Exclusive outtakes from industry leaders
The head of the Japanese private banking arm of France’s
Societe Generale said on Wednesday he was considering forming alliances with some regional banks to help it expand outside Tokyo and the Kansai region, which includes Osaka.
“We already see an interest on the part of these banks to get
more involved in private banking. They do of course have
important clients which they need to serve in the best possible
way,” Alain Simon, president and chief executive of SG Private
Banking Japan, said at the Reuters Wealth Management Summit
It really isn’t easy being rich, according to James Grubman, a psychologist who provides counselling to the rich clients of major banks and brokers.
“Many people with wealth are unhappy or anxious because they are worried about their families and what the wealth is doing to the family, they have stresses across generations with their kids, depending on the level of wealth they are worried about losing the money,” he said. “Money turns up the volume on everything and for some people it just changes or magnifies anxieties that they had before.”
He acknowledges that money does relieve some stresses but those stresses get replaced with a bunch of others.
The problems can be profound, he told the Reuters Wealth Management Summit in Boston. Grubman said they include:
–A feeling of guilt about their wealth.
–Concerns that their kids are going to turn into spoiled brats.
–Worries about how to teach their kids the value of work and money. When the family cars have already been washed by a member of staff it isn’t already easy. “There are so few opportunities for wealthy kids to actually do normal things that middle class kids do,” said Grubman.
–A different attitude towards money within a marriage. This is especially the case when one poorer partner has migrated into wealth through the marriage. One partner may want to spend like there is no tomorrow and the other may be much more frugal.
–Arguments over badly crafted prenuptial agreements.
–A reliance on inherited investments that may be completely inappropriate for the times. He had counselled two women clients who had held onto certain stocks because they were bought by a dead husband or father. They held on while the stocks plunged.
–Insecurity over inherited wealth, particularly concerns that they didn’t earn it, and that they could be deported from the land of the wealthy. Those who took risks to create their own wealth feel less vulnerable, he said. Those who were born into wealth are often too risk-averse with their investments and don’t get the investment returns they might otherwise.
–Being too suspicious after being warned that people may be only interested in your money. They are taught the fears but not the skills to handle them.
But not to despair, Grubman says that the kids of the rich are generally growing up better than it might sometimes look like from the TV images of Paris Hilton and her ilk.
Grubman himself comes from an affluent family and has managed to cope. “My background, pyschology, really helped,” he said.
Few people enjoy paying taxes, least of all the wealthy, for whom annual tax bills can run into the millions of dollars. U.S. President George W. Bush has worked to cut taxes that tend to hit wealthy people, such as inheritance taxes. But with a persistently high deficit, as well as the rising cost of the Iraq war and entitlement programs, many expect these taxes to rise.
Rich people seem resigned to higher taxes, said Gail Cohen, head of global wealth management at Fiduciary Trust Co. International, at the Reuters Wealth Management Summit.
Growing up wealthy does not necessarily mean growing up money savvy. Psychologist James Grubman told the Reuters Wealth Summit that the children of the wealthy may not have grown up with budgets and financial constraints, and may not know how to spend responsibly.
Sometimes trustees–the people that administer trust funds for children of the wealthy–have to step in and give a dose of tough love. Gail Cohen, head of global wealth management at Fiduciary Trust Co. International, said that if a client has spent too much on their credit card, and risks bankruptcy if they don’t get cash, their trustee will not bail them out. Instead, the trustee will put the client into credit counseling.
Just like the rich, wealth managers come in all shapes and sizes. Some go for scale, trying to amass as many plain old millionaires as possible – those with $5 million or more to spend. Then there’s Sal Oppenheim, which aims for ultra high net worth (UHNW in industry lingo) clients — those with $30 million or more. Reinhard Krafft, a director at Sal Oppenheim, says that it recommends big investments for clients, which naturally rules out those with merely single-digit millions. So what happens to them? For clients in the lower brackets, the bank tries “to service them as efficiently and effectively as we can without letting them drop off in perceived value.” “For new clients we target higher goals and (wealth) ranges,” he said.
Russia’s growing class of mega-rich have so far attracted few private banks to set up shop in St. Petersburg or Moscow. Instead, you can occasionally overhear Russian on Geneva’s streets, known for their low-key bank buildings, boutiques and stores selling expensive, exquisitely-made Swiss timepieces. “We know there’s wealth generated in the country but we’re not sure how stable that is,” Reinhard Krafft, a private banking director at Sal Oppenheim said.
Many Wall Street traders are too squarely focused on what everything costs to enjoy unique vacations, according to a man who spends his life trying to create unusual experiences for the very wealthy. While hedge fund managers will allow Gregory Patrick to design a one-of-a-kind holiday in a place like Tuscany in Italy or the South Island of New Zealand, at a cost of up to $4,000 per day per person, Wall Street traders always nickel-and-dime every element of the experience, to the point where working with them is unpleasant, he said. “The trader is extremely commodity-driven in his or her thinking. In their mind everything is commoditized and I have a very difficult time working with them. I sell a puff of smoke, an experience, they want to think of everything as ‘I can get this for that over here’ and I don’t enjoy those conversations,” Patrick told the Reuters Wealth Management Summit in Boston.
Patrick, who runs his own company DreamMaker International, also said that corporate executives were cautious about how a lavish holiday might be perceived. “I want to know how much you are going to spend on bottles of wine,” he said an executive might demand. “I don’t want anything that is over the top, I don’t want anything coming back on us.”
Hedge fund managers, on the other hand, are the easiest to work with. “Let’s do it, let it ride and anything goes” is most likely to be their philosophy, he said.
Patrick also told Reuters of some of the ways he keeps his clients happy:
–He never creates a guest book. These are not people who want their friends to know where they’ve stayed. That devalues the experience (his butlers and chefs are also forbidden from talking about previous guests).
–Ostentatious displays of wealth are generally out. Costly but understated is the aim. These are people who may be tired of staying at the presidential suites of major hotels, who would prefer being seen in a town car rather than a limousine.
–Patrick manipulates reality by hiring actors to create special moments during the travels. The clients aren’t told that the charming people they just bumped into were actually placed there to make their experience more enjoyable.
–While Patrick provides electronic communication links in far-away places he hopes to create such an experience that his clients will rarely use them. “They have to get away from the marketplace,” he said.
–Make sure that there is exclusive access, whether to be backstage with Sting at a concert, have a dinner cooked at your villa by one of the world’s top chefs, or a visit a vineyard that alllows little access to mere mortals.
–Steer clear of anything to do with the masses — clients would “rather have a red hot poker stuck in their eye” than go on a cruise ship, he said.
Ray Soudah, founder of MilleniumAssociates, an advisory firm for mergers and acquisitions in the private banking industry, says that now is the time to sell when it comes to smaller private banks, rather than later. According to Bear Stearns, consolidation is accelerating, with a record 65 deals completed in 2006. Although there have been some high profile deals, such as UBS selling SBC Wealth Management Bank Julius Baer and Wachovia’s plans to buy AG Edwards, many of the smaller private banks are attractive targets as the industry consolidates. “Now is the time to sell,” Soudah urged smaller banks.
Swiss asset manager Bank Sarasin & Co aims to expand staff in Asia by up to 20 percent over the next three years, driven partly by customer growth among Indians living abroad, Kenneth Sit, Asia chief executive officer at Sarasin Rabo Investment Management
Ltd, said. To listen, click here
History repeats itself. Christopher Ryan, the chief executive of ING Groep NV’s Asia Pacific fund arm, sees a similarity between Asian markets of today, especially China, and Japan in 1968. Could they develop along the same lines? To listen, click here.