Kicking off a new series taking an in-depth look at the institutions which define the global wealth management marketplace, WealthBriefing takes the lid off Barclays Wealth.

Kicking off a new series taking an in-depth look at the institutions which define the global wealth management marketplace, WealthBriefing takes the lid off Barclays Wealth. The UK based global titan's bold and uncompromising approach sometimes ruffles feathers amongst other market participants, but will this hold it back in its ambition to be held in the same regard as its sister organisation Barclays Capital?

It is hard to avoid its name these days. Barclays Wealth is the UK’s biggest wealth manager and has come a long way since it was formed in 2006 as the wealth arm of the UK-listed banking group. The creation of Barclays Wealth brought together Barclays Private Bank, Barclays Stockbrokers, Barclays International Private Bank, Gerrard Investment Management, Barclays Intermediaries & Corporates and its Estates and Trust business. The firm has since added to its wealth advisory and trust capability by acquiring Walbrook in May 2007 with offices in Hong Kong, Jersey, Guernsey, Isle of Man and Cayman Islands.

And being a part of an all-service banking empire, far from proving a problem as the credit crunch has unfolded, is an advantage that Barclays Wealth executives are keen to stress.

The firm is certainly one of the most visible in this traditionally discreet sector. Its advertisements are plastered over billboards and the firm benefits from the distribution channel of being part of one of the UK’s largest banks.

Even without the tumult caused by financial markets, Barclays Wealth has had a busy year. When Barclays bought the US part of bankrupt Lehman Brothers in the autumn, it acquired a highly-respected private client team, led by Jack Petersen, giving the firm an opportunity to develop a foothold in the US. Overnight, Barclays Wealth gained 900 people and offices in eleven US cities and one in Buenos Aires.

There have been other changes. Former UBS top executive Emmanuel Fievet joined Barclays Wealth in November, to be head of international private banking, EMEA. Prior to joining Barclays Wealth, Mr Fievet was UBS’ head of UK Onshore Wealth Management, having previously been head of sales management in the UK. Another key hire for the firm, Fievet replaced Gerard Aquilina, who became Barclays Wealth’s first global vice-chairman.

The senior management team, led by Tom Kalaris, chief executive, has also been touched with tragedy. Chief operating officer Frank McGarahan died in September after intervening to help protect a young man and his girlfriend from an assault.

And not everything else in the business has been plain sailing. The integration of its Gerrard private client stockbroking business, bought in 2003, has been an unhappy process at times as dozens of Gerrard staff have struggled to cope with a different management structure and ethos and the new demands of providing clients with a holistic wealth management proposition. Client-facing teams quit in Nottingham and Birmingham early last year with up to 10 relationship managers from the Nottingham office defecting to rival UK wealth manager Brewin Dolphin. Some seven managers at what was the Gerrard’s Birmingham office also left last year. The moves led to suggestions that Gerrard staff were unhappy at having to adjust to the Barclays Wealth way of doing things, but there may have been other factors involved.

Throughout this integration process, Mark Kibblewhite, head of private banking in the UK and Ireland, has stressed that the organisation is building a new paradigm for wealth management and that while it is keen to build staff numbers, Barclays Wealth is not the place to be a client-facing manager if you do not accept the new ethos; or indeed, cannot deliver what is believed to be needed as clients get more sophisticated in their needs.

Such growing pains aside, Barclays Wealth executives stress the benefits, not the downsides, of being part of a large banking group with asset management and investment banking know-how. Senior appointments certainly highlight close links between the wealth management arm and its investment bank cousin, Barclays Capital. This contrasts with efforts by banks such as Switzerland’s UBS to put distance between its wealth and investment banking arms so as to avoid the former being tainted by the latter’s huge credit market losses.

Bob Diamond, president of the Barclays Group and head of its Investment Banking and Investment Management arm – made up of Barclays Capital, Barclays Wealth and Barclays Global Investors (BGI) - has been determined to spread his performance-driven business philosophy and some of the top Barclays Wealth managers are his protégés, including Mr Kalaris and Mr Kibblewhite. And the Kalaris’ vision is very clear: “…to redefine the wealth management world in much the same way as Barclays Capital and BGI have fundamentally changed the investment banking and asset management sectors”.

Mr Diamond and Mr Kalaris go back a long way. In 1996, Mr Kalaris was made president of BZW Securities in the US - the business that later morphed into Barclays Capital – after joining from JP Morgan.

Recruiting top level senior managers has been a priority from the start of the re-engineered business. For instance, the previously mentioned Gerard Aquilina was poached from HSBC and Didier von Daeniken, head of Barclays Wealth in Asia, joined from Credit Suisse in 2007. Research luminary Michael Dicks was recruited from Lehmans - before anyone gave a second thought to that institution's soundness - to join Kevin Lecocq's highly-regarded product office team. Mr Lecocq himself had been taken from HSBC in May 2006. Other senior figures are Peter Horrell, who heads up the intermediaries and international affluent banking businesses, and Des Byrne, who is head of Barclays Stockbrokers. The firm's emphasis on top quality marketing was underlined by the appointment – early in Mr Kalaris’ tenure - of wealth management marketing expert Ian Ewart from HSBC Private Bank with a mandate to build a strong brand.

So have these men delivered the goods? In its 2008 interim results published in August, the organisation's profits rose – to £182 million from £173 million and had total client assets – including UK client portfolios – of £132 billion at the end of June this year, up from £127 billion a year before. As a point of comparison, those 2008 first half profits exceeded the figure for the entire year 2005 — the year immediately before Mr Kalaris took the helm and embarked upon his programme of transformation. This is all pretty impressive considering that stock markets fell so dramatically during the past 18 months and is certainly a top domicile performer.

