The wealth management industry tackled a familiar theme at a recent conference: which model for UHNW clients is best - the full-service behemoth or the specialist boutique?

In the main, the complexity of clients’ needs increases in line with their asset base. But which has the edge when it comes to meeting the needs of the coveted ultra high net worth segment, full-service global behemoths, or a selection of smaller specialists? This was just one of the thorny issues tackled by senior executives at last week’s WealthMatters event in London, and – as with so many of the industry’s ongoing debates – there was much to be said on both sides.

As Tom Slocock, CEO of UK wealth management at Deutsche Bank Asset & Wealth Management, noted, one of the primary advantages global players have over boutiques is that they can offer clients balance sheet access - finance being something that the super-wealthy need just as much as the man on the street, if at a far higher level. Another clear advantage that full-service firms have is that “if you’ve got more things on the shelf then you’ve got more chances to play the game,” he said.

There has been a marked proliferation in boutique firms springing up since the financial crisis, with many of these houses going for the jugular and making much of the loss of trust in the larger institutions, as well as their specialist expertise and focus on delivering superior returns in niche areas. However, as Slocock pointed out, the challenge these boutiques then face is that they then have to really deliver.

Sprinter vs decathlete

“It’s the difference between a decathlete and a sprinter: if you have one ‘product’, one expert team, one core competency and your business succeeds or fails on how good you are at that then you’d better be good at it,” he said.

That there are many excellent boutiques which can really deliver was uncontested, but what was more contentious however is how comfortable bigger players are, and should be, about funnelling business to them.

For several of the panellists, the gains of "giving" business away in this manner far outweigh the short-term gains of trying to keep everything in-house when the right capabilities aren’t really there. It is, they said, a matter of building - and preserving - trust. According to Dylan Williams, managing director for London, the North and Ireland at Coutts, wealth managers should embrace frankly saying, "No, that’s not what we do, but we do know people in the industry who are good at doing it."

For Dr Tim May, CEO of Apcims, the “knowing” part of that sentence is particularly important as, in his view, simply presenting clients with a selection of possible providers could be “a good way to get rid of them”. “If you get to the stage of giving clients a list then you’ve failed, particularly with ultra,” he said. “You should be introducing them to one other person or a specialist that you yourself have built a relationship with and who will service those people.” As he pointed out, wealth management is a relationship business – and this goes for relationships with other professionals as much as with clients themselves.

A mark of trust

A willingness to bring in other professionals is actually the mark of the true “trusted advisor” the panellists agreed, whether that be at the level of drafting in a tax expert or referring clients to another firm specialising in, say, emerging market debt. It is also the case that individual bankers at big firms might have to act as a “navigator” around their firm, directing UHNW clients to pockets of expertise. “You have to be looking after clients and know where else to go, whether that’s within the organisation or outside,” said Dr May. 

Penny Lovell, head of client services at Close Brothers, went further in advocating this holistic approach, saying that she is reluctant to talk to clients about investments until she knows that a “triangle of advisors are in place”, and that directing clients to good lawyers and accountants is a core part of the advisor’s role. This kind of diligence will pay huge dividends in terms of building trust, but also in terms of establishing credibility, it was said.

Credibility was in fact another hot topic, and while there are certainly very strong smaller players out there the panellists noted that the “boutique bandwagon” will inevitably be jumped on by those who simply don’t have the capabilities to really deliver for the discerning UHNW segment. If new entrants think that they can target the super-wealthy as simply a rich seam of profits they are wrong, not least because there are fewer of these clients and they are vigorously fought over.

David and Goliath?

That’s not to say however that bigger institutions can afford to rest on their laurels and simply let the boutiques have the crumbs that fall from their table. There are some big areas where boutiques can have the upper hand – and this might force their global peers to take a long, hard look at where their strengths and weaknesses lie.

Matthias Memminger, a PwC partner specialising in the global wealth management market, noted that in the Alpine state the UHNW battle lines really seem to be being drawn over old and new money, with the global wealth management household name institutions excelling at the former but not the latter. While they are “extremely strong on the old money in that segment they are almost unable to cope with new money because entrepreneurial wealth tends to be much more alpha-seeking,” he noted. In his view entrepreneurs just don’t have confidence that the big banks can deliver alpha; moreover, he believes that they just aren’t built that way. The shift from inherited to entrepreneurial wealth that is ongoing all over the world therefore might necessitate a complete rethink of big wealth managers’ business models when it comes to managing the affairs of the UHNW, he said.

“They are good at some aspects of it, but there are new competitors emerging that just superior in that,” he said. “With the large banks generating alpha just isn’t part of their strategy, it’s much more of a wealth protection model that they follow.”

So, an honest appraisal of business model and expertise is just as essential for established institutions as emerging players targeting the UHNW segment: for big names there is a fine balance to be struck between being a one stop shop with global heft and trying to be a "Jack of all trades"; for new entrants positioning themselves with one USP, they had better make sure they can deliver and survive the great, institutional-style scrutiny they will likely be under from super-wealthy clients’ oversight advisors.

For Williams, firms have to be realistic as to when a client’s needs go beyond their core expertise – something which, arguably, is likelier to arise the further up the “wealth pyramid” the client sits. “Businesses need to focus on their areas of strength and where they have a competitive edge, servicing those clients whose needs lie within this area, while being prepared to stand up and speak in the interest of the client when that client's needs go beyond this," he said.

"Clients may want what you cannot give, and in reality you cannot make a product fit into a shape where it doesn't work. Being honest with the client is key to a firm's integrity and the longevity of a relationship - if that relationship is workable on both sides,” Williams continued. “Businesses need to concentrate on where they are good and where they have a competitive edge, and work with strategic partners to deliver the right outcomes for their clients - otherwise, they will kill themselves off."

This piece came out of last week's WealthMatters event in London, which was arranged by ClearView Financial Media, parent firm of this publication, and produced in association with headline sponsor Coutts. (Other sponsors and partners are Equipos and S&P Capital IQ. Avaloq, WealthMonitor, City Credit Capital, Dion Global Solutions and TD Wealth were also partners in the event.) To view another article from the conference, click here.)