Wealth management professionals recently gathered in London to discuss the issues facing the ultra high net worth segment.

Wealth management professionals recently gathered in London to discuss the issues facing the ultra high net worth segment, at a time when the sector is experiencing record growth and clients are becoming more demanding.

As the ranks of the UHNW continue to grow around the world, wealth management firms that are looking to target this segment are faced with a number of challenges in what is becoming an increasingly competitive market.  

The roundtable event, which was held at the Tate Modern on London's South Bank, examined key issues affecting the UHNW segment, including the role of trusted advisors, the business models used by wealth management firms, inter-generational wealth transfer and how clients can be served more effectively.

Speakers were Remi Frank, who is head of the UHNWI and independent wealth managers segments at French banking giant BNP Paribas; William Drake, director and co-founder of Lord North Street; Irene Graham, managing director at the British Banking Association; Caroline Garnham, chief executive, Family Bhive; Wendy Spires, communications consultant at Bulletin and former head of research at WealthBriefing; and Dan Dagg, wealth management specialist at EY. The panel was chaired by Stephen Harris, publisher of this news service.

The event was also filmed and we at WealthBriefing hope it throws some light on the growing opportunities for wealth management firms in the UHNW sector.

Growth in the UHNW segment

The panellists were asked whether they had seen an increase in growth in the UHNW sector. Family Bhive's Garnham talked about how the segment was growing globally and the impact of this on firms.

"I think the UHNW segment is growing globally and is becoming more demanding. They certainly want to build a team of trusted advisors and the second generation is coming through strongly and they want to get involved in some instances," said Garnham.

BNP Paribas Wealth Management's Frank explained that much of the firm's growth in the UHNW segment was coming from Asia. "Our main growth is coming from Asia and we are also seeing growth in the Middle East and Russia and to a lesser extent in France, Belgium and Italy," said Frank. "Even though the growth in some of these economies is not there, you can still find entrepreneurs and get into the UHNW segment," he added.

Drake said that Lord North Street's client base was predominantly continental Europe, but the firm was seeing growth in other territories. "Our client base is really continental Europe, but we have seen some interest from Mexico and Latin American countries in the past year," he said.

EY's Dagg explained that since the financial crisis there had been a decline in the UHNW segment, but it was now picking up.

"We have seen growth in the past couple of years, but prior to this there was a downturn in the market. I think you certainly see different attitudes to the way people are investing. There is a much more comprehensive view on risk within people's strategies and what they are looking for is the quality of the relationship with advisors. So the family office model certainly figures very strongly in the UHNW base," said Dagg.

Types of UHNW clients

Harris asked the panel whether they thought there was one personality type that categorised the UHNW segment.

"UHNW are not a category of people, they are people that have money and are as different as the people you know and come across," said Garnham. "They are unique in the sense that they all have money they either have to look after, that they can spend, or give away," she added.

Drake pointed out that the behaviour of clients tended to be influenced by their background and experience in business.

"In my experience, very successful businessmen tend to be detail-minded, determined, controlling and willing to take set backs in their stride. That can mean that their attitude towards investing can be equally controlling, and as a result they want to decide and monitor everything as that is how they built the success of their business," he said.

"We have clients from every generation," said Frank. "We have clients who are very young from some Western countries investing in emerging markets, for instance. I feel that they all want to keep their money and give it to their heirs. This is the motivation for all our clients, whether they are from Russia, China or Europe. They benefit from our wealth planning solutions," he said.

Drake pointed out that this was not always the case as there were some exceptions.

"There are some clients who don't want to give it to their children; they want to give it away. Wealth can cause awful problems. If you give it to them or don't, you've already caused problems by making it."

Bulletin's Spires thought it dangerous to make generalisations, but said it was possible to "nail down certain common issues".

"If a family has made wealth, I am sure they are very aware that for every Rockefeller family you have a Vanderbilt. Reserving that wealth and having something to show for further generations is something that most of them would want, even if that is a philanthropic mission rather than a family one," she said.

"The UK is a large centre for private banking and UHNW individuals, and in that environment today, everybody is making sure they are looking to service the client," said the British Banking Association's Graham.

"There is also a challenge between the regulatory framework and what UHNW individuals are looking to achieve. I am also quite interested in terms of the investment aspect in what UHNW clients are looking to do with their wealth in terms of angel investment, which is growing," she said.

Co-investing

Garnham said that while she was seeing a trend towards UHNW clients that wanted to co-invest, regulation was proving to be a barrier for many.

"There is a lot of frustration amongst UHNW clients," said Garnham. "They can't find the investments of other single family offices as they are not allowed to promote it because the FCA prohibits the promotion of co-investment deals. So they are scurrying around, trying to find somebody else," she said.

Frank said that BNP Paribas was involved in co-investing and that clients ultimately ended up with their peers, but would sometimes be placed with people from other countries due to the firm's extensive global footprint.

