Private banks coming late to the party in wealth management

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Banks have been targeting family offices since the early 1980s, but few have appreciated the nuances of working for wealthy families, simply offering the same services they would to ultra-wealthy individuals. 

This content was published on October 23, 2017 - 10:23
Yuri Bender, Financial Times

The main reason for this, says David Fox, president of global family and private investment offices at Chicago-based Northern Trust Wealth Management, is that banks have been trying only to manage the families’ portfolios of assets, at the expense of a more holistic service. 

“Many firms are just beginning to see the level of sophistication embedded in family offices and realising they need a full service offering beyond just investments,” he says. 


Family offices have suffered from a lack of operational expertise in their back offices and banks have done little to help. 

“Banks at first were not attentive to understanding their needs and viewed multi-family offices as competitors,” says Gerard Aquilina, a former senior private banker who now advises wealthy families in Latin America, Europe and the Middle East. “But they have finally woken up and are beginning to put together specialist teams.” 

Swiss situation 

Leading Swiss private banks UBS and Credit Suisse are among those trying to improve their service for this burgeoning segment. While it claims to have been working with family offices “for decades”, it was only in 2011 that UBS made its first concerted push into this market, consolidating services into a single, dedicated “platform”, available to all the bank’s divisions. This meant the establishment of a digital hub, from which the bank could focus on selling a greater range of products. 

The two areas of product growth identified by UBS for this client segment are impact investing and thematic products, such as the UBS Oncology Impact Fund, which raised nearly $500 million (CHF493 million) from family offices and wealthy investors in 2016. 

The story is similar at Credit Suisse. “In the last decade, the bank has responded to this unprecedented growth of family and entrepreneurial wealth by creating dedicated family office service teams in different regions,” says Bernard Fung, head of wealth planning services for Asia-Pacific at Credit Suisse. 

“While family offices have tried to create such platforms or products themselves, the costs of setting up and maintaining [them], as well as the life-cycle management of products, are challenging, even with the use of financial technologies.” 


Offices working for single families need to outsource much of their work to banks, particularly lending and technology-based services, says Markus Stadlmann, chief investment officer at Lloyds Bank’s private banking arm. 

“Private banks are dealing with countless wealthy families, each with their own objectives, concerns, values and circumstances,” says Warren Thompson, managing director of the private office at Coutts, bankers to the British royal family. 

This ensures that banks’ staff are constantly learning from a rich variety of clients, he says. “Too often, a family office will lack those new ideas, new experiences and new learnings that keep advice in step with technological, financial, legal and accounting developments.” 

Banks tend to view family offices simply as another type of intermediary, linking family members to product vendors, through which to sell their services. Family offices, not surprisingly, see banks as biased product-pushers, lacking objectivity and independence. The mutual mistrust is clear. 

“Banks have been trying to replicate family office services for years,” says Jonathan Bell, chief investment officer of Stanhope Capital, which oversees $9.5 billion of family money from divisions in London, Geneva and Jersey. “They offer most of the same investment solutions but are rarely able to offer the same alignment of interests that many family offices have with their investors.” 

Private banks’ latest positioning as matchmaking agencies, bringing together disparate families looking for suitable partners with whom to co-invest in private equity, is receiving short shrift from family offices, which feel “the deals are stale”, preferring instead to meet other families through their own network, disintermediating the banks, says family adviser Aquilina.  

“Banks, for the most part, are viewed with some disdain by family offices and have not been very successful in capturing this market segment,” he says. 

The direct route

The wealthiest families enjoy a “healthy appetite” for direct private equity deals, but their exposure to this area is modest, with capital preservation the overarching cross-generational goal, believes Adam Wethered, co-founder of Owl Private Office, a consultancy serving family offices. 

“First-generation wealth creators often feel they have already taken risks to generate their fortune and that the family office role is to consolidate and protect it, taking less risk when investing.”

But when they do invest, they prefer direct deals rather than funds, says family adviser Gerard Aquilina. Not only do family members like to be actively involved in overseeing investments, but they also resent the layers of fees they must pay out when outsourcing investments. A typical family office might look at 100 direct investment deals every year, ranging from commercial property to technology, healthcare and education, but might invest in just two or three of these.

Recruiting high-calibre corporate finance staff to assess and direct these investments remains a challenge. While the level of expertise serving the Rockefeller or Bertarelli families, for example, may compare favourably with the top private banks, “this certainly cannot be said of some of the Middle Eastern family offices, where the staffing criteria seem to be based on loyalty and low cost”, says former private banker Kim Cornwall, who advises wealth management firms on client service.

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Copyright The Financial Times Limited 2017

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