Tuesday 11 December 2007

The five things private wealth managers and advisers always say

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The noughties has become the decade of spin. Does spin always win? Or does it wear a bit thin? Here are five things you will hear at every meeting in the wealth management and advisory industry. So if you have more than £5million/$10million up to tens of billions, here are some things to look out for.

1. Its all about the risk appetite of the client.

Whilst this is a good thing to say, but after you've heard it about forty five times, you realise it's just another bit of industry gloss. Other comments in this category will include: "We sit down with the client and put scenarios to them like 'how would you feel if you lost £1million?' which helps us to work out what sort of portfolios they need." What would you say if someone said 'how would you feel if you lost a million?' You'd cry right? So surely this leads to naturally conservative investments and whilst peace of mind and being able to sleep at night are said to be prime qualities in any investment scenario, I think analysing your risk just illustrates a straightforward bit of industry marketing spin which you can ignore at leisure. Instead get down to the real talk like: who will actually look after my account and will it be someone experienced or someone in this room?

2. It's all about open architecture.

Some clever dicky bird worked out that a lot of private banks owned trust companies and had all sorts of other conflicts within their organisations. The conflict is caused because if you put money a trust (say £20million) for children, this represents a tasty bit of investment management work for someone - and that someone might be your 'parent' private bank, rather than the open market. Why does this matter? Well in reality it probably doesn't really - in that I believe most wealth management offerings on the return side are pretty simliar - but in the real world, which is all about returns on investment, these days trustees (who legally look after the money) get sued if the investment returns aren't what they should be. So they have to interview private banks and investment managers to pick the best ones for the trust in question. This is essentially what open archecture is - "we go to the open market and pick the best investment manager." In practice, does this happen? Only tight management in the banks and trust companies can ensure it.

3. We don't 'push' or promote financial products.

Well historically banks always have made money out of selling their own products but one of their main routes is through intermediaries, (lawyers/attorneys and accountants who refer the wealthy). Intermediaries have got so super bored with private bankers turning up at their door step with the next big thing in financial products, which may or may not work out, that the tide has turned against this money making activity. Now private banks are saying very loudly "we don't incentivise our staff to sell products." Look out for it on every private banking jar you see.

4. "We are independent."

Trust companies, many of you may not understand are quite different if in civil or common law jurisdictions and only just coming under regulatory umbrellas or starting to self regulate (like Switzerland). There have been a few blow up's in the past and litigation in this sector is on the increase, particularly offshore. Because private banks by their very nature have sales targets and want the investment management from the trusts, whether they are good at managing the money or not, trust companies now shout with glee "we are independent" if they are or "we have open architecture" if connected to a bank (see above point). It is in the interest for trusts to use the independent stance because it says "we are using the best wealth /investment managers and have no banking targets or goals to sell things." This may be true, but the industry says it way too much and so it becomes like the first point 'risk': we heard it already. You should say. Thanks, now how many staff have you got? How many years have you been operating? Have you had any litigations? What is your staff turnover? How has your selection of wealth/investment managers performed against this (choose one) benchmark?

5. We can never talk about the client.

This is all fine, but I think, like many industries, people just repeat phrases without actually speaking to their clients and seeing if they might be happy to talk to the press or others who may want to help or receive advice. There is also no real motivation to do so, we are all busy right? The industry is generally petrified of the clients that they serve and rarely suggests anything that might in fact be in a clients interest. Having worked in the media world my whole life, it is a phenomenon I have seen before - media agencies rarely put ad' deals to direct clients from newspapers because they simply can't be bothered. Of course, on the reverse side of the coin, many clients do wish extreme secrecy, because they don't want people to know about their private wealth or any awful experience to happen like having their children kidnapped. This secrecy is understood and respected by organisations like my own - Citywealth. However many wealthy individuals, in my experience, are delighted to speak to individuals in the press and regularly contact me about their businesses, philanthropy and investment or project needs. It's time the industry woke up to the fact that clients do need to connect to the world at large and they can be an instrument in offering extra value and connections that might increase "share of wallet." (Share of wallet means the amount of wealth that a wealth manager holds - traditionally the wealthy 'spread the love' and have multiple accounts and investments with different organsations. Private banks in the increasingly competitive world of wealth are hungry to get more of their share and that brings us to a topic called trust if you are trusted by a wealthy client, they will reveal their whole wealth, creating an opportunity to advice on the whole not just a part).

http://www.citywealthmag.com/

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