And the firm continues to open new offices; both in the UK and internationally. For example, private banking offices were opened in Leeds in 2007; Liverpool and Bournemouth last year and, like a number of its peers, it is expanding in India where it opened in five centres in 2008 - Mumbai, New Delhi, Bangalore, Chennai and Kolkata - lured by the rapid expansion of the HNW entrepreneurial class. Having broken into the world’s top ten league as ranked by client assets as at end of 2007, Barclays Wealth now has six main business geographies: Asia, UK, Europe, Middle East and Africa, US, South Africa and these include its offshore business with centres in places such as Channel Islands, Monaco, Geneva and Dubai.

And amidst what has been a nerve-racking year, Barclays Wealth – unlike a number of its peers – has not seen its parent part-nationalised as part of a capital-strengthening exercise. Instead, the bank has – controversially – gone to private investors or foreign states for funds in a move seen as preserving the group’s commercial independence. Barclays has raised over £7 billion of new capital from existing and new investors, including Middle Eastern state bodies such as the Qatar Investment Authority. The deal was attacked by some parts of the media and groups such as the Association of British Insurers for diluting the stakes of existing shareholders, but leaves this truly international group free of too much parochial UK government interference.

Synergies

Talking to senior executives, a clear theme that comes across is how Barclays Wealth stresses the important benefits of having strong investment banking and asset management sister units.

Vice chairman Gerard Aquilina said that while it is vital for the firm to operate a clear dividing line between itself and its investment banking cousin, clients could and should be able to take advantage of the products and institutional-level buying power and expertise available from an investment banking arm.

“Over the last 30 years in this business, I have seen situations where entrepreneurs who were private clients, needed access to the institutional side of the business – research, corporate finance, M&A. But because of what I would call an “emotional Chinese wall” they did not get solutions from that side of the business and opportunities were undoubtedly missed,” Mr Aquilina said.

But Mr Aquilina is very conscious of the fact that wealth management requires a broad, often hard-to-fill, set of skills that cannot be simply brought in from an investment banking background. “We cannot forget we are primarily in the business of managing people, and their expectations; not in the business of just managing money. This is still a relationship-based industry.”

That Barclays Wealth has big ambitions in this sector is undeniable. The firm is forever looking at more complex wealth structuring solutions and beefing up its expertise from areas such as the legal profession. For example, it has appointed lawyers such as Jonathan Burt and Jeremy Arnold – still an important advisor to the firm - from Baker & McKenzie and Withers, respectively; in addition to the high level talent it gained as part of the Walbrook acquisition.

Mr Kalaris and his senior team see the US as an important opportunity for Barclays Wealth, pointing out that at present, not one of the top-20 banks controls more than a small fraction of the US wealth market. And with tightening regulations on foreign banks since 9/11, it makes more sense for Barclays Wealth to have established its footprint in the country via acquisition than through the much longer process of inorganic growth.

Rising Tide

Barclays Wealth, like its rivals, has been buoyed by a rising tide of wealth around the world, even though some of the upward momentum is likely to have slowed as global market indices have slid. The firm was the largest wealth manager in the UK when ranked by UK client assets in 2007 at £41 billion – ahead of Coutts (£36 billion) and UBS (£29 billion).

The firm is also happy to play the role of the radical. In April last year, it rolled out its Investment Philosophy package, harnessing behavioural science to figure out clients’ preferred asset allocation and risk appetite – something that has proven all too relevant as markets have crashed.

Mark Kibblewhite was brought into the firm to transform the UK and Ireland Private Bank and to launch this new client approach. And he is concerned that as yet, not enough is being done by the industry as a whole to convince people they need financial advice and should pay for it. However, he remains confident that Barclays Wealth can make a difference.

“The beauty of what we call financial personality measurement is that it is a way to articulate what clients want their portfolios to do. When you analyse a portfolio, the emotional experience is pretty much in line with what the client expected. The evidence so far is that this is very powerful.”

Mr Kibblewhite said Barclays Wealth gives clients access not only to the expertise of the wealth management arm, but also to the investment bank and commercial banking side of its parent’s business. For example, an entrepreneur obtaining finance via a commercial bank may come to use the financial planning services of the private wealth manager.

But the industry, he said, must work harder to show that financial advice is worth the money: “There is too little recognition out there that it is worth paying for advice. If you got somebody like a National Lottery winner, for example, it is not clear whether they would recognise the importance of getting the right financial guidance; or if they did, where they would go to find it. In such a big business, a challenge is to make sure clients, regardless of what part of the world they are in, obtain consistent standards of advice: We are investing a lot of resource in our new approach to financial planning.”

So what of the future and how will Barclays Wealth cope with an increasingly global recession? The transformation of this firm under Tom Kalaris since 2005 has taken it from a loose collection of largely UK-centric businesses to a fully fledged global player of some note with strong footholds in Europe, the Far East, Middle East and now, of course, the US and Latin America.

And closer to home, what does the future hold here in the UK? Mark Kibblewhite, although far from complacent, offered this reply: “The past 18 months or so have been very difficult for the industry and for our clients. Levels of personal wealth have been shrinking and may continue to do so in the short term. But the medium to long term view is that markets both here and across the world will recover and the potential for strong players like Barclays Wealth to grow will be there. In what has been a very challenging 2008, we have still made progress by keeping very close to our clients, managing risk and controlling our costs. We must continue to develop the compelling proposition that will earn the trust of our existing clients and ensure that the newly wealthy know to come to us.”