Is London losing its grip as the
world’s leading wealth management centre? What can it learn from
its emerging market challengers? And how can the UK capital
position itself in the future? Our high-profile panel tackles these
questions and gives its suggestions for London’s future direction
in PBI’s special section.
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Be bold,
innovate and emphasise the unique skills London has on offer. Those
were some of the key messages from a high-profile round table
brought together to debate the capital’s future as a leading wealth
management centre. This first section on London’s challenges kicks
off an eight-page special spanning regulation, its international
appeal and how to position the UK capital in the future.
Paula Elliott (PE), moderator:
Is London in danger of becoming a large branch office of private
banking networks compared to up-and-coming wealth management hubs
such as Singapore and Hong Kong?
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By GlobalDataJames Fleming, head of
international private banking and offshore, Coutts &
Co: The quick answer is no. I don’t see London becoming a
branch of Asia-Pacific. There is no doubt at all, the current
economic statistics and indeed the future forecasts point to the
growth of Hong Kong and Singapore. At the same time, there are
still many features that make London a very attractive centre.
We don’t see a slow down of this
growth at all if you look the types of client who use London as a
private wealth centre. We see a continuous growth in the numbers of
clients who come to us and in feedback from our contacts.
The core
features of London are that it is a financial centre, a key centre
of wealth management, a cultural centre where we see many clients
coming from the Middle East, India, and further afield, looking at
London as the place where they should buy a property and invest a
proportion of their wealth.
In London they are looking for a
sustained regulatory environment and a place where they want a
proportion of their wealth managed. We see continuous growth. I do
not see any diminishing importance for London.
John Barrass, Deputy CEO,
APCIMS: I agree that London is not a branch economy of
anywhere. However, I think there is inevitably some vulnerability
as the rest of the world tries to catch up. It is very hard to stay
number one forever and I think there may be some leapfrogging. We
must fight back.
I think the big areas we need to
look at in terms of retaining competitiveness are those where we
retain some sovereign control. UK financial services legislation
and regulation is now formulated mainly at EU level. Our parliament
is increasingly bypassed as EU regulation, which does not require
national legislative implementation, becomes more widely used. This
is different from EU directives which do require national
legislative implementation.
Without national implementation and
legislative intervention, the degree to which we have sovereignty
over our own regulatory affairs becomes very limited. I don’t think
therefore we can repeat the past to create a better regulatory
environment for financial business than elsewhere – and I emphasise
“better”, not “less”, regulation.
But I think there are nevertheless
issues on which we can make a national difference. For example, tax
is very important. I am not a tax expert, but it’s clear to anybody
with an interest in competition to London as a financial centre
that tax is a real issue. And the problem here is uncertainty.
People are willing up to a point to pay tax, except in very rare
cases, but they want to do so under conditions of certainty so that
long-term planning becomes possible. And I think we’ve a history in
recent years of not having that.
Nicholas Moody (NM), editor,
PBI: Middle Eastern clients have traditionally favoured London as
their preferred booking centre, but what are Middle Eastern clients
looking for in the wake of the Arab Spring? Is London still
relevant to them, and if not where are they looking?
Gary Dugan, Acting GM and CIO,
Emirates NBD Private Banking: The hook is the real estate
market. The hook is that this is the place they want to pick up the
culture of the west and enjoy it for six to eight weeks a year. But
they also get hooked on the financial services.
There is a trend, particularly in
Saudi Arabia, against ‘suitcase’ private banking, and I think if
you look across the world at the moment these countries do not want
to be raped of their wealth.
They do not want people coming and
taking their money to booking centres such as London.
So I think the regulation around
the world is actually working somewhat against places like London
and, as we’ve seen, Switzerland.
A fundamental thing that London has
to grasp is the issue of risk. If a Russian client walks into our
bank branch in Dubai, it seems normal, but if he walks into London
I still think he is seen as some kind of crook who is going to
create problems. I think that’s a cultural problem.
Many of the emerging market
countries are still seen as being a little bit cowboyish.
But if you actually live in the
emerging world, and if you live close to those clients, you get to
understand them and therefore you are much more acceptable of that
kind of risk.
I think as London gets more
open-minded, it already has a strong base of emerging market
clients and it can really make something out of it.
NM: Gary, you mentioned that
London needs to be more open-minded. Could you expand what you
meant by that?
Gary Dugan: It’s
almost as if they are the developed world and we have got to
re-emerge and reinvent ourselves.
They know what they are doing. The
Middle East has debt, but it’s miniscule relative to the problems
that we find in places like Greece and across Europe, and indeed in
the UK and the US these days.
I think what we should learn to
accept in the G7 countries is that these powerhouses are here to
stay, and that they are going past us.
We have to accept these
powerhouses, and we have to adapt to their needs rather then asking
them to adapt to us.
I need a balanced portfolio that
has a 40% weighting in the emerging countries, because that’s what
their clients are comfortable with, not five% on the edge of just
one product.
