

Joe Bannister This came as a shock largely, there is anger and there is grief. It does happen everywhere, but it should be condemned and the government should take steps as to what’s been going on. 

Yes, there are concerns. We’re happy to talk to people and address these concerns. 

We are not on any OECD or EU blacklist. Nobody has forced us, not even the EU or any government, to say ‘change your tax system’. This was all agreed with the EU, in 2007, so, I don’t understand why Malta is being called a tax haven. On the money laundering question, we, as regulators, help the financial intelligence unit and their supervision, so we’re supervising banks and the whole system. 

Yuri Bender What is a private bank for, these days? 

Paul Kearney The model that’s persisted for the last half a century is an agency model. Clients and families have given us their money as agents to look after it for them. 

The last major industry that relied on an agency model was the travel industry. When we grew up, everyone had a travel agent in their high street. That industry has been eviscerated by technology, we can now all have access to flight-time tables, hotel pricing and transparency of knowledge. That is on the cusp of happening in our private banking universe, and we have to work at how we are tackling it.

Iain Tait It’s about knowing the marketplace you’re going for. There’s still, at a certain level of wealth, a profile of person that will want to continue to seek face-to-face advice and value that relationship. How that translates to the next generation is yet to be seen. I think they will want less of it, but they will want some of it. It will be needed to be combined with cutting-edge technology to survive, but a house needs to offer both.

Raffael Gasser I think that holds true for a lot of the younger generation. They do not want to interact on relatively simple questions, where they need to assess options, make a choice or validate their hypotheses. However, when it comes to impact investing or leaving a legacy, that’s too much at the heart of the client’s personal priorities to have that discussion and create confidence in a digital-only channel.

Kenneth Farrugia In the last few years we have seen banks investing big time in buying out, and partnering with fintechs. 

I think we’ll have different kinds of clients wanting different experiences. Those that will prefer the digital route, but remain connected to the person, and those that really want the face-to-face interaction. 

In the wealth management space, clients really value the time you dedicate to them to understand their requirements. Wealth managers are now focusing on keeping a low client-to-relationship manager ratio to provide a better service. And clients move very quickly. Banks and institutions that don’t adapt will be killed by new entrants.

Raffael Gasser With technology becoming more relevant and clients becoming more demanding and professional, our relationship managers need to embrace innovation and use technology to spend more time with their clients. They have a different role to play. 

If you have very demanding clients and a very broad offering to serve clients’ needs, the relationship manager becomes more of a conductor of an orchestra, instead of a one-man band. That is something that requires a different profile, which is not easy to find. Competition for talent is something all of us have to deal with.

Yuri Bender: I’m sometimes puzzled when I look at the whole plethora of multi-family offices springing up, the costs are not insubstantial. You’re normally based in London or another expensive city, such as Geneva, always in a luxurious area of the city, which clients are happy to visit. Your bankers are not the youngest and are not the cheapest rookie operators, but much more the senior advisers who come at a price. How do the economics of these firms stack up, when your wage bill looks apparently so high?

Andrew Waldren It’s a challenge, there’s no question about that. What we’ve done is focus on the top end of the ultra-high net worth market concentrating on delivering a high quality service to a small number of clients. 

One of the things that multi-family offices have in common is that they’re small in scale, by nature. That both presents an opportunity to attract people that want to be very focused on clients, but also presents some challenges. We have to be incredibly disciplined in how we meet our client’s requirements, and focus exclusively on that. 

Iain Tait We’re based in Euston so we don’t have that problem in terms of trophy postcodes. It’s the firms of our size that are now caught between big-small companies. We’re called boutiques, but we’re not in that £10bn ($13.5bn) AuM-plus bracket. It’s the middle and back office that’s really beginning to hurt in terms of increased cost, so it’s fun to pick on the trophy postcodes, but it’s the weight of regulation and subsequent effect on costs that really keep us awake at night.

