This publication recently interviewed the head of Coutts Private Office, the unit that has, since 2005, catered to UHNW clients.

Catering to ultra high net worth clients can be an expensive job for a private bank but for firms that want to be known as leaders in the field, it is a part of the wealth management sector that requires pitiless attention to deal.

At Coutts, the firm’s Private Office which was set up in 2005, this business very much at the heart of Coutts’ efforts to expand its reach. Coutts’ owner, Royal Bank of Scotland, is rebranding its wealth management operations worldwide under the Coutts moniker, and the private office is a part of the drive.The Private Office oversees a total of £4.5 billion (around $7.12 billion) of client money, compared with a total of £34.3 billion of assets held by the wealth management division of RBS. 

The Private Office caters to clients with investable wealth of £30 million and is led by Duncan MacIntyre, who joined the blue-blooded UK bank from JP Morgan, where he had been a senior private banker dealing with ultra high net worth clients. WealthBriefing recently caught up with MacIntyre to find out a bit more of this business.

An issue for banks focused on UHNW banks is that this labour-intensive business has to ensure its margins are not compressed excessively. So how does Coutts make the Private Office work effectively?

“The advantage of Coutts is that we have a large client book. We are developing ideas, through the Coutts private office, that can be cascaded through the whole bank and that creates economies of scale,” MacIntyre said. About 40 people work in the Private Office in the UK; with a clear focus on developing ultra high net worth capabilities in Asia, the Middle East and Russia.

This ability to “scale up” is important. Earlier this year, Rory Tapner, who heads RBS’s wealth businesses, told this publication that there is a sweet spot in wealth management, in the sector where clients have between £1 million and £75 million; margins tend to decline sharply at above the higher end of the scale, he said. (To view that interview, click here.) This point touches on what has been a sensitive issue at times; ultra high net worth clients, it is sometimes reportedly said, are a very demanding, even vexatious customer base. Some wealth managers such as the private bank of Citi and Credit Suisse say this segment can be profitably served, however, particularly as part of a “one-bank model” with close links to an investment banking engine.

The Private Office sits within what is a profitable concern. As RBS reported in August, its unit logged an operating profit before impairments of £77 million in the three months to the end of June, down from £88 million in the same quarter of a year ago.

At Coutts, the Private Office has primarily focused on the UK, although it is currently expanding its focus to Asia, Middle East and Russia. It provides bespoke discretionary asset management, advisory, cash management and lending. It also offers services such as advice on philanthropy and provides bespoke financial education to clients. Wealth structuring/planning is also a key offering.

An education

The unit’s managers devote considerable time to educating their clients. A newly enriched entrepreneur, for example, may know a great deal about how he or she has made their money but be an ingénue in the affairs of wealth management, asset allocation and the language of risk-adjusted returns. Coutts aims to close this knowledge gap, MacIntyre said.

For example, Coutts Private Office will spend a day, for example, putting clients in front of leading experts to educate them about the issues raised in the investment world. “It is highly bespoke process and it’s also very powerful. It is for people who, for example, have sold a business but who are not that financially knowledgeable. This sort of advisory dialogue is absolutely critical to what we are trying to do with our clients,” he said.

“We are very advisory led in the UK; as you move further eastward, there is demand for much more research-led investment trade ideas,” he said.

Among regular education services that Coutts provides are its Next Generation end-of-term events, held with young people (18 to 25) from families with at least £100 million. The latest such summer school was held in July; the bank intends to hold one such event in Hong Kong next year.

Staff recruitment, retention?

Hiring high quality bankers is difficult at the present time, MacIntyre said. As chronicled by this publication, the market for talent in regions such as Asia-Pacific can be brutal, with salaries outpacing those paid in the West, although there are some signs of deceleration as cost pressures bit.

“It is not a deep talent pool in some of these markets,” MacIntyre said.

The Coutts name has a certain drawing power over potential recruits, he continued.  

“They [recruits] like the brand, which is very powerful and they like our strategic intent and growth plans. The brand adjustment initiative is really helping us; it works very well in Asia and the Middle East,” MacIntyre said.

While it is, in many respects, a quintessentially “British” bank – it’s the Queen’s bank, after all – Coutts has a broad footprint in terms of clients. At the Private Office, the “inpatriate” business (such as non-domiciled residents), it accounts for about a third of UK-resident clients.

So how about fees? MacIntyre said there is no additional fee to a client for using Coutts Private Office’s service, although there are fees charged on specific services, such as discretionary management. Fees on managing portfolios will depend on the size of a portfolio (the greater the sum of money, the lower the fee), and the nature of the asset (equities typically take a higher fee than cash management).

Coutts, and even more so, its parent firm, have been through tough times, and the economic outlook being what it is, the work of the Private Office is not going to get any easier. Yet MacIntyre is bullish, in part driven by the knowledge that wealthy individuals and families require high-quality service in all environments.

“There’s no doubt we are in an extremely challenging time and the simple solution to that is diversification. Inflation forms a central issue: Many UHNW individual clients are focused on wealth preservation in the truest sense. We are seeing some clients regarding this market as an opportunity; many of them have very large cash reserves,” he added.