Comment: When Wealth Worlds Collide
An extraordinary fuss is being made about the newly-built $8bn Large Hadron Collider atom smasher near Geneva, which fired up this week.
But similar experiments have been conducted in the wealth management space for years.
The premise is simple. It involves investment bankers and wealth advisers working themselves into a frenzy to generate fees.
When they have built up enough speed, chief executives order the two divisions to collide together.
They believe that this will enable them to glimpse the Derek Higgs boson, named after the late UBS investment banker who developed a surprising amount of interest in corporate governance and asset management in his latter years.
In physics a sister particle is supposed to be the glue which holds the universe together. In wealth it helps new business to stick to the bank via cross selling - the ultimate origin of new business in the world of wealth.
Decisions to conduct Large Hadron private investment banking experiments confirm that driven investment bankers have realised the very fabric of the universe is being rent apart and reassembled.
They know that rather than being directed to the benefit of company shareholders and pension plans, wealth is going into the back pocket of individuals. Some of them control the majority of fast-growing companies in Asia, Latin America and Africa. Others have been enriched by involvement in private equity transactions. Yet others benefited by using cheap leverage to build their fortunes.
However, every private investment banking experiment need to be carefully conducted. A friend, who used to work for US entrepreneur Michael Dell, once told me that wealthy individuals are not in the habit of picking up the phone when investment banks try to sell them wealth products.
Lehman Brothers has been forced to sell control of Neuberger Berman, one of the best wealth advisers in the US, as a result of its investment bank running into trouble. You can’t blame Neuberger’s wealth advisers for wanting to run into the arms of a private equity house in the wake of the failure of that particular experiment.
UBS has reasons to be grateful to Lehman for distracting observers from the writedowns suffered by its investment banking arm, which are damaging its own wealth brand. For the record, its shares have now fallen 60% over twelve months, after a further slip of 2% this week.
Swiss private banks, unencumbered with investment banking distractions, are making progress at the expense of UBS and Lehman. But you should never underestimate the cunning of talented investment bankers.
A number of them have started to recognise the importance of putting individuals in charge of wealth divisions with solid experience of when to defer to high-net worth individuals and when to do business.
After losing a string of talented advisers, for example. Goldman Sachs, made a rare decision to appoint an experienced private banker - former US Trust chief Peter Scatturo - to run its wealth division.
Another seasoned player, Gerard Aquilina, is making an important contribution to building Barclays Wealth, where he is vice chairman.
Citigroup chairman Sir Win Bischoff earned his spurs in investment banking, but his urbane style is well suited to winning friends in wealth management, helping Citi to regain ground as a result.
Stan O’Neal, former chief executive of Merrill Lynch, gave his wealth advisers scant attention during the debt boom. But his successor, John Thain, has decided show some respect to their division, including international operations which, for the first time in years, are being allocated capital on top of money from their revenue account.
Chief executive Brady Dougan often claims the credit for the way Credit Suisse is cross selling advice via its One Bank strategy But Walter Berchtold, head of private banking, also deserves credit for his take on the Hadron Collider theme, which is starting to impress the most hardened cynics.
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