Andrew Waldren We’ve addressed that through outsourcing which gives us access to a scalable infrastructure we would struggle to build ourselves and which aligns with our revenue, and that allows us to operate a sophisticated and flexible service that makes commercial sense for our business.

Raffael Gasser We see two trends; one is labour arbitrage, which basically is outsourcing to places such as Eastern Europe or India, which isn’t a new phenomenon. Another trend, a bit more recent, will carry us probably further. Through digitalisation, we have completely different means to increase efficiency. It is also crucial that we do not try to operate a portfolio of distinct independent wealth management franchises across Europe, but we focus our operations, our IT, on hubs where we invest some resources into being compliant with all the regulatory requirements, and have significant resources left to invest in technology. This helps us operate more cost-efficiently, and be increasingly innovative when it comes to client services.

Alex Fray Some clients don’t like going to opulent offices, they think ‘this is where their fees go’, and they like to go somewhere that is professional and presentable. 

If it’s a family office servicing multiple generations, with multiple family members, 20 plus, then you are probably dealing with the advisers. If it’s first generation, then you’re probably dealing with the ultimate beneficial owner, and they are very keen on value for money. 

The biggest cost in our business is the people, but more than a cost it is also an investment, because we are a service-led business. You take the efficiencies through technology wherever you can, but you can’t scrimp on quality staff to service the client.

Yuri Bender: Can the administration work for the back office be done elsewhere, or does it have to be London and Paris?

Paul Kearney We have worked across Europe and across the UK. And we’re implementing outsourcing arrangements now. 

Scale was a driving factor of the acquisition of Kleinwort by Hambros. Both were mid-size banks. The drive for transparency, for investor protection and for efficiency means there is a need for scale, in the business that we operate. It’s not possible to be a small private bank, as it may have been 10 or 20 years ago. 

We have to strive to simplify the businesses we run, and we’ve got to look at optimisation and how we can drive efficiencies through the organisation.

Yuri Bender: Is there scope for Malta to be an outsourcing centre for wealth management and private banks?

Kenneth Farrugia Not at this juncture. We are at the stage where firms are considering to outsource back and middle office, or administration outside our shores, but clearly that’s something that we’ll reckon with, sooner rather than later.

Yuri Bender: What kind of change in culture have you seen now that you’re part of a much larger organisation, rather than the oak panelled existence of previous years, in terms of digitisation and technology?

Paul Kearney Scale gives you ability to make the large investments that are required to have cutting-edge technology. These are multi-million pound programmes, and it’s very difficult for small businesses to justify that type of expenditure. 

We look at our expenditure through two lenses, one is the client experience, but also what’s it is going to do to drive employee engagement. Employees don’t want to be part of businesses that are rooted in the past and are very manual and paper-based. 

Yuri Bender: Are we talking about something more impersonal and robotic that the next generation is happy with?

Paul Kearney For the type of clients we work for, I’m very much rooted on the basis that we are human advisers not robot advisers. We will be enabled by digital capabilities, and we will balance that with client demand. Some of the avid users of iPads are those in their 70s and 80s, who have suddenly become very aware of the capabilities they can control from their fingertips.

Iain Tait Our problems have been internal. One just calcifies around practices because we’ve always done it this way, and it works. That was true about two to three years ago, when the clients began to really stamp their feet. They were getting access to digital technology, probably through their banking relationships that London & Capital was behind the curb on. 

We then conducted and implemented a pretty huge overhaul of our own IT and reporting capabilities. Even the most sophisticated families tend to just look at the most basic functions on an online portal, but they got it now.

Yuri Bender: Are we expecting an evolution or a transformation? 

Joe Bannister Since the crisis, at asset management level, there have been 42 new directives and pieces of regulation. When I was at the Commission, I asked people if they could name 10, they couldn’t. We have to transform, we need to survive.

My major concern is what will happen to London, because there’s no scope in saying, ‘London is the world’s financial centre’. It is either part of the world or it is not. Without London, a number of financial centres will suffer.