Summit Notebook

Exclusive outtakes from industry leaders

Rich seek ways to sit on the hedge

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Rich investors are taking more precautions than ever in their wealth, and instruments once seen as complex and exotic are becoming more commonplace in their portfolios, wealth managers said at the Reuters Private Banking Summit.

Asset classes such as foreign exchange, gold, oil and industrial commodities are beginning to have specific and identifiable hedging roles in portfolios, beyond the broad brush “diversification”.

That is a far cry from three years ago, when investors spread money around asset classes and managers in the vague hope that broad enough diversification would help them make money in all market conditions, or at least preserve wealth.

That notion disappeared during the financial crisis, along with around $12 trillion of market value.

High level tourism wins some wealthy fans

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While wealthy clients remain ultra-cautious about real estate, some are being tempted to snap up trophy properties that promise to throw off a healthy amount of cash.

On the fringes of the Reuters Global Private Banking Summit, Banco Santander executives said they had been involved in six to eight large real estate transactions including the sale of a Miami marina in this year.

Trusts can help women win back their fair share

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Investment trusts, financial constructions often associated to clever tax structuring, can actually help women inherit their fair share in countries were they are discriminated by law, a top private banker says.

“In countries where Shariah law is applied, being a woman is not as advantageous as being a man. In that situation, the trust allows the structuring to have children taken care of,” says Karen Simpson, the Swiss-based Head of Private Banking at Royal Bank of Canada, the world’s No.1 bank player in the trust business.

Fear factor driving gold higher

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“Gold is not an investment. It doesn’t pay you interest and it doesn’t increase wealth,” complained one investment advisor recently as he perused exploding client demand for the yellow metal.

“It’s just a cautious asset for scared investors,” he grumbled as he waved a chart showing prices had once again hit an all-time high.

You can’t avoid the taxman, but there may find a friendlier one in the Alps

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With the German government hot on the heels of untaxed wealth stashed in Swiss bank accounts, and the U.K. government taking a tougher stance on clawing back bonuses, rich folks will likely head for the hills – or the Alps to be more precise – senior private banking executives said in Geneva. 

“People are going to arbitrage different tax jurisdictions. We are going to see European clients moving to Switzerland, very large families,” said Alberto Valenzuela, deputy chief executive of Societe Generale Private Banking (Suisse) SA.

How rich is rich?

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How rich is rich? For most people, the answer is simple: ”not me.” But for private bankers keen to handle the assets of the well-heeled from Moscow to Malibu, that question is a slippery one. Sometimes a simple number won’t do, either.

Just about every executive at Reuters Global Private Banking summit in Geneva has a different standard for what those in the business call “ultra high net worth individuals”, the really rich that are the industry’s prime catch.

Crisis-hit rich wanted cash they could count on

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The credit crisis prompted a well-documented exodus of client money from risky assets into safer ones like government bonds, cash and gold.
But some rich clients of private banks would have preferred to take their money and run.
They were so rattled by the threat of financial instability to their wealth that they wanted the reassurance of having as much of it as possible in a form they could hold in their hands and count: banknotes.
Wavering confidence in the financial system led some to consider taking out their entire cash balance and holding it in banks’ vaults in physical notes, said James Fleming head of international business at British private banking blue-blood Coutts.
“That was a request on three or four occasions at the height of the crisis when everybody was concerned about the balance sheets of the banks generally, not us specifically,” Fleming said.
“We cautioned against holding cash in the vault,” he said, adding: “They didn’t do it.”

Private bankers must show restraint in Europe

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Private bankers remain in demand in some key European markets, but they will have to live with lower salaries if they want to continue to be part of this business.
Top wealth managers told the Reuters Global Private Banking summit that they have stopped offering the huge packages seen in the run up to the financial crisis of 2008-2009.
“We are not offering packages that are outlandish. And I do not see the other banks doing that either,” said Samir Raslan, General Manager of Citibank (Switzerland).
Raslan said the structure of banker’s salaries had also changed. Relationship managers who form the backbone of a private bank’s workforce were getting higher fixed salaries than before, but no more huge bonuses.
“We see more rational hiring, rather than aggressive, open cheque-book hiring,” said Raslan.

Time private bankers got professional

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It’s hard to imagine that a banker who represents multimillionaires would be anything but professional – but a top executive at a leading global bank thinks that’s precisely the wealth management industry’s problem.

“There is so much mediocrity in the industry we have to raise the bar here,” said Gerard Aquilina, vice chairman of Barclays Wealth, at the Reuters Global Wealth Management Summit in Geneva.

Everyone needs a private banker

- Everyone needs a private banker. Full service means exactly that for one speaker at the Reuters Wealth Management Summit. The ’normal’ range of extras that wealth managers are offering super-rich clients under the banner Lifestyle Management has expanded as they scramble to keep on board clients whose massive wealth was rendered a little less massive during the financial crisis.   Citigroup’s private banking arm keeps an art curator on staff to make sure clients don’t overspend at auctions and maximise the value of their collection – it’s a real problem apparently.   But one of the smaller banks represented at the summit goes a lot further than that. “We do pretty much whatever they want.” On further investigation this stops short of walking the dogs but it does include managing fleets of vehicles, relocation for tax exiles, school selection for the rich in-waiting, wine cellar stocking, art advice (of course) and payroll services for the hired help.   But what was the most unusual request he has ever had from a client? “We were once asked pick up some strange medication and we organised the redecoration of the interior of a private jet in questionable taste,” said one private banker. He wouldn’t say any more, but some might think that was too much detail already.
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