In the battle to win the business of the very wealthy, private banks are developing ever more refined bespoke services, and even delving into clients' psyches to help hone their investment strategies.
Private banks have always performed a myriad of services for their clients beyond mere banking. Among the private banks that pride themselves on listening closely to the needs and aspirations of their high-net-worth clients, some are developing services that clients would be hard pressed to find elsewhere. Coutts has just developed a network of like-minded investors, while Barclays has been focusing professional attention into the inner workings of the ultra-high-net-worth (UHNW) mind.
"My area of fascination is how people actually make their financial decisions," says Dr Peter Brooks, Barclays' behavioural finance specialist, who is based in Singapore. Brooks works with a team of experts on behavioural portfolio theory, the psychology of judgment and decision-making, and decision sciences.
In part, the impetus has come from lessons learned during the financial crisis, which he says led to an increased focus on the working of investment behaviour.
"A lot of people have recognised in the industry much more widely now that behavioural finance is an important part of wealth management," he says. "I see people talking about emotion in markets much more, and whether they realise it or not, many market commentators [express emotion] when they're on the television or [in] the press."
Although he trained as an academic - holding a master of science degree in economics and econometrics and a doctorate in behavioural and experimental economics - Brooks differentiates his work from that of financial academics, who focus on how people make bad financial decisions rather than helping people make better financial decisions. He also distances himself from wealth managers who typically assess their clients' risk appetite, provide them with an optimal portfolio and then effectively abandon them, he says.
"Then you leave it up to them to hold the optimal portfolio in all market conditions, completely forgetting that we're dealing with human beings in the wealth-management world, and they will read newspapers and watch Bloomberg [and] become emotionally attached to what's going on in the market," says Brooks.
He aims to show clients how the "emotional roller coaster" of investing can affect their decision-making, and then working to build bespoke offerings and processes before putting the information in the hands of wealth managers.
Without such help, he says investors' emotions are likely to make them fearful when they are at the bottom of the market, which could make them exit their investments too quickly and miss out on the rebound and high returns. At the top of the market, exuberance and high excitement could encourage investors to get into the market at the wrong time.
As a first step, Brooks often asks clients about their reactions to the financial crisis. Then clients are often asked to complete a financial personality assessment, a psychometric questionnaire that assesses clients on the aspects of their personality that are pertinent to investing.
The detailed conversation that often follows about how their personalities have directed their investing behaviour allows the bank to help them make plans to suit their emotional, as well as financial, needs.
Behavioural finance can be particularly helpful when a banker has not been having much success with a client, says Brooks. He cites an example of a relationship manager who joined Barclays from a competitor. She had been pitching a portfolio to a particular client in her previous bank without success. He was a "balanced risk", but turned down the balanced risk portfolio, and subsequently the lower risk portfolio. Convinced he would be attracted by the higher risk portfolio, she presented him with that, only to be turned down yet again.
After moving to Barclays, she gave him the financial personality assessment and found that he had a lower "market engagement" characteristic, which was a barrier to investing. What was making him nervous about investing was "simply the idea that I invest today and the investment could go down 10 per cent next week. That for him was the biggest fear," says Brooks.
Armed with the insight, the relationship manager was able to create a discretionary portfolio that reduced his fear of being caught in a particularly bad time in the markets, and that was enough to allay his fears and launch an investment relationship.
The service has been "massively well received", says Brooks. Clients feel that the bank has put a lot of effort into understanding them, which helps build the relationship of trust between bank and client.
"This is a very demonstrable way where we've taken a huge step into making every effort we can to understand our clients better than anybody else," says Brooks.
A broader ranging but no less nuanced service has been on offer to Coutts' UHNW clients since July in the form of strategic solutions, a tailored package of services that helps seasoned investment clients find novel investment opportunities. It offers specialist advisory based on personal introductions in a range of asset classes and types, including property, private equity, venture capital and hedge funds, corporate finance, real asset investment classes such as classic cars, fine wine and art, and fashion and luxury goods.
The range of services is similar to that offered by other private banks, but at Coutts, the expertise mainly comes from other Coutts' clients, resulting in a network of like-minded UHNW individuals who have effectively been pre-screened, says the programme's head, London-based Mohammad Syed. It is an introduction-only model that is designed to meet clients' evolving global needs, and to react in a sophisticated, tailor-made way to those needs, says Syed.
"If our clients are evolving, and moving to these types of investments or solutions, then we need to react to those," he says. "Most of these so-called alternative investments by definition are illiquid, they are bespoke in nature, and they are not that easy to source."
One example is the search for the right property in the ever-burgeoning London property market.
"When we speak to clients in Hong Kong, or Singapore [or] Southeast Asia, one of the common themes that runs across all of them is property," he says.
The bank has many clients in the UK who are property specialists, creating an introduction or "corridor", as Syed puts it, between interested potential buyers and other Coutts clients operating in the field who can offer access to properties not available on the open market.
"A lot of it, especially in the commercial side, is proprietary driven," he says. "That is the stuff that most clients in the general public domain will not see."
Corporate finance referral transactions are private investments in private companies - often Coutts clients - that are seeking investors but lack the breadth of contacts to reach potential investors of proven calibre.
"That can span anything from lifestyle to technology, to biotechnology - it could be any sector," says Syed. "They are largely all proprietary in nature."
A Chinese manufacturer may ask for introductions to connect with others in the UK, Europe or Middle East, for example, who share his strategic vision. Similarly, passion-led investors - those who want to invest for love of the product rather than purely for investment - often need help to start collections. "You may not know who the true experts in that field are. Who do you go to, and how do you have a conversation with them?" says Syed.
Coutts can step in, introducing clients to experts, either from within the bank or from a selected choice of leading outside experts, but the majority are the bank's own clients.
"What I've found [is that] eight out of 10 are clients of Coutts, certainly from the UK perspective," says Syed. "That's a huge, huge edge to have, and they would love to engage with international clients."