One of the UK's most venerable private banks recently met with this publication to discuss its performance and say what it thinks about how some wealth management firms are now owned.

It is perhaps understandable in times of high-profile M&A changes in wealth management and fears of a revolving-door culture that a bank that can boast continuity is going to stress this quality to the utmost.

At Arbuthnot Latham, a London-headquartered private bank about to move to new premises in the City, a history dating back to 1833, a conservative balance sheet and quotation on the stock market are pluses, its chief executive says. Henry Angest, chairman and chief executive of the banking group, has a 55 per cent shareholding in the company - an additional source of stability, it is argued.

James Fleming, who joined this house in March 2012, having previously been a senior executive at Coutts, is very much of the view that steady growth and a strict approach to risk are the ways forward. And he’s also wary of a trend of wealth managers being owned by private equity houses.

Speaking to WealthBriefing recently, Fleming said he is unconvinced that private equity ownership of banks is a good idea, either for the firm or the end-client. He fears that pressures to unlock value, often through sharp cost-cutting, can be damaging. There is also the issue of how and how fast any wealth manager can grow without changing the personal character clients are paying for. “We don’t want to be industrial in size; we don’t want to get to a size where the whole relationship with a client is broken down in a series of small operations,” he said.

There have been a number of private equity transactions with wealth management houses in the UK and Europe recently. For example, Belgium’s RHJ International, a listed diversified holding company, bought venerable British private bank Kleinwort Benson in 2009 from the-then embattled Commerzbank (that bank had to sell non-German assets as a condition of receiving public aid). In February this year, Deutsche Asset & Wealth Management agreed to sell its UK regional business, Tilney, to a company controlled by the Permira funds. That agreement meant Tilney, founded in 1836, is now owned by the same structure that owns Bestinvest, the wealth advisory and investment firm that agreed to be bought in November last year. Deutsche Bank originally bought Tilney from private equity house Bridgepoint in December, 2006. A week ago, Old Mutual Wealth, part of UK-listed Old Mutual, agreed to buy Quilter Cheviot for £585 million ($940 million) from its private equity owner Bridgepoint, completing yet another change of ownership for the affected businesses.

Fleming isn’t alone in being concerned about whether private equity owners are suitable for such a business – although he declined to talk about specific examples. Brian Spence, of the eponymous Hamilton Spence business that advises wealth managers on business strategy, has voiced his concerns. It is important to note that there is no unanimity on this, however. Bestinvest is certainly relaxed, as it has told this publication, about having a private equity source of backing.

There has certainly been some consolidation-related M&A to create headlines – this may also be unsettling for some clients – and Arbuthnot Latham can show a beneficial contrast to all this, Fleming said. “We continue to see a lot of disaffected clients in the market who have fallen out of love with their existing bank partners and want to move somewhere else.”

What are these other banks’ clients saying? “They are saying things such as `I just don’t get a service any more’ …or that `I have had my RM changed twice in the last 12 months,” he continued.

A number of banks, including big-name brands, have withdrawn from markets where they cannot generate a worthwhile business (shedding booking centres) and consolidated their structures to push down costs and focus on where they can make a stronger living. (Such firms making these moves include the likes of Barclays and HSBC.)

“There is a lot of chopping and changing and ensuing market turbulence,” said Fleming.

Momentum
Recent reports suggest the firm is on the right track with its conservative stance. In March, its parent, Arbuthnot Banking Group, reported an overall group profit before tax increase of 25 per cent to £15.7 million ($25.9 million) for 2013, driven by a 266 per cent increase in profit in its private banking division. Last week, Arbuthnot Latham said in a trading update that it has "seen a good flow of new client introductions leading to attractive loan opportunities and further increases in funds under management". In a third-quarter trading update with few figures, the parent group said it expects full-year results to be "marginally ahead" of market expectations.

The firm is shortly about to move to new premises nearby in Wilson Street, a few hundred yards from its existing home in Ropemaker Street. That move has been done to keep up with expansion, but the new office is not a massive expansion.  

One thing that Fleming was keen to highlight was what he sees as the professionalisation of wealth management in the UK, with some of the pressure for this change coming from RDR. It is a change he welcomes. Arbuthnot Latham hired six graduates this year and is committed to in-house training. “We are in the positive position of putting down some seedlings,” Fleming said. The firm continues to also hire from outside, recognising that many bankers, he said, like the attractions of working for a firm where there are opportunities to shape a business and get close to clients, he continued.

The bank is not the biggest in its class in wealth management but with a history dating back to 1833 it has shown noteworthy endurance through some recent sharp market movements. And Fleming and his colleagues are pleased that, at long last, the distinct contribution made by UK wealth management to the wider economy is getting more deserved attention, as seen in the recent British Bankers’ Association report.