The UK private bank of Schroders falls between the vast "one-bank" businesses and boutiques but it is prospering in life in the middle, its CEO says.

It is a cliché that medium-sized wealth managers get squeezed by the big beasts and supposedly nimble boutiques. But this point of view might be mistaken.

In fact, being neither a vast “one-bank” player nor a niche player, but a firm somewhere in the middle, has its advantages and this fact seems to be the case for Schroders' UK private bank.

The private bank of London-listed Schroders has almost £9 billion (around $14.2 billion) of assets under management, having grown from £4.5 billion in December 2007, and has about 30 client relationship managers. The private bank’s 207-year-old parent firm, which includes asset management as well as private banking, oversees a total of £182.2 billion. There are sister private banks in the Schroders group ranging from the Channel Islands to Italy.

In size, Schroders is not yet in the UBS or Bank of America class. And Schroders is fine with that.

“Clients say 'we want to work with an organisation that has global reach, financial security and stability and which gives us access to expertise across different asset classes. It is also [about] being big enough to provide a wide range of investment services but small enough to provide the intensity of service that you’d expect from a family office,” Rupert Robinson, chief executive of Schroders’s UK private bank, said in a recent interview.

“We are in pretty good shape as a business. We are on target this year to deliver record revenues in the London bank, which is exclusively down to a big jump in asset management income,” Robinson, who had spent 17 years at Rothschild before joining Schroders nine years ago, told this publication.

Private banking results have been gratifying, beating expectations of analysts such as at Charles Stanley, for example. Net revenue rose to £29.3 million (around $46.6 million) in the three months to 30 September, compared with £24.0 million a year ago. Profit before tax was £6.7 million in the latest quarter, up from £2.9 million a year ago. For the first nine months of 2011, private banking profit before tax was £19.0 million, up from £9.5 million a year ago.

On a less positive note, however, Schroders, like its peers, cannot avoid some of the harsh winds now blowing from the continent of Europe. Charles Stanley said that, while it was cheered by recent results from Schroders, the eurozone crisis threatened to cast a pall over such financial firms and has a "reduce" recommendation on the company's stock. 

Unique selling point

As ever, any firm that needs to make its voice heard over the din of its rivals needs to have what the industry jargon calls, in clunky fashion, a “unique value proposition”. And in Robinson’s view, Schroders’ “wow factor” is its strength in investment management, coupled with continuity in its staff. This is not a business with a revolving-door culture, he said.

“Our core proposition is asset management. We are increasingly working more closely with the institutional side of our business to leverage its expertise for the benefit of our clients,” he said. “Part of the thinking behind this closer alliance is to focus on multi-asset class solutions. Another competitive advantage is our deep pool of investment talent, not only in the UK but globally. We are able to leverage that to the wider benefit of the families we look after,” he said.

And this approach, Robinson claims, is getting results: “We have won business off the big integrated investment banks in the £25 million to £100 million range.”

Another benefit has been the lack of serious financial blow-ups at the firm. And while some wealth management firms, such as UBS, are only now really starting to wonder about the merits of having an investment banking business after suffering painful losses in the sub-prime meltdown, Schroders sold its investment bank 11 years ago.

Heritage and values

A word that comes up a lot in the interview is “values”. Robinson argues that the firm has never sought to go all-out for rapid growth, a fact this correspondent remembers from the days, around 10 years ago, when the newly installed Schroders group CEO Michael Dobson was asked repeatedly whether the controlling Schroder family would spend its large pile of spare cash. The answer was always a cautious one.

Robinson happily endorses the cautious tone and was full of praise for the Schroder dynasty, as well he might be. He referred, for example, to Bruno Schroder, a fourth-generation member who sits as a non-executive director on the firm’s board, having joined the family business in 1960. It is the kind of continuity that Robinson says is a priceless asset.

“Bruno Schroder often hosts events for clients. It is in their [Schroder family] DNA; they understand what it’s like to be a wealthy client, and how they want to be treated,” he said. “Their attitude to the business is around taking the long-term view. That has been very important in driving the values adopted across the business.”

The structure of private bank management is pretty simple: Philip Mallinckrodt is group head of private banking; Robinson heads the UK business, with Julian Winser in charge of the Channel Islands; Luc Denis is head of Switzerland; Guiseepe Marsi is at the helm in Italy and Khing Go heads up Singapore.

Schroders has made a number of hires in recent months. In early autumn, it added Sue Chan to its global and international equities team, recruiting her from RCM Global Investors. It hired Matthias Scheiber from Aethra Asset Management as a fund manager to its multi-asset group. In August, the private bank named Kieron Launder as its chief investment officer. He joined from Rothschild Private Management.

At a time when markets are so volatile, Schroders, like its peers, is taking a conservative stance. Robinson said that managing client expectations in an uncertain market environment is important.

As for the brand, Schroders is a label that carries a strong caché – a firm with a history going back more than two centuries can certainly boast the sort of resilience that Swiss houses such as Pictet (founded in 1805) will brag about.

But there is no room for complacency. “There has been an effort to become more visible over the last five years and in being prepared to showcase our highest conviction ideas,” he said.

And of course, Asia has to be a topic.

“Outside of the UK, I think there are opportunities to grow in Asia, and to capitalise on the strong brand Schroders already has in the region,” Robinson said. The firm has already made moves in Asia, for example in acquiring the Singapore-based private client advisory unit of Commonwealth Bank of Australia.

So far at least, it seems, Schroders is finding “life in the middle” to be anything but painful.