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New Kids On The UK Wealth Management Block

Tom Burroughes

8 June 2010

With so much unsettling economic news out there, it might be easy for wealth managers to become downhearted about the state of their own industry. But that would be a mistake, at least judging by the volume of new business starts in this sector.

Within the UK alone, for example, there are plenty of instances of new firms being set up. That is apart from the raft of funds, products, rebrands and merger and acquisition events that continue to stir the market, suggesting no lack of entrepreneurial vigour.

Here are some of launches going back over a period of around the past six months:

-  FBN Bank (UK), owned by First Bank of Nigeria, recently set up a new private banking division under the leadership of former Coutts and HSBC executive Nigel Hawkins.

-  Hargreave Hale, the UK-based stockbroker and investment manager, has launched a new wealth management service targeting sportspeople.

-  A new investment management firm, Trigon Wealth Management, has been launched to specifically target high net worth individuals from Estonia and the CIS countries.

-  Sir John Beckwith, a prominent figure within the asset management industry, is to focus on the launch of a new wealth management business following Thames River Capital’s recent sale to F&C Asset Management.

-  Two former Hotbed directors have launched Connection Capital, a private client investment business which will allow individuals to build a broad portfolio of direct private equity investments.

-  Stonehage Group, the London-headquartered multi-family office, has launched a new Geneva-based business headed by Craig Anderson, latterly of JP Morgan, as director.

-  New Quadrant Partners, the law firm in the UK, is setting up a specialist private client group, involving former Sand Aire executive Joan Major.

-  WH Ireland, the London-listed wealth management and securities firm, has rebranded its wealth management business and launched an asset management arm.

As these examples – taken from a quick trawl through this publication’s archives – suggest, some of the new arrivals are not household names in private banking. But what is clear is that there is plenty of appetite to enter this market.

The appetite is not hard to explain. According to last year's Merrill Lynch/CapGemini World Wealth Report, it predicted that high net worth individuals’ financial wealth will grow to $48.5 trillion by 2013, advancing at an annualised rate of 8.1 per cent, arguing that this growth will be driven by the recovery in asset prices as the global economy and financial systems stabilise. (The next report is due to come out on 22 June).

Such growth rates, if validated by experience, suggest there is still plenty of room for newcomers.

Striking out

Another example from about two years ago suggests there are other reasons for new launches. Consider the case of Vestra Wealth, a business founded by former UBS man David Scott. That particular firm was set up in the late summer of 2008, involving the mass defection of dozens of former UBS employees. The Vestra case suggested that a powerful motive for wealth management entrepreneurs is striking out on one’s own to enjoy the freedom of running a business rather than being a part of a big group. In the UBS case, the defection came at a time when the Swiss firm was hit by a wave of problems, such as huge credit losses.

And another factor is that clients have in many cases been so angry at heavy losses and a perceived poor quality of service that wannabe new wealth managers calculate that they can provide a better offering.

In the case of FBN's new private bank in London, the launch showed how wealth managers are looking at groups of individuals that might have been overlooked as distinct client segments in the past, such as affluent west Africans who are either domiciled in the UK or who want to have their affairs managed by a specialist bank. The Hargreave Hale example, meanwhile, shows how individuals in fields such as sports, media and entertainment continue to attract interest from wealth managers. Even within established banks, firms create new divisions or client segment teams to reach such clients.

Different models, motives

Setting up a new business can be tough, particularly as the regulatory climate is likely to become more onerous, according to Bruce Weatherill, a consultant and advisor to the wealth management industry. "The question is how much assets under management do you need to pay for the costs and overheads," he said.

However, a number of new businesses will be able to start by taking a core of old clients with them, giving them fee income to get under way, he said.

Some of these new businesses can be seen, Weatherill said, as "quasi-small family offices". "We're seeing a lot of them coming up," he said.

Sebastian Dovey, managing partner at Scorpio Partnership, argues that some of the new entrants have very different ideas on what clients want, which will often decide whether such new entrants turn out to be successful.

"There are arrivals and there are new arrivals," said Dovey. "The former just repeat the same approach to winning business and they target the same customers. At times, it seems the only difference is the office address.”

“The new arrivals are the interesting ones. These models are attacking the market differently. They are the pioneers. They are prepared to be fundamentally different, targeting new clients, providing new economics and forcing the market to look at the concept of the financial solution differently. Unfortunately, there are only very few of these in wealth but those that do exist have been a pleasure to work with".

Regulation also plays a part in changing the wealth management landscape. According to industry speakers at a recent conference in London, up to 15 per cent of all UK independent financial advisors may go out of business due to the raised regulatory burdens imposed by the Retail Distribution Review, taking effect by 2012. To protect margins, more IFAs may try to enter the mass affluent and high net worth markets instead.

Painful losses

Ian Woodhouse, a consultant on the wealth industry, said that the painful losses suffered by clients in the credit crunch shook faith in established big firms and opened up opportunities for new firms to offer something different.

“The new wealth management firms are being set up to cover the shortfalls experienced by many clients during the credit crisis,” he said.

“The first shortfall was the traditional client service models. The larger firms tended to try to be all things to all people, in other words they offered services to a wide range of clients and typically the client service model covered servicing well over 100 plus clients,” he said.

As a result, Woodhouse argues, when clients tried to contact their relationship managers during the crisis, most wealth managers were overwhelmed and clients were unable to speak to their wealth manager.

“This has offered opportunities for new wealth management firms that were more focused on particular client segments,” he said.

Woodhouse also argued that larger firms are in many cases not seen as being independent advisors and have pushed products to clients. It is also now easier for smaller firms to enter the market due to their ability to outsource a good deal of back-office functions to external firms due to improvements in technology. This reduces barriers to entry into the market place.

“Probably the most important point in the current rise of new entrants is that the client needs have fundamentally changed in a number of ways post the credit crisis. For example, on the offshore side you now need to be able to offer repatriation assistance skills and on the onshore side its going increasingly to be about tax efficient products and services,” he said.

“These changes favour the more nimble new entrants who are not encumbered by a legacy mindset and infrastructure and who can more quickly respond to changed client needs. Many traditional established and larger players are in a state of denial over changed client needs,” Woodhouse added.