Banks are upping their efforts to sell more investment banking services to their wealthy clients, but dealmakers familiar with such plans warn they are likely to run into obstacles.
A host of top banking names are looking to maximise the links between their dealmakers and their wealth managers to boost margins from key clients. Among them is Goldman Sachs, which is considering paying referral bonuses to investment bankers and traders who send business to its private bank.
Meanwhile Morgan Stanley is boosting the payouts it offers advisors who refer clients to other segments of the company. UBS formed Universal Global Banking over the summer to “create a single cross-divisional team dedicated to servicing the traditional corporate finance needs of (global wealth management) clients and their companies”.
Citigroup’s European wealth boss James Holder recently said that “making all of the firm available whichever part of the franchise you work in” was a “cultural imperative” for the bank. Citi’s wealth head Andy Sieg and banking boss Vis Raghavan are trying to take cooperation “to another level”, he added.
But these types of initiatives have proved tough to execute. Credit Suisse pushed plans under multiple former chief executives to try to capture more of the lucrative Swiss wealth market.
“It’s not easy to do,” said Lord Sebastian Grigg, former head of Credit Suisse’s UK investment bank and a Goldman Sachs partner. “Or rather, it’s easy to announce and a good idea because it broadens a relationship with a client and broadens responsibility if something goes wrong – which it can do. But the actual bonus idea tends to get rebalanced in overall compensation.” A former Bank of America dealmaker said that referral bonuses were chopped and changed during their time at the bank. Although they could be worth tens of thousands of pounds, they were often not enough to offset the potential risk of damaging the client relationship if advice from the wealth arm turned sour.
Julius Baer International chief executive David Durlacher said earlier this year, specialist private banks such as his “only have to obsess about one thing” so often have an advantage in terms of quality over wealth managers at universal banks. Another former operations expert with multiple banks said teams across different business lines would often waste resources building the same products.
Clients would also get frustrated when as many as four different teams pitched to them. A dealmaker who worked at Rothchild, which is known for its strong wealth presence, said there was no direct financial incentive to refer clients across when he was there, but it would be reflected in performance reviews.
“We just weren’t good at it,” he said, adding that bankers placed into specific roles as an intermediary between divisions often faced a “career graveyard”.
Others note the mindset of dealmakers and financial advisors can differ significantly, the former is often transaction, while the latter needs to focus on longer-term issues.
Meanwhile, Vanguard, the world’s second largest asset manager which is known for its low-cost index funds, said its advice and wealth management business was “among the fastest growing offers” in a competitive market.
Vanguard will spin out its wealth and advice operation into a standalone division as the passive investment giant looks to grab a bigger slice of the wealth market. The move represents the $10tn asset manager’s largest restructuring in more than a decade. It marks a major shift under new chief executive officer Salim Ramji, who took the helm in May.
“For nearly five decades, Vanguard has been a positive force in democratising investing, our goal is to further democratise our advice and wealth management offerings for our clients through enhanced technologies and offers – with the same client zeal that Vanguard has long been known for,” Ramji said in a statement.
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