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Singer & Friedlander continues to exude confidence

A staff reporter

15 February 2005

Singer & Friedlander, an independent financial services group and leading player in the UK wealth management industry, has successfully dipped its toes into the UK private banking market. At this stage, the group has decided to keep its newly established private banking business separate from investment management. S&F is one of the UK's largest discretionary managers of private client and family trust money. S&F has a business history covering nearly a century in the City of London, providing a range of financial services. Today it concentrates on asset management and banking. Its sharper focus reflects the strategic decision two years ago to exit from stockbroking and dispose a major portion of its valuable stake in Carnegie, a Nordic stockbroking and investment banking group floated last year on the Stockholm stock exchange. Around 18 months ago S&F began to move into private banking in earnest, an area earmarked for major growth and a key profit contributor, through the establishment of a proper standalone business. The process was kick-started by the appointment of Iain Stewart, recruited from Bank of Scotland, where he had established its private banking business in London as head of S&F's embryonic private banking business. Previously, the group offered rather rudimentary private banking services to some long-standing clients, through its corporate banking arm. "Our private banking business is based on relationship banking," Stewart told Private Client Management. A full range of traditional private banking services is still being developed. "Much of what we do is credit-led," he added. A decision on whether or not to offer credit cards to clients, who usually need minimum investable assets of £500,000 or an income of £200,000 to qualify for the bank's services, is yet to be finalised. "We probably will offer our clients credit cards because we want a total relationship with them," Stewart said. On the other hand, he added, "we do not want to get into general banking because of all the baggage that comes with that.". A major coup for its private banking business, both in terms of human resources and assets, came late last year with the recruitment of most of FleetBoston's UK private banking team. FleetBoston, the large US bank, has since decided to exit the UK private banking sector. FleetBoston's business was based on providing personalised banking services, with a particular emphasis on residential mortgages, to high net-worth US expatriates. A smooth migration of most of FleetBoston's accounts to S&F's private banking business was recently completed. FleetBoston is now fully integrated, and more than £100m of lending has been picked up, exceeding expectations, according to Stewart. The specialist approach to private banking S&F provides basic private banking services for its clients but the bank is looking to expand its range of specialist services. Earlier this year, two senior executives who specialise in luxury yacht finance and overseas property finance services were recruited from Ansbacher. Aircraft financing is one specialist service that the bank would like to add to the range of services offered, Stewart noted. S&F sees private banking as an important area of its growth, increasing the level of higher margin lending as part of a broader offering of banking and asset management services for high net-worth clients. Acquisitions of teams is a particularly favoured route for expansion, Stewart said. He is hoping to take advantage of further opportunities that will arise when other banks exit from activities that are viewed as 'non-core'. Now that the private banking operation is on a much firmer footing, the opportunity to get new business from clients in other parts of the group, especially on the asset management side, can be exploited and could also help fuel future growth. Private banking is still being developed separately from Singer & Friedlander Investment Management, the group's investment management arm. "But we are now working much more closely with SFIM than before, and do speak to each other a lot more now," Stewart said. Similarly, SFIM wants to exploit opportunities presented by its growing private banking arm. Greater cross-fertilisation between these two businesses is already starting to take place, however, there is the scope to do much more business through cross-referrals and through offering clients a more comprehensive service range. The private client is the principal focus of its investment management activities. Unlike many of its competitors, SFIM has much more private client money than institutional money under management, around £2bn, mostly managed on a discretionary basis for around 3,000 clients . More than 70 per cent of its private clients are domiciled in the UK. Private clients usually need a minimum of investable assets of £500,000 in order to have their investment portfolio managed on a discretionary basis. "Typically, we are seeing clients with assets of more than £1m," said David Poole, a director of SFIM. "We are one of very few players big enough to offer a full range of services to high net-worth clients. But we are small enough to know the client," he said. Importantly, SFIM has recently repositioned its marketing thrust in response to much tougher times within the industry. It wants to take advantage of opportunities to win clients who are disillusioned with the performance and fee levels of their current fund managers. Over the past few months the firm has taken on several senior people to forge a dedicated sales team, which mainly services the private client side. The team members with a sharper focus have responsibility for different layers of business, categories of intermediaries and for the various offices within the group network, Poole said. Introductions from lawyers and accountants are a core intermediary market, notably in the South East. One distinguishing feature of the firm's services is the provision of some specialist tax-efficient investment vehicles. S&F works closely with professional advisers, particularly accountants and lawyers, to set up these vehicles for clients. The group has a national branch network with offices in London, Birmingham, Leeds, Manchester and Nottingham. S&F also has an office in the Isle of Man, where it has a number of fund managers and offers a full range of fund, trust and cash management services for offshore clients. SFIM, which is primarily an equity house, has both specialist equity and bond capability. "It is holding its own above water and has a net inflow of new money, despite the difficult markets," Poole said. It does not, however, have in-house hedge funds and where necessary uses outside hedge funds for clients' investment portfolios. "Alternative assets are an important asset class but I do not think our business has been affected by not having our own hedge funds. Our net inflow of new money is testament to the strength of our business," he added. Each private client is looked after by at least three people who know the client and the client's investment risk profile. The team consists of a director with overall responsibility for the client's portfolio, a fund manager responsible for day-to-day investment portfolio decisions, and an administrator. SFIM's investment style SFIM is an active manager that aims to deliver a consistent, risk-adjusted out performance of the benchmark agreed with the client. Its style is that of an equity-focused, bottom-up manager aiming for 'growth at the right price', with the emphasis on the 'right price'. Typically, the firm concentrates on companies whose earnings growth is accelerating in relation to the peer group and broader market. It believes that, over the longer term, earnings growth is the key determinant of stock performance. Asset allocation is based on a combination of a top-down macro-economic approach and analysis of market-specific developments. Portfolios are constructed from the bottom up, using a stock selection approach. Less importance is placed on broad macro-economic themes. At times, as much as up to 40 per cent of the portfolio can be invested in mid and small cap equities, an area where SFIM sees itself as having a particularly strong research capability. The weighting of client portfolios towards medium and small caps tend to be heavier than the weighting found in the portfolios managed by competitors. All geographic areas are covered and nearly everything is done in-house, Poole said. "Broadly, we buy and hold through our own people, which gives us control over the investment portfolio. In those cases where we cannot provide, such as Far East cap stocks, we buy the expertise elsewhere." On the mass affluent front, for private clients who have a minimum of £25,000 to invest, the firm offers an exclusive service, including the appointment of an investment manager responsible for the client's portfolio. These portfolios, shaped according to the client's defined level of risk and objectives, are invested in the group's range of pooled funds. "Few people offer a comparable service. It is not a retail product," Poole added. Looking ahead, SFIM is keen to continue expanding both organically including generating growth through increased targeted marketing and through acquisition. The aim is to seize the good opportunities, thanks partly to restructuring within the industry, and to recruit key individuals and teams, Poole pointed out. Opportunities to make strategic acquisitions of businesses, financed by its cash pile, are also surfacing at prices that are much more modest these days, given difficult equity market and industry conditions.