A familiar sight in the financial services industry has been to watch managers at big-name banks leaving to start their own firms, whether they are wealth managers, hedge funds or consultancies. But with one man, however, the journey has been in the opposite direction.

One of the familiar sights of the financial industry has been to watch managers at big-name banks leaving to start their own firms, whether they are wealth managers, hedge funds or consultancies. In the case of one man, however, the journey has been in the opposite direction – sort of.  

Paul Kearney, head of the private investment office at Kleinwort Benson for the past 15 months, had once left the banking jungle to set up a family office for a European technology entrepreneur. He previously toiled in the wholesale banking and capital markets world for 25 years. And yet here he is now, back at one of the most blue-blooded names of European banking.

So what led him, when he worked at the unnamed family office business, to join the likes of Sally Tennant – Kleinwort’s chief executive – and others at a banking operation? (When asked the name of the family office, he declined in the interest of the founder’s privacy.)

“The epiphany came for me when I realised that we were trying to build a bank in exile, requiring services such as risk reporting, treasury services, and so on. It dawned on me that the breadth of tools you needed resided inside most banks,” he told this publication in a recent interview.

With some family office businesses, it is dawning on these organisations that they can achieve far more by outsourcing some of their work to a specialist banking operation such as at Kleinwort Benson, he said. This attitude is gaining ground already across the Atlantic, he said. “US families have been a little more receptive to the idea of partnering and outsourcing,” he said.

For some families, they don’t quite have the financial firepower and the associated economies of scale to do everything in-house, he said.

The approach he takes is, however, a cautious one when it comes to the pace with which his business division can grow. The business model at Kleinwort Benson is not infinitely scalable, given that the service requires high-touch activity. The firm can expand with one or two new family clients a quarter, Kearney said.

Managing potential conflicts

Given that many family offices are set up precisely to avoid the oft-mentioned issue of “product-push” by banks to wealth management clients, how does Kleinwort’s private investment office ensure no such potential conflicts of interest occur?

“One thing that haunts people is the fear of whether their advisor is just a salesman,” Kearney said.

“If you isolate yourself from the approach or role of having to sell in-house products to clients, then you remove the key conflict of interest that concerns families.” As far as the use of in-house investment products are concerned, he said, “We just don’t do it.”

The Private Investment Office at Kleinwort Benson only looks at the investment space, he said. They are not involved in the lifestyle management aspects of dealing with families and work closely with a number of key partners to provide a comprehensive solution. “Our USP is to deliver economies of scale that a single family office cannot achieve,” Kearney said.

“What we see in the market is that people need us where there is complexity more than simply a significant size of wealth. We don’t set minimums [of assets]…what we do is look for families that benefit from someone throwing their arms around a complex set of arrangements. The world is awash with data - our job is to create information out of it and from that knowledge and understanding.  Ultimately our role is to provide insightful analysis to our clients allowing them to be smarter when it comes to dealing with their financial affairs,” he continued.

Recent developments

The last few years have seen significant change at Kleinwort Benson, which since 2009 has been owned by Belgium’s RHJ International, a listed diversified holding company. That business more recently agreed to buy BHF Bank, the German firm taken over by Deutsche Bank when the latter purchased Sal Oppenheim. The development of the private office, and other ventures, is a sign of a more stable environment at Kleinwort Benson. (To see the interview with the CEO, click here.) Kleinwort Benson is a solid institution, it says, with a Tier 1 capital ratio of 21 per cent and a loans-to-deposit ratio of 26 per cent, one of the lowest in Europe. With all private banks these days, one message they all want to convey is the strength of the balance sheet, hardly surprising since the turmoil of 2008.

When Kearney set up the private investment office, he brought over a total of seven people with him; four more people have since been recruited as well.

“We benefit from being a relatively small team but we can call on a big investment team if we want, as well as the quants and risk teams,” he said.

“A lot of clients expect to receive a different approach to that of a retail client. It is important that we are able to demonstrate that our clients get an appropriately differentiated service: this is not one-size-fits-all,” he said.