Getting a big wealth management M&A deal to work, rather than lead to marital strife, is a tricky task. How has Julius Baer managed to make things work with Merrill?

One of the biggest wealth management merger and acquisition deals of recent years is Julius Baer’s purchase of Merrill Lynch’s international wealth management business outside the US. It is a move that has propelled Switzerland’s third largest bank up the private banking league. Results for 2013 (see here) have been positive.

Julius Baer is about half way through the process of integrating the Merrill Lynch IWM business; and practitioners in this industry will be looking with a beady eye for how well this process goes.

After all, it is an oft-spoken point from number crunchers that most M&A deals destroy more shareholder value than they create. There are also some fiendishly tricky technology and compliance issues to get right.  (As for the price, Julius Baer pays 1.2 per cent of AuM transferred.) And firms such as research/consultancy findaWEALTHMANAGER.com have pointed out how deals can alarm clients if not handled properly. (See here.)

Given all this, a decision that Julius Baer had to take was how quickly to execute the transfer of managers and clients, and how to reduce the risk of old Merrill Lynch RMs preferring to go their own way, taking books of business with them. After all, the idea of an American house marrying into a Swiss one is full of ironies, given the US-Swiss rows about tax evasion issues over recent years.

Julius Baer took full control of UK operations last year, following the August 2012 agreement to buy the Merrill business from Bank of America; in December last year, it announced that operations in Lebanon, Bahrain and UAE had been fully transferred. Transfers are under way also in Switzerland, Singapore, Chile, Spain, Monaco, Luxembourg and Hong Kong. The transfers in certain regions have been announced over a period of stages.

One key ingredient in making the process work as smoothly as it has so far, according to Adam Horowitz, head of Julius Baer UK, is an approach he calls “dual hatting”. He explained what this meant when this publication recently met him at the Julius Baer offices in London. Horowitz is an ex-Merrill man who joined the bank as part of the process.

“What the dual hatting approach in the UK allows is for a relationship manager who has transitioned over to Julius Baer to still access the Merrill Lynch platforms in order to take care of their clients who are still contracted with Merrill Lynch. By doing the transaction this way, clients have not lost contact with their relationship manager for one moment during the changeover. It also affords the client time to consider the merits of moving to Julius Baer and making a personal choice rather than 'being sold' to an acquiring institution,” Horowitz said.

This approach can be labour-intensive, but the results are worth it, he said.

“Dual hatting definitely requires more work in terms of preparation, but the value and peace of mind our clients received, made it worthwhile. As an example of the ongoing client service, dual-hatted relationship managers had both a Julius Baer and a Merrill Lynch e-mail account as well as access to client accounts on both platforms to ensure uninterrupted service. There was also an internal `Dual Hatting Supervision and Control Team’ that monitored the business,” Horowitz continued, as he spelled out the grainier details of the approach.

“Relationship managers undertake specific training to ensure that clients are fully serviced according to the firm procedures that they are contracted with and during the period of dual hatting, clients are clearly communicated with, keeping them fully informed of the progress of their transition. Prior regulatory approval is required with details of process and controls clearly determined in advance,” he said.

So far, so good. According to latest figures published for the fourth quarter of 2013 and whole of that year, Julius Baer said that based on current expectations, it expects that by the end of the integration process in early 2015 the group will achieve the asset transfer target, towards the lower end of the SFr57 billion to SFr72 billion range, which would thereby also reduce the maximum total transaction price.

So how did the bank know that this “dual hatting” approach made most sense?

“We wanted to make the transition a smooth client experience from the very beginning and with the dual hatting approach clients remained in contact with their relationship manager and have taken time to make decisions. Our clients have complex portfolios and wealth planning structures so dual hatting was an important service to offer,” Horowitz continued.

This approach tends to be used, he said, where there is an M&A deal requiring banks to change booking centres for clients, repapering client contracts rather than a share sale. “Acquisitions of this type will certainly benefit from the positive client experience,” he said.

Timing
The time during which a client is served by an RM with the “two hats” was, in the case of the UK integration, about six months. There is no standard formula for how long this process has to last, Horowitz said.

Horowitz reckons RMs are pleased with how the process has gone, a statement borne out by the higher percentage (in the upper 90s) of those moving across to Julius Baer.

“Relationship managers very much appreciated that they did not lose information and access to clients during the transition process. This made for as smooth a client experience as possible during an acquisition which the client did not ask to be involved in,” he said.

The transfer has helped to make Julius Baer what he calls the “largest pure play or stand-alone private bank with a global footprint outside the US”. The size issue is important, given how economies of scale and market muscle are essential for both delivering service and keeping costs down.

Besides all the intricacies of making the acquisition work, Julius Baer in the UK has sought to raise its profile in London through events such as its sponsorship of the British Museum and its recent "Beyond Eldorado" exhibition.