LONDON – The world’s richest dynasties are putting more of their wealth into the hands of family-run mini banks as the global elite takes an increasingly dim view of global private banks’ performance through the financial crisis.
These multi family offices (MFOs), many of which were founded by single families such as the Guinness dynasty but later opened up to multiple clients, are reporting hefty increases in new business.One example is London-based Stanhope Capital, set up as a family office by a group of secretive rich European families whose identity it refuses to disclose. Client numbers have gone up by 50 percent since the credit crisis, it says.The biggest players in private banking – such as Merrill Lynch, UBS and Credit Suisse – are fighting hard to retain the role of lead adviser and avoid becoming just one among many providers.’The share of wallet of the big players is under attack. Though we are not going to see a wholesale change, we are going to see a spreading of assets,’ said Bruce Weatherill, an independent wealth management consultant.Other mini-banks are confirming the trend, saying clients are unhappy with larger rivals because of their weak performance during the crisis and perceived conflicts of interest as they flog their own products.Most of these were set up over the past decade to manage the riches of single families, but later opened up to multiple clients in order to compete more aggressively with banks and make such ventures more profitable.ABSOLUTE TRUSTIveagh Private Investment, for instance, is now a multi-family office (MFO), but started life as a small office managing the assets of the Guinness brewing dynasty.And SandAire – set up in the 1990s to manage wealth for the Scott family after it sold off Provincial Insurance – began building a list of around 20 clients in 2002.Few expect these tiny outfits to do serious damage to large banks, which sit on the lion’s share of some US$33 trillion of rich clients’ assets worldwide, and large wealth managers at private banks vehemently deny any conflict of interest.’I would argue the clients have absolute trust in their financial adviser (who) will put their interest ahead of the bank’s,’ said Nick Tucker, head of wealth management for the UK and Ireland at Merrill Lynch Wealth Management.But while they have become bigger, MFOs still present themselves as offering a more tailor-made, intimate service that extends beyond just talking about money, something that some of the larger banks struggle to match.One senior adviser at an MFO said she once arranged to ship a large supply of nappies to a family’s Caribbean villa, while another spoke of refitting the interior of a private jet in ‘strange’ taste. Both declined to elaborate.BRIGHT FUTUREThe liquidity boom that ended in 2007 saw a surge in people enjoying windfalls from public listings and takeovers of family-owned companies, all potential clients for the mushrooming family office sector.It is one reason why many MFOs are upbeat about the future, particularly since the reputation of some of the world’s leading banks has been dented by their role in the credit crunch.New York-based Geller & Co, which manages wealth for clients worth more than $50 million, expects to increase the number of its accounts to 100 from 30 in five years, quintupling assets under management.’We are not preying on (private banks). It’s an accident of history that in the total number of clients that we’re targeting …. they are often at these large banking institutions,’ said James McLaughlin, who heads Geller Family Office Services. Stanhope Capital added 20 new clients since the financial crisis started in late 2007, taking its total to 60. Most of these came from banks and large asset managers, according to Chairman Daniel Pinto.Some say the overall impact may be limited.’The boutique business might put a small dent into the big banks, but when it comes to taking market share … if in aggregate they took one per cent from banks this year I would be very surprised,’ said Nicolas Sarkis, CEO of AlphaOne Partners, an investment boutique based in London.Still, a senior banker at another large global banking group privately acknowledged that while he had seen a net gain in clients, a significant proportion had not picked the bank as principal guardian of their wealth.’Clients have undoubtedly reacted to the difficulties by spreading their assets amongst a number of providers,’ he said.’The challenge is for the global private bank to win its spurs as the lead relationship with the client as opposed to being one of a number of product providers with little loyalty or value beyond price and execution.’ – Nampa-Reuters
