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Wealth Managers Confident of Client Loyalty

Stephen Harris

26 September 2006

Over half of wealth managers taking part in last week’s WealthBriefing Poll of the Week think that relationship managers can successfully take clients from one bank to another. Only 26 per cent think that the relationship is with the bank WealthBriefing asked the question, “Can client facing staff successfully take a book of clients from one wealth manager to another?” Yes, clients are more aligned to the individual than the bank, answered 57 per cent, whereas 26 per cent said no, the relationship is with the bank and not the individual. A further 17 per cent said yes, but they can only change once. "This result suggests cannibalism could still be in the market if relationship managers are confident they can 'swap' books between banks,” Sebastian Dovey of Scorpio Partnership told WealthBriefing. “Longer term, recruiting banks would be better off hiring professionals that immediately source new assets from the open market. These assets are more sticky to the institution. Unfortunately, it is clear from this poll that short-term 'client swapping' is a more popular strategy. There are three losers in this - the bank, the relationship manager and the industry," he said. His view was echoed by the UK head of a global private bank who told WealthBriefing: "Hiring a relationship manager just for their book is a very unprofitable business in our experience. What is more important is that the individual brings skills and knowledge that complement the existing team." Analysts suggest that from the bank’s perspective hiring a team is a much more interesting proposition than an individual. “Private banks are trying to expand organically. In the M&A market there are too many buyers and not enough sellers. The banks are therefore keen to hire teams from competitors. Individuals find it more difficult. Historically, 60/70 per cent of clients went over to a new bank within 2/3 years. Now the figure is more like 30 per cent in the same period. Often, if a team goes the losing bank will agree to sell on the clients to the new bank,” said Bruce Weatherill, global private banking head at PwC. On other estimates, the average relationship manager who has an established book of business built up over a 5-year span, will be able to leave with around 50 per cent of their book coming over to the new bank in an 18 month period. “Most banks do not see this since they only monitor the first few months,” said Christian de Juniac, senior vice president and director of the Boston Consulting Group. “Relationship managers who do go to another bank must be careful that they do not do this more than every five years and their new bank must be of similar quality or better than their last,” he said. And type of institution, as well as quality, is increasingly an issue. “We note a trend from 'retail' private banks to purist wealth managers - naturally reflecting the underlying private client demand,” Tim Gibson of head hunter Gibson Tullberg told WealthBriefing. “Over the last six years we have seen bankers move complete books up to $490 million within the first six months. Equally, we have seen others struggle to move a penny,” he said. Other industry figures point out that if a relationship manager is doing his job properly it will be difficult to move a client easily or quickly to another bank, as they will probably be locked in to one or more structures. “Increasingly, clients are sophisticated and make choices about institutions after very careful thought and only after informing themselves about track record, competence in the area of risk analysis and, most importantly, gaining a full understanding of the asset allocation process. That said, a good CRM will retain key relationships and will expect to migrate them over time,” said Simon Culliford of search firm Culliford Edmunds. ”In the longer term, client relationships will be more cemented with the wealth management institution as clients get more embedded into product structures and increasing layers of compliance,” said Ray Soudah, founder of MilleniumAssociates, the Swiss-based global advisory firm to the global financial services industry. “But in the short to medium term money will move, wholly or partially at least, with the relationship manager as demonstrated by the ongoing and even increasing demand for significant poaching of relationship managers in every financial centre and the consequential rise in compensation and incentive scheme costs,” he said.