It is not hard to understand the appeal of entrepreneurs to wealth managers, especially those owned by large banks, the business whizzes of today or a decent enough proportion of them at least will be the multimillionaires of tomorrow. And not only will they need help managing that wealth, they may also require commercial banking services for their companies. If those companies get big enough, they might even be persuaded to pay for some expensive investment-banking advice.
But does it make sense for the entrepreneurs themselves? Are there merits in having your personal wealth management and business banking handled under one roof or should you look, as with your investment portfolio, to diversify? An increasing number of successful entrepreneurs are making a conscious decision to keep their personal and business banking separate, despite the best efforts of private banks to convince them otherwise.
Wealth managers argue that they can give the best advice when they have a comprehensive overview of a person's wealth. For many entrepreneurs, much of that wealth especially in the early stages of their careers will be tied up in the companies they own. By handling both the corporate and private-banking needs of an individual, wealth managers will be able to better provide tax advice, arrange favorable rates for asset-backed lending, suggest coinvestment opportunities and tailor corporate-finance services.
Most importantly, they can manage the process of turning a company into cash when entrepreneurs decide to sell their businesses. Rory Gilbert, managing director and head of UK high net worth, U.K. & Ireland Private Bank at Barclays BCS -0.27% Wealth, says: "Entrepreneurs find it more beneficial to bank with a wealth manager that can help their business grow, advise on the business exit process, and assist after the exit.
"Specifically, wealth mangers can offer those pre-exit entrepreneurs with many of the services that we provide to our high-net-worth clients. Typically, we will also work with them as they go through the exit process to ensure that their personal wealth is maximized."
Ronnie Ludwig, a partner at the private client specialist accountancy firm Saffery Champness, also believes there are sound reasons for entrepreneurs to have all their financial affairs under one roof. "It can be useful for one set of advisers to have an overview of all of their clients' affairs so that they can take a cohesive approach. This can cut down on the time it takes to arrange borrowings, negotiate rates and charges."
The success of this argument varies in different countries. In Germany home to more family-run businesses than anywhere else in Europe private banks like Hauck & Aufhäuser, M.M. Warburg & Co. and Berenberg Bank have built up strong relationships with Germany'sMittelstand small and medium sized companies through their corporate-finance departments. These banks also provide portfolio investment opportunities to those companies' owners through their wealth-management arms.
In the Middle East, the lines between family, corporate and even sovereign wealth are blurred to the point of being almost meaningless. Credit Suisse has been successful in using the relationships it has developed with wealth-management clients to win fat investment banking fees.
But these regions appear to be the exceptions that prove the rule. Wealthy entrepreneurs and business owners in much of the rest of Europe are, on the whole, less clear on the benefits of one stop banking. Michael Maslinski, a former private banker who now runs his own consultancy advising both wealth managers and wealthy families, says: "The further you go up the wealth scale, the more you will see multi banking and wealth management relationships. The very wealthy are reluctant to give over all their financial affairs to one bank." Many wealthy business owners believe it is better to pay for specialist advice in all the different areas they need it than to have one firm acting as a jack of all trades.
Some of the big universal banks have in the past talked about "private investment banking" for entrepreneurs. But Mr. Maslinski says that some clients have been skeptical of the concept, describing it as "a sausage machine" through which they were sold investment banking products. "In many cases, very little thought went in to the end product," he adds. "The idea seemed good, but in reality there was often a mismatch between the investment bank and the corporate and wealth interests of the client."
This tension between the types of services that banks were providing to entrepreneurs, along with the high-profile difficulties faced by investment banks during the credit crunch, has convinced some clients to divide their financial affairs. As a result, some banks have retained the corporate banking work but lost the original wealth management relationships. Many entrepreneurs, along with other wealth-management clients, have opted to give their investment portfolios to independent asset managers and multi family offices that had no connection to the big banking brands.
Graham Harvey, a director at the consultancy Scorpio Partnership, says multi family offices in particular have been able to take advantage. He says that 5% of the assets held by the bank owned wealth managers in Europe has flowed into the portfolios of independent advisers in the last few years.
IJ Partners, which launched last year in Geneva, is one of the independent asset managers that claim to be winning investment portfolios from the universal banks. Theodore Margellos, managing partner at the firm and an entrepreneur himself, having founded a private equity firm, says: "Let [entrepreneurs] use corporate finance departments of the big banks. But when it comes to portfolio management and direct investment opportunities, smaller boutiques can often perform these services better."
Daniel Freeman, managing director of London & Capital, an independent asset manager, says that entrepreneurs want to have their investment portfolios managed independently of their business interests because of concerns over confidentiality. He says: "There is no guarantee of Chinese walls between departments at banks. Information leaks can happen."
As so often with matters financial it comes down to an issue of trust. With many of the largest bank brands tarnished by the credit crunch only 17% of wealthy continental Europeans in Scorpio Partnership's recent survey, The Future Wealth Report, say they would trust their adviser to help make a financial decision.
Those banks that are perceived to have weathered the credit crunch have had better luck persuading business owners to give them their corporate business on top of their wealth-management advice. Credit Suisse Group, which owns one of the world's largest wealth managers, is one such bank. From the two-year period from the beginning of 2008 the worst years of the credit crisis the Swiss bank scooped up 72 billion Swiss francs ($68 billion) of new business, more assets than any other wealth manager.
Credit Suisse says its "one bank" initiative, which integrates banking and wealth management services for entrepreneurial clients, has been behind much of its success. Ian Dembinski, head of ultra-high net worth clients for Credit Suisse in the U.K., says that the wealth management arm does not push investment-banking products.
JP Morgan, another of the bigger names to have emerged relatively unscathed from the credit crunch, claims to have nurtured good relations with business owners throughout Europe because of the range of services it offers.
Entrepreneurs very much like everything under one roof once trust is established," says Kate Murphy, head of family businesses at JP Morgan Private Bank in the U.K. and a former entrepreneur herself. "Banks like us can provide efficiencies for all parts of the financial affairs of entrepreneurs.
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