So I think there has to be
reshaping, either as a product solution or as a fresh approach to
the risk appetite of some of these clients.
PE: Rupert, you were involved in PBI’s round table in 2009
when you forecast many family offices could close in 2010. Do you
expect increased consolidation among family offices and wealth
managers in general?
Rupert Phelps, Director,
Family Office Services International, BNY Mellon Wealth
Management: The whole consolidation discussion is a
favourite of industry commentators. But the flip side of
consolidation is, of course, atomisation.
I think sometimes it is an
atomising effect which has actually been spurred by this
consolidation, and is sometimes not appreciated as much as it
should do.
By this I mean that as firms get
larger, employees sometimes wish to work in smaller environments. I
don’t say it’s right or wrong, good or bad, it’s simply an
evolutionary process.
If you want a net answer as to what
is the sum, I think that’s quite hard to answer. I think there is a
balance between the two.
However, I also think it’s an
interesting observation that as people move from firm to firm, and
regulation increases, the proverbial moveable book decreases.
Ten years ago, a banker might bring
across 50% of their book in two or three years, but now 10 to 20%
is not looking too bad.
It’s a separate conversation is if
it’s ultra-high net worth clients. Then it is actually much higher,
for obvious reasons; fewer clients, closer ties. If you therefore,
as a manager at a private bank, want to grow assets under
management, buying staff or teams is much less reliable than it
used to be.
Once you have actually bought the
book, their clients have to make an active decision (against client
inertia) to leave the firm and come across.
I wonder if those simple facts –
the difficulty of people changing jobs, the regulation of owners
and clients becoming more cynical – means that the way you grow
assets is by making an acquisition at company level, since in this
situation you play client inertia to your advantage.
Clients don’t have to make a
decision to join. Instead, they have to make one to leave.
James Fleming:
Does anybody still hire on the basis of relying on the banker to
arrive with a percentage of their client book?
I feel that idea went out of the
window at least five years ago. There are so many examples of
people not bringing their books, or the burden of opening a new
account putting clients off a move, with clients feeling
commoditised by their banker. I don’t think anybody really hires
today on the basis of a banker bringing in a percentage of his
existing client assets.
Josh Matthews, managing
partner and co-founder, MASECO Private Wealth: Are you
simply talking about the situation here in London, or globally?
James Fleming:
Globally.
Josh Matthews: In
the US it still happens all the time.
Here in London it is very
difficult. The transferring of assets in London is very difficult
and time-consuming whereas in other parts of the world, such as in
the US, you can get assets transferred in a week,
automatically.
PE: The costs of running a
private banking business are already high with staffing being one
of the key drivers. Is London in danger of experiencing a brain
drain? How can the private banks hold on to their best and
brightest?
Jean-Pierre Flais, Deputy
Chief Executive Officer, SG Hambros: I would certainly
agree that costs of banking are already high and getting
higher.
In that context is London in danger
of experiencing a brain drain with the move of employees eastward?
Certainly there is always going to be a trend for some people to
move where the best market prospects are.
That being said, our experience is
that the business in London, especially the international segment,
is still growing strongly.
There are actually several
initiatives that banks can use to hold on to their best employees.
Firstly I think that for players with a global presence, banks can
establish systems whereby a banker has the ability to book his
business from elsewhere, and the income is allocated to that
banker.
More generally a global presence
can accommodate a move of key people to assist the company
subsidiaries so that a departure from one entity is not a loss for
the group overall.
Going forward, I also see an
increasing trend of bankers coming to London.
More and more people are looking
for a global profile and I believe that there will be a great
number of people from other countries (in Asia for example) who are
willing to spend a part of their career in a traditional banking
centre.
I think London is best placed to be
their number one choice, probably alongside Switzerland. In
conclusion, I think that UK-based banks should not be complacent,
but London itself has equally compelling assets to attract
staff.
PE: Are there any other
thoughts about the challenges London faces?
Gary Dugan: I want
to mention one small, expensive point: IT. We talk about banks with
many years of experience, but it’s also years of technology dating
back some time.
I’ve had experience of a number of
banks trying to update systems when transferring thousands of
clients with thousands of constraints, and that costs a lot of
money. I just did the same exercise in Dubai with fewer clients,
and it was clearly cheaper.
A lot of emerging market banks
develop their banking systems and can put leading-edge technology
in because the cost goes up exponentially if you have been doing it
for some time. You need someone behind you to support you to bring
that technology. It’s important for the client experience.
Jeremy Fern, head of City
affairs, City of London: There is a question of whether
London continues to have access to the best players across a very
broad spectrum of skills. IT is one of them. I know concern is
being expressed on new migration policies about whether London is
still allowing itself to be open to people at the cutting edge of a
fast-changing technology for short periods or their whole
careers.
See also:
PBI Round Table: Regulation – a force for
good?
PBI
Round Table: Selling global guidance
PBI Round Table: Preparing London’s pitch