"We have some co-investment where even the bank is putting in some money, some examples of real estate and our own corporate finance team, which helps families to look for other families," he continued.

However, Drake warned that co-investing would not necessarily be successful as he thought many families did not have the resources to do it.

"When you think about the number of mistakes businesses make in private equity, it seems as if this is forgotten and it is assumed that co-investment and private equity are a good thing, but I think most people will make a mess of it. Time will pass and they will realise that if they want to do it they need to use professional advisors," he said.

Trusted advisors

The role of the trusted advisor was also highlighted by the expert panel and they discussed whether the term implied there was a commercial relationship with clients.

Dagg told the panel that if a large number of professional advisors are introduced, or if UHNW clients seek out a range of advisors, they will end up with different outcomes, advice and charges, which can confuse clients.

"In the centre of that they therefore need a trusted advisor that can bring it all together and I think that people are still getting to grips with that," said Dagg.

Garnham then asked the panel whether they thought there was enough training in the industry for people to become trusted advisors.

"I would agree with you that they are specialist in their own area of expertise and that they believe that they are doing the best for their client, but it is a question of finding the person who knows the full end-to-end needs of that client and to achieve the best outcome for that client," said Dagg.

Harris said that he thought the term trusted advisor implied that it was not a commercial relationship and asked the panel whether they believed it was the most appropriate definition.

"At BNP Paribas Wealth Management we don't have trusted advisors, we have relationship managers," said Frank. "We have created the Key Client Group, where we are training 130 relationship managers and giving them a small number of clients to focus on to give them time to engage with and meet the needs of the client," he said.

"I think you are right to call them relationship managers rather than trusted advisors," said Drake. "I think everyone is going to want to get paid if they have that level of experience. The question is how they are paid. Is it a flat fee per annum to be a trusted advisor?" he continued.

"If you are getting paid for different products you are coming forward with and different asset classes, you are not a trusted advisor, you are someone there to make money out of the client. There is nothing wrong with that as long as it is all transparent," Drake said.

He added: "The key is to find not one trusted advisor, but a group of trusted advisors around these families who are not paid for by the solution, but by their expertise and knowledge."

Garnham said that clients should not expect advisors to give their time for no cost. "What clients want is transparency and to know where firms are making their money and what to expect. If you can anticipate what they need and provide a solution, they are really grateful. What they don't want is any nasty surprises," she said.

Dagg explained that clients understood that advisors charged fees. The challenge, he said, was that with increased transparency, clients were "demanding to see where the value is".

Value

Garnham agreed with Dagg that increased transparency had resulted in clients demanding to see where the value was.

"I don't think firms are describing to their clients what the value is. If you get it wrong, litigation -  especially family litigation - is hugely expensive and that has to be avoided at all costs," Garnham told the panel.

Spires pointed out that the issue of value was one facing the whole investment management industry.

"I think that one of the things the industry hasn't been good at is demonstrating to the client the whole value chain that gets them to the wealth solution that suits them. There are lots of expensive parts of the value chain, like execution, which clients don’t necessarily take into account when they think about the value of what they are receiving," said Spires.

"With some professional advisors such as lawyers or tax specialists, there is a clear correlation between fees that are paid and the position that the client finds themselves in. It is difficult across the broad depth of the value chain and one of the things some clients are saying is that where fees are being charged, they see less value in them," said Dagg.

Drake noted that organisations needed to look across their whole value chain and explain the value they were providing to clients.

Business model

The panellists were asked about which business model they thought best served the UHNW sector.

Frank said that BNP Paribas Wealth Management has a dedicated Key Client Group, through which they offered clients the firm's best services. "We are based in more than 100 countries and have strong synergies between retail, corporate banking, investing and asset management," he said.

"Corporate finance is also important for entrepreneurs because we can do it long-term and the trust is there as we are jointly managing corporate finance and wealth," he said.

"We also have lots of resources to devote to them, including philanthropy, teams dedicated to vineyards and art advisory, and jet and yacht financing which gives clients the opportunity to invest in what they are passionate about," he added.

Drake explained that UHNW investors set up family offices to give themselves control, privacy and cost saving. "The service we provide is a small outsourced part of what goes on in a family office," he said. "For those families that want to have a private office, but don't want to hire all the staff internally to run it and don't want all their money with one or more banks, it's a service that works well," he added.

Family office members not only want to meet and find out what their options are but also want to be empowered to make their own decisions, said Garnham.

"What they are worried about, in terms of a large bank, is that once they are through the door they are going to get product push from other areas and they won't get a variety of alternative solutions. We are also seeing a massive trend towards wanting them to meet and come together," she said.

"I would turn the idea of a business model on its head," said Dagg. He believed that as clients source their wealth from different areas, had different backgrounds and objectives, there was not one business model that satisfied all these customers.

"I think the important thing for the industry is to really understand the customer and serve them in the best way that meet their needs," he added.