Several years ago, when the climate grew chilly for wealthy investors and their advisers alike, competition heated up in the traditionally cozy world of catering to the financial needs of the veryrich. The giants of wealth management units of the American investment banks and other international financial behemoths said big was better. They would vacuum up clients’ assets and vanquish theirsmaller rivals with an ever-increasing range of products and services, and a geographical sweep that the smaller operations could never hope to match. Nonsense, said the smaller players, including agrowing number of boutique advisers. In a challenging investing environment, with increasingly complex international tax and regulatory regimes, only they could provide the customized advice andattention that their demanding clients wanted. Now, as the global investment outlook appears to brighten anew after three and a half dark years, with economies and financial markets in many regionscoming back to life, it is growing clear that both sides were right and wrong. It turns out big and small both have their strengths and weaknesses. And many wealthy investors, frustrated with theperformance they received during a long bear market, are choosing to work with global firms and niche players at the same time, analysts say, rather than choosing between one or the other. Clientswant the range of products offered by the big banks, including alternative investments such as private equity, hedge funds and real estate, to supplement disappointing stock and bond portfolios. Butafter a series of scandals at investment banks, including questions over the independence of advice offered by financial analysts, many wealthy investors have apparently concluded that they needadditional, outside oversight. This is where small firms either small, traditional private banks, or, in many cases, new operations that can be as small as one expert hanging out his shingle havestepped in, providing an additional layer of advice and helping wealthy clients develop their investment strategies. Being as how they’ve been sold a few cars without engines in them, they want somehelp lifting the bonnets and having a look, said Michael Maslinski, who runs a London-based consulting firm under his own name. There is a growing market of families who would rather see the biginstitutions through a filter rather than in the full glare.<\/p>\n
Many of the biggest players continue to see sharp growth in their businesses, despite a still challenging environment. At Citigroup Private Bank, assets under management are growing at double-digit percentages, said Peter Scaturro, chief executive. People are telling us stability and global presence is absolutely key, he said. Increasingly, big and small players alike are switching to so- called open architecture investment models, in which they offer their own in-house products and services as well as access to outside investments. In a tricky market, that is crucial though many clients want to consolidate their portfolios, they also want to put their money into the best funds, which may be run by a different manager. Last year, for instance, 77 percent of the new assets raised for alternative investments at Citigroup Private Bank eventually went into non-Citigroup products, the bank said. The private client operations affiliated with big investment banks can also offer special services such as access to the institution’s own proprietary investments putting money into private equity deals, for instance, alongside the bank’s own stake. (Because of the size and risk of these investments, this is generally only for the super- wealthy.) Though smaller banks, too, have jumped on the open architecture bandwagon, it is difficult for them to compete on the range of product offerings. What they can do, however, is provide a level of service that the big players often aspire to, but do not necessarily deliver, experts say. Very few banks can do everything for everyone, said Bruce Weatherill, a consultant at PricewaterhouseCoopers. Niche players can do many things quite well.<\/p>\n
What the new breed of niche players often, independent operations set up by a well-connected banker or adviser who left a bigger firm specialize in is formulating big-picture investment strategies for wealthy individuals or families, often without actually managing any of the money. Some of these firms are so- called family offices, which provide advice on taxes and other matters for families, particularly those wrestling with how to keep the next generation as well-off as the last one. In one case, a wealthy British family the heirs to the founders of an insurance firm created its own family office to manage its affairs, then began offering its services to others. Many of these advisers keep a low profile, marketing their services only by word of mouth. The big banks, too, are setting up or fine-tuning family offices in an effort to provide a complete range of services to ever more demanding clients. Debra Treyz, head of JP Morgan Private Bank in Europe, said that in a still cautious investment climate, these clients are often less interested in getting in on the latest exotic investment opportunity than in getting advice on, for instance, how to deal with changing European tax regulations. What they want most is to have their questions answered, she said. The problem for many banks, particularly those that fall between the global players and the niche specialists, analysts say, is that providing advice is expensive and does not necessarily generate revenue. It may require employing experts in arcane matters such as taxes, which often vary from country to country. But it can be difficult to justify the expense. * That is particularly true when clients are billed based on the size of their accounts under an open architecture model. An investor with $1 million in assets invested generates far smaller fees for the firm than one with $100 million. Yet the smaller client may actually require more attention and expense to service. For that reason, analysts say, the big banks may ultimately be content to let niche players, which can base their fees on the services provided, keep handling some parts of the business. Banks may also decide some clients at the lower end of the wealth scale are simply not worth the bother; already, many are refocusing their attention on the ultra-high net worth slice of the market, after flirting with the so-called mass affluent during the bull market years. * Eric Pfanner is the International Herald Tribune’s correspondent in London.<\/p>\n","protected":false},"excerpt":{"rendered":"
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