"The term family-office has sadly been diluted," argues Charlie Hoffman of HSBC Private Bank in an interview. He also questions the assumption that private banks that are parts of large groups cannot operate as independent advisors.
“True independence as a wealth manager in the eyes of clients can be a tough sell when so many investors have been hurt by the financial system” wrote our group editor, Tom Burroughes, back in May. This had arguably led to the rise of the family-office and boutiques which have been mushrooming all over London.
However, one wealth manager who appears to have got things right over the last 18 months is HSBC Private Bank, which in July won the prestigious award of ‘Best Global Wealth Manager’ from Euromoney. This follows a slew of other awards for both Best Global and UK Private Bank from Private Banker International, Banker and Professional Wealth Management and Spears.
I asked Charlie Hoffman, a managing director at HSBC Private Bank in London what HSBC appeared to be doing right, what others were doing wrong and what the reasoning is behind his reported scepticism of the multi-family office model? Charlie runs a small team dedicated to the largest relationships at the bank.
Private banks in general
"I cannot defend all private banks," says Hoffman. "Sadly we are as an industry brought down by the lowest denominator. I left an institution many years ago because we were being ordered to book build product with an over zealous sales culture. I am being told horrific stories of sales days, traffic light activity management systems. How on earth can that be called client-centric?" Hoffman asks.
"These things do not exist at HSBC Private Bank. Here we look for generational relationships which often span many continents and we aim to work with the client and family in their best interests. It sounds logical," Hoffman adds, "but looking at some of our competitors it obviously isn’t."
And what about family offices? I ask. Surely they have benefited and can act as the guardian and gatekeeper for clients who need protecting by all accounts?
"I believe in the single family office model where it makes sense,” said Hoffman. “An SFO can guide a family group of wealth holders and formulate governance and strategy. It can also deal with many of the administrative and process driven issues that a large family may often have."
"However, single family offices are very good at knowing what their areas of expertise are and when to seek outside help," he says.
"The problem comes with multi-family offices and asset management boutiques. Firstly they often have an identity crisis and call themselves the wrong thing. We constantly come across asset managers calling themselves multi-family offices but in essence they are just providing investment advice with perhaps the odd bit of structuring. Even more worrying is that this investment advice is often only predicated on a scale of say six analysts and a staff of less than twenty," he said. He added: "The term family-office has sadly been diluted."
HSBC Private Bank
So where does HSBC Private Bank make a difference then? I retort to Hoffman. And why should a client trust the validity of all these recent awards?
"Our size creates access," replies Hoffman. "We have done two real estate club deals in Washington over the last year where a group of clients have clubbed together to buy two exceptional quality buildings with an exit plan. This transaction perfectly demonstrates our ability to ‘open doors’ for our clients. This syndicate purchase would have been an impossibility for our clients acting individually and we had a $12 billion family office situated there who admitted that they had been looking for similar quality opportunities and failed," he said.
"People sometimes forget what HSBC stands for - Hong Kong & Shanghai Banking Corporation. Many of my clients are global citizens these days, even if born and bred in the UK. If you believe that Asia is going to be the engine room of the global economy for the next 20 years, together with other emerging economies, you need to partner with a bank that has a pedigree and footprint firmly in place," he said.
As evidence of this point, Hoffman points to the recent joint venture that HSBC Private Bank clients participated in with Temasek, the Singapore Sovereign Wealth Fund, investing in China and India.
"Most importantly, a client, more often than not, needs much more than a wealth management service – credit is hugely important. We are ‘the only show in town’ for complex lending. None of our competitors has the capability or sophistication to lend on the same scale. By providing innovative, tailored solutions, we have grown with many of our clients and we know exactly who we are lending to. Our clients are often serial entrepreneurs with a fine line between their personal and business banking," he said.
"It is also not just about creating wealth,” he said. “It is about structuring it correctly, estate planning, governance, fiduciary solutions, to name but a few crucial services to ensure a full 360-degree service to the client."
I bring Hoffman back to the topic of multi-family offices and challenge him as to why they cannot be used for certain specialist investment expertise for example. "Well, being specialist smacks of a niche asset manager and not MFO," says Hoffman. "We are always researching and selecting those very best specialist managers for our clients. For example, as boutique or MFO, how on earth are you going to select and advise on the best managers from a universe of 27,000 long only funds and 10,000 hedge funds?"
"At HSBC we have over 130 people in our hedge fund team across the globe. It looks at a universe of roughly 8,000 managers, actively tracks 1,000, and makes 1,000 on-site due diligence visits each year. Due diligence is key. The team have been doing this for over 20 years and their success has made HSBC one of the largest managers of single hedge fund portfolios in the world. The team’s expertise is well recognised and this year alone won it Best Wealth Manager for Alternatives from FT Money and Investors Chronicle,” he said.
Hoffman believes regulation and the UK's Retail Distribution Review will further consolidate the asset management, family office and private banking industry.
"We embrace it", he says. "Clients come to us for the best advice and expertise and we need to field the most highly qualified advisors to cope with their needs." Hoffman himself is a qualified lawyer, did M&A at Freshfields for five years, is an MBA and a Member of the Chartered Institute for Securities & Investment. "Every time in my life I thought I had done my last exam there was another round the corner, I guess a necessary evil," he smiles.