Just how will private bankers Stateside win back the confidence of their clients? The answer lies in good old-fashioned teamwork, says Penelope Bennett
THESE ARE CRITICAL times for the private banking industry. The global environment in which it operates has changed drastically — client relationships must be rebuilt and trust restored, service proposition defined, and the values of a new generation identified. Moreover, competition for new clients and talented relationship managers is intensifying, while winning and extending a profitable position requires an in-depth understanding of the economics and a state-of-the-art strategic approach.
On top of it all, the global economy is in a recovery phase but the upturn, by all accounts, is likely to be weak and bogged down by deep structural problems in developed economies, and no economy is more developed than that of the United States.
J.P. Morgan Chase & Co, however, are braving the storm rather well. The bank, which traces its (J.P. Morgan) roots to 1799, oversees $400 billion in assets for wealthy clients in the United States and employs 375 advisers to guide them on where to invest their money, announced in October its plan to expand its US private banker force by ten per cent in the next year as America’s wealthy exit banks hit hard by the financial crisis. In each of the last two years, said Catherine Keating, chief executive of J.P. Morgan’s US private bank, it added more new clients than ever before.
Andrew L. Cohen, a ‘born-and-bred Melbournite Australian’ who heads J.P. Morgan Private Bank’s Southern California & Las Vegas division, is at the receiving end of the new client intake, and loving every minute. A seasoned traveller and a former senior private banker based in Geneva, Cohen was posted to the States in 2005 having joined the bank in 1999.
For someone who went to work in Berlin a few months after the wall fell as a 23-year-old analyst for one of many investment banks trying to reposition themselves in the reunification of Germany, who travelled extensively in Eastern Europe when the competition was sitting comfortably in London, and who thought nothing of attending a meeting ‘no one wanted to attend’ in Israel during an intifada, Cohen, you would be forgiven for thinking, might find little to write home about working on the west coast of America.
But he’s clearly enjoying his most rewarding and eye-opening work yet. ‘Southern California is very different to Europe, where much of the wealth is established,’ he says in a telephone interview in early November. ‘That’s one of the great things about [this area]. Business here is just so exciting, as our clients are often first generation entrepreneurs.’
WHICH ISN’T TO say it’s straightforward. Clients are becoming increasingly sophisticated and more concerned with what’s going on in the world, which means he and his team ‘have to match that by giving them constructive, intellectual advice. To articulate that, to manage that, you need a lot of teamwork and you need a lot of insight. No one person can do this alone.’ Strength in numbers, then, would appear to be the order of the day. ‘What we’re doing as a private bank is realising that our capital is not machines and equipment: ours is human capital.’
Hiring ‘smarter and smarter young people’ and strengthening the firm’s intellectual capital allows Cohen, who makes a point of being a resource for his team as well as vice versa, to do a much better job of serving his clients. ‘It could be anything from explaining a very complex trust idea to “I’m going to Mykonos, do you know any good restaurants?”’ As in a concierge service? ‘Over the years I’ve found that giving advice about a school, a hospital or a doctor you know can be just as valuable as our investment dialogue.’
Over in Dallas, Bryan Diers, managing director and private client advisor with US Trust, Bank of America Private Wealth Management, acknowledges his clients’ needs just as fervently. ‘As people look to providers they’re looking for expertise, the capacity to meet their needs and not give just a little bit of their time.’ UHNWs, meanwhile, are looking for advisers somewhat like them, ‘so that they’re not having to reinvent the wheel when they talk with their private banker.’
Which bodes well for Diers, who took three years out of banking in the 1980s to start, operate and sell a consumer-oriented specialty foods business. ‘[My business] was certainly not the size of my clients,’ he says modestly, ‘but it did give me a feel for the issues, strategies and personnel issues that they have to deal with along with being focused on growing. It gave me the perspective that my clients have on the other side of the table.’
Diers says he returned to the bank after selling his business because he missed ‘the professional team environment and delivering the different capabilities that we have’. And he evidently brings great capability to the table, having ‘been in the business a number of years’ (30, to be exact) and ‘experienced rollercoaster times and the common
concerns people have.’
AND NOT FORGETTING where he came from. ‘I grew up in a large family in small rural community,’ he says. ‘You learn that every member of the family and every extended member has different approaches, needs and desires. Some are more successful than others, some are less. But you all have different needs and you cope with that as you grow up and understand that everybody comes to situations with different viewpoints and goals and objectives. Which is very important in the private banking business. Clients who appear to be the same really approach things very differently.’
He credits ‘a couple of executives who have since retired’ for sharing comments, thoughts and approaches with him, and for taking on a very open dialogue with him to try and guess the right way to go about things. ‘You know, I and others at US Trust really have had that fortunate experience of being successful because people are willing to team with you,’ he says, pausing for effect.
‘We have a great depth of capabilities and experience that we can draw on, but one person finds it very difficult to deliver all of that without teaming with others in the firm, and people are very willing to do that.’
As a team, Diers and his colleagues work with individuals who have sold their businesses and are now investing, individuals who are growing in either a professional environment or growing their businesses, and also individuals ‘who are in need of some of our capabilities and service but not the full platform, but appear to be people headed in that direction.
‘We’ve been able to help a number of these clients grow, become very significant in wealth, and some of them just in the last two or three years have had significant liquidity events which have changed how they have to focus on what they’re doing. Instead of running just a business they’ve had to learn and lean on and look to us for guidance on how to really lay out an investment policy and how to work with a liquid portfolio, which is very different to running a business with lots of people.’
So lots of hand-holding, but then that’s precisely what they’re there for. ‘Diving into topics and ideas at a much deeper level is now much more important given the experience we’ve had over the last twelve to 24 months,’ he says. Because of what’s occurred people do expect and are going to want more education and communication, and they’re going to look for survivors from a capital and performance standpoint. No client wants to move to or look for another firm because theirs doesn’t have the resources or the capital to provide what they need.
Miami-based Patrick Dwyer, a private wealth adviser with the Private Banking & Investment Group of Merrill Lynch Global Wealth Management, goes so far as to predict that the private banking industry will shrink by a third over the next three years. ‘Clients want global open architecture in every asset class and not proprietary products. Sophisticated, true open architecture, with access to the best hedge-fund managers and private equity, is expensive to deliver for all but the biggest firms,’ he says.
‘OVER TIME, I believe many firms in the “middle” will disappear as clients increasingly care about the breadth of platform and due diligence capabilities. Top advisers will build significant market share. Smaller firms with unique value propositions will exist, but will have trouble scaling larger.’
Having overcome its toughest year, private banking finds itself now – more than ever – firmly on the radar of HNWs seeking trustworthy all-rounder advisers in addition to sophisticated financial-planning. Existing players must fend off global competition to prove their mettle, ramp up on innovation, invest in infrastructure and revisit business models to increase client confidence in the current climate. Working ever closer to high net worth individuals in managing the unique challenges that come with wealth will ultimately be critical to future success.
THREE OF THE BEST
Profiles of three of America’s top private bankers
ANDREW L. COHEN
Managing Director and Head, J.P. Morgan Private Bank
Southern California & Las Vegas
Managing Director and Private Client Advisor, US Trust, Bank of America Private Wealth Management
PATRICK J DWYER
Private Wealth Advisor, Private Banking & Investment Group of Merrill Lynch Global Wealth Management