Some boutique private banks have disappeared from London which has raised doubts on what role these smaller players can play in UK’s 400-year old private banking industry, one that is typically steeped in tradition.
Against the backdrop of this uncertain future, takeovers and book closures have dominated the headlines for the UK boutique private banking sector in recent years, with new entrants also coming to the market.
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So what is outlook for these newer boutique private banks?
Current climate
Ian Woodhouse, head of strategy and change for private banking and wealth management at Orbium Consulting, says: “It is harder to be a boutique private bank than in the past as interest margins are low and costs of banking regulation are rising given the new banking capital requirements.”
Boutiques need to invest in systems and digital banking services to keep pace with changing client demands and competition from larger players, he says.
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By GlobalDataAccording Woodhouse the boutique private banking sector is transforming and the line up of players is changing. This transformation period involves boutique private banks exiting, entering or merging with a larger bank of a parent group to share the costs of IT with their parent group and reduce cost.
Key closures of UK’s boutique private banks
- Hampden & Co launched as UK’s first new private bank to emerge in the UK for more than 30 years in 2015.
- In December 2016, wealth manager Brewin Dolphin and boutique private bank Arbuthnot Latham snapped up Duncan Lawrie. Following the takeover, Duncan Lawrie’s asset management business which ran £735m for more than 1,000 customers moved to Brewin Dolphin and the group’s loan book of £44.9m shifted to Arbuthnot
- Bermuda-based Butterfield Private Bank – which had an office in London-closed the book on its UK operations in 2016. This affected around £1bn of client assets.
- Metro Private Bank appeared on UK’s high street at the end of 2016 and is an example of retail players moving into the private banking space.
- In 2017, Harrods Bank shut down after years of losses.
Ian Henderson, ex-CEO of boutique private bank Arbuthnot Latham told Private Banker International last year why boutique private banks may struggle to survive.
Henderson says: “There still remains a significant requirement to provide wealth management services to clients across the UK and internationally, but there seems to be a bifurcation in how those services are provided.
“On the one hand, you have the big guys, e.g. Coutts and Barclays. And on the other hand, there are the small players. The small players are becoming an endangered species in some respects,” he explains.
Henderson’s comments about smaller banks being “endangered species” comes as several international wealth managers have wound up their London offices in recent years.
He attributes the closures to pressures on revenues caused by the rise of robo-advisers, passive investing and costs driven by regulation.
Approach
Certain boutique banks such as Lombard Odier use a very specialised approach, and mainly serve the UHNW client base.
Experts tell PBI the pros and cons of using specialised approach.
Woodhouse says: “For boutiques to survive they need to offer specialisms and have sufficient scale so you see firms either specialising on high service banking or specific asset management approaches and on particular client segments.”
Commenting on which of the two business models, specialist or diversified which involves catering to a broader client base is more viable, Bartosz Golba, GlobalData’s head of wealth management, says: “The challenge is that boutique providers would ideally prefer to work with the wealthier segment, so the one that the big guys are after. This is where the margins are higher and where the traditional private banking model works best.”
Golba observes a trend of big players increasing their “minimum investment thresholds” and moving smaller accounts to digital platforms.
But he warns: “The question is how big this group is, because narrowing one’s target market too much might lead to troubles.”
He cites recent robo-adviser closures, and thinks the same can happen for the private banking industry if the target focus is too narrow.
Another point made by Golba is that larger players can leverage other divisions (e.g. corporate, retail banking) to offset regulatory costs, but boutique banks “cannot leverage divisions”.
Technology
Several private bankers interviewed by PBI argue that using technology ‘smartly’, while not losing the human touch is a key challenge that boutique private banks must overcome.
Technology matters to boutique private banks as some of them use technology to position themselves as challenger banks to traditional players.
Boutique private bank Lombard Odier- that also has a UK office- has developed an IT platform to manage third-party IT services for other private banks.
Woodhouse is bullish in his outlook for the UK’s boutique banks because the “evolution of technology allows them to outsource their back office operations” which he believes allows firms to focus more on product and client specialisms.
Bottomley comments: “Banks must ensure they are on the front foot of cutting edge technology to best serve clients’ ever-evolving needs.
She adds: “We are always looking at how the use of technology will impact the private banking space and how we should best use technology to enhance the client experience. Whilst there is a space for digital and faceless banking, private banking is based on trust evolving over time rather than being transaction led.
The technology challenge is also echoed by Graeme Hartop, CEO at boutique private bank Hampden & Co. But Hartop says the technology challenge is common across the industry, not unique to boutique private banks.
A unique challenge facing UK’s boutique private banks is “how to balance the fact what some people look for in a private bank is a very discreet and reserved brand with the desire to make more people aware of our offering,” according to Hartop.
The right people are key to growth
The experts speaking to PBI suggest that boutique private banks should not target clients, but advisers instead in order to sustain growth.
“I believe boutique private banks should focus on targeting not necessarily client, but advisors. Attracting and hiring those who might not be happy with changes going on in their current institutions is a way to bring new portfolios of clients and sustain growth,” Golba comments.
Barnsley adds: “For us, given our fast rate of growth as we expand across the country, our largest challenge remains recruiting the right quality of private banker.
It is clear that boutique private banks need to find a balance between containing costs and maximising revenues at a time where regulatory requirements are increasing and competition from fintechs remains high.
But a Bottomley point out bigger players commoditising client propositions for short-term returns has disillusioned many clients. Focusing on advisers who want to work across alternative business models could yield substantial growth and be the way forward for boutique banks to thrive.
The type of advisers boutique private banks recruit, and develop will ultimately determine what the future of boutique private banks will be, but the overall picture is promising.
