Volatility brings threat of client exodus
Investors are asking advisers to change strategies to prevent a drain on assets
A year into the credit crunch, wealth advisers are being forced to work overtime to retain their nervous clients.
Industry sources say a period of poor investment returns, restricted lending and adviser defections is giving clients itchy feet. Reviews of private banking accounts by clients are hitting record levels.
Mark Rayward, deputy chief executive at UK-based Newton Investment Management, said: “Clients invested across the industry have struggled to match cash returns.
“This, combined with a difficult market outlook, could lead clients to question the value delivered by their manager and question the returns they should expect. In general, we are starting to see greater focus on achieved, expected returns and risk.”
Edward Jewson, chief executive of private client consultant Jewson Associates, said he expected a client exodus in October.
He said: “In volatile markets when private clients start losing money, many will look around to see if there is a fund manager who can get them a better deal. There is normally a half-year lag on this, as clients will give their manager or bank the benefit of the doubt for a while.
“Some clients may gravitate towards managers who have an absolute return approach, but obviously managers with a solid performance record and a stable team should benefit.”
Mark Kibblewhite, head of UK private banking at Barclays Wealth, said: “We are seeing clients moving to us from established relationships at the fastest rate I have seen.”
He said some individuals were frustrated with loan restrictions imposed by their providers. He added Barclays was continuing to lend money on normal criteria.
Investors are equally concerned to vet the underlying strength of the banks they retain, although several such as Citigroup, Barclays and UBS have taken steps to bolster their balance sheets by issuing equity.
The mere thought of losing their wealth in a bank collapse terrifies high net worth individuals. The uncertainty has boosted prospects for Swiss private banks, owned by partners who tend to be conservative in their approach.
Clients are also frustrated with poor investment returns and the inability of their advisers to update them thoroughly on the state of play. Some will be getting a shock when they receive annual portfolio updates in the autumn.
Kibblewhite said: “Traditional providers have been too silent about their performance, and the factors that lie behind it. At Barclays, we are keen to communicate news effectively.”
Others in the industry agree that firms which have lost staff will have trouble retaining customers, who are often faithful to their individual advisers.
Swiss bank UBS has lost a string of senior advisers this year. Last month, Cheviot Asset Management, a firm set up by former UBS advisers, approached UBS to discuss an audacious deal which would involve Cheviot taking over UK client accounts in return for a share of the revenues.
Last month, another 50 UBS employees jumped ship to Vestra, a wealth management boutique, and Credit Suisse, Merrill Lynch and Barclays have also gone on raiding parties.
John Pottage, UK chief executive of UBS Wealth Management, said: “UBS remains fully committed to offering UK clients a discretionary investment management capability as this is an integral part of our wealth management offering.”
UBS is far from the only operation to be facing client retention problems, however. Even where they retain accounts, banks are facing the prospect of being forced to share influence with newly appointed co-advisers.
Clients are also asking advisers to change strategies to prevent a drain on their assets and protect them from the ravages of inflation. Emerging market debt and equities have lost their lustre. Structured products, which once promised to protect the wealth of individuals, are vulnerable to implosion.
Jewson sees many clients turning to cash and away from equities. He said there was a general flight to quality.
In a report last week, Fredrik Nerbrand, head of global strategy at HSBC Private Bank, said the macroeconomic outlook was depressing ultra-high net worth individuals, who until recently have enjoyed relative immunity to the global downturn.
He said: “Investors have to take more rather than less risk as sustaining wealth in real terms is becoming increasingly difficult. So for longer-term investors, we take a neutral outlook for equities and a negative fixed-income view.”
He argued that the most promising opportunities lie in hedge funds and commodities. Nicola Horlick, chief executive of Bramdean Asset Management, last week said people should put more faith in alternative investments.
Industry sources say that as advisers jostle for position, oft-postponed consolidation between the smaller private banks will start. Ted Wilson, a senior consultant at Scorpio Partnership, said: “Private banks and investment managers are under a lot of scrutiny. The next year will sort the men from the boys.”
Wealth advisers can gain comfort, however, from the weight of money that is powering their sector. The global wealth management industry saw an 11.6% increase in assets under management last year, according to Scorpio, down from a 13.8% increase in 2006.
The latest World Wealth report published by Merrill Lynch and Capgemini estimates there was a 10% rise in the wealth of high net worth individuals to $40.7 trillion last year, partly driven by commodity-rich countries.
Scorpio has estimated that there are $9 trillion of untapped assets among wealthy families who are yet to retain advisers, representing rich pickings for advisers in these times of trouble.
Mark Kibblewhite, Barclays Wealth
del.icio.us
Digg
Newsvine
reddit
StumbleUpon