Private bankers take pride in their discreet business tactics and the fact that many of their clients come through word-of-mouth referrals. ...

Private bankers take pride in their discreet business tactics and the fact that many of their clients come through word-of-mouth referrals. This subtle approach makes it difficult to boost growth in new client assets, and independent financial advisers are becoming an increasingly important referral channel as the sector becomes more competitive. The industry’s reserved attitude towards marketing and new client acquisition extends to its relations with IFAs, however, many of whom are unaware of who the major private banks are and what they can offer to their own growing book of high-net-worth clients.

The IFA’s role has become central as the wealth management industry takes on a more diversified profile, according to David Poole, director of Singer & Friedlander. “Private client business is splitting into two types. There are the product providers and client coordinators who distribute the services. What we are seeing now is an increasing importance being ascribed to people who act as an adviser.”

As clients are becoming more discerning they are looking for an independent agent who can scout around for the best deals in the market, rather than using a vertically integrated investment house, said Poole. “There is a general move away from tied agents to bring in business using the big networks. You get a better idea of what is on offer."

"They have hundreds if not thousands of IFAs and they have a strong ability to move around client wealth."

Mary Leuchter, head of marketing at Rathbones, the investment managers, stressed how important IFAs are to generating new money. “Existing clients is the main source of business, but you cannot underestimate the importance of intermediaries as a source of referral to boost external organic growth,” she argued.

But are private bankers making the most of this source by developing alliances and marketing their services properly? The picture is mixed. Some have a clear understanding of what they can offer and how they can help their clients while others have only a vague idea. Advisers’ knowledge of the different banks is fairly limited, although they have firmer views on which investment houses and stockbrokers they use. A straw poll of IFAs conducted by Private Client Management on who are the leading private banks operating in the market makes for revealing reading.

Professional rivalry is a significant factor in confusing the relationship between banks and advisers. The IFA, like the private banker, sees him or herself as a gatekeeper who has a strong personal relationship with the client. Acting on the current hype about the reportedly growing numbers of high-net-worth clients, the large IFA companies, such as Inter-Alliance, are sharpening their strategy to chase the affluent. They do not want to hand over their most profitable clients to another institution. Those who do work with private banks like to keep a close eye on what is going on and will switch to another bank or investment house if they think their clients will get a better deal.

Henry Katz, who runs Norwest Consultants, an IFA based in Stanmore, London, said he only uses private banks on behalf of clients for managing cash reserves. He has 300 clients, around 60 of which he classes as high-net-worth, which he defines as having more than £200,000 to invest. If his clients have substantial money to invest he will go to a stockbroker, but he is suspicious of how well they manage his clients’ assets and thus chooses to spread their money elsewhere. “They don’t benchmark or construct portfolios very thoroughly and they often don’t give very clear reports,” he said.

Colin Jackson, an IFA at Barronworth in Norwich, also prefers to place his wealthy clients’ money with investment houses such as Rothschilds and Lazards. Significantly, both of these firms have private banking businesses and yet IFAs will opt to deal with the corporate or investment management arms rather than work alongside the private bankers. Indeed, Jackson uses internet banks rather than private and retail banks for the actual daily money management aspects. “You get better value from the smaller banks that operate on the internet or on the telephone,” he said. This could make for grim reading to private bankers hoping to tap the IFA community or at least assuming them to have a good understanding of how the two parties can co-exist.

But, Malcolm Stalker, Newcastle practice director for Inter-Alliance, is more enthusiastic about the benefits of private banks. “We use them for term deposits where relevant, trust bank accounts, which the clearing banks don’t do, and a better class of pension fund,” he said. Inter-Alliance has an agreement with Cater Allen, which offers a client account and a cheque account to Inter-Alliance clients, which means there is no threat of cross-selling.

Stalker also uses other banks such as Close Brothers for indvidual services and products. For Stalker, just as for Jackson and Katz, a private bank is just one of an array of investment options, which he constantly surveys to find the best deal for his clients. He feels he is the main point of contact for his clients and wants to keep it that way.

In fairness to the private banking industry, many IFAs - particularly in the UK market - are unaware of the range of private banking products and services on offer that are ideally suited to the HNW accounts. This is partly because many bankers and IFAs think that the marketing of private banks among the IFA community has been patchy. Moreover, most IFAs will research banks and investment houses on specific cases for particular investment issues where the overriding factors are fees and performance. In this context, the private banking glossy brochure is not a strong sell. "They are seeking the product transparency that they are accustomed to in the more competitive retail market place. If a private bank demurs by citing discretion and history, it is unlikely to win the IFA business," commented Sebastian Dovey, director at Scorpio Partnership, a wealth management strategy think tank in London.

“Getting referrals from IFAs shouldn’t be easy,” added Leuchter. “It takes a while to build up the relationship. The company can’t just walk in and buy an IFA lunch and get business referred. The client has got to know what you do and you’ve got to be comfortable that what you offer is good for the client.” Poole agrees. “Advisers are cynical of people marketing. You can’t really do a hard sell to an IFA. They are more discerning than that.”

It is true that some advisers are dismissive of marketing. “We would look at the financial press but also look at reports and do our own research depending on how much detail the client wants. We don’t take the press so seriously, because it might just mean that a particular firm has a good PR team,” commented Stan Marriette, another Inter-Alliance IFA.

A number of banks have realised the potential of forging links with IFAs. Cater Allen formed agreement with Inter-Alliance around two years ago and Wells Fargo recently acquired HD Vest, the United States' largest IFA-style tax planning and financial advisers business. The link between Cater Allen and Inter-Alliance gives the bank controlled access to Inter-Alliance’s client base, while expanding the products that its IFAs are able to offer, commented Mark Moran, senior relationship manager at the bank.

“The deal is unique but the vast majority of Cater Allen’s business is done through the intermediary sector rather than dealing directly with the individual private clients,” he said. This relationship is one that few other private banks in the UK have yet to imitate.

Direct links between the banking and IFA community would be beneficial to both sides. Private banks are always looking to grow their assets and with the advent of stakeholder and the threat of dropping commission, the IFA community needs to seek out new channels of income. It is perhaps easier for the larger IFA companies and those banks that already work on a brokerage model to adapt. But their competitors will have to look at forming alliances across different sectors and re-assess their marketing strategies in order to keep up.