Hedge fund advisory arm of HSBC banking group establishes links with Zurich and Fineco in order to fill up its increasing product capacity

Paul Garrido reports on the index series’s growing band of customers

Citigroup Private Bank has been brought under the umbrella of Smith Barney, the group’s wealth management unit, reports Paula Garrido

Indians abroad

Société Générale’s Wealth management subsidiary, SG Hambros, has sharpened its focus on the non-resident Indian market by appointing Charles Leitch as senior private banker for its international UK-based team.

The depolarisation regulations are shortly to be released by the UK Financial Services Authority (FSA). Predictions are that the move to depolarisation will have a major impact on the financial services industry . The initiative seeks to improve the means by which investors are sold financial products and advice by their advisers. Much emphasis will be placed on the concept of independence. But how will this affect the wealth management industry?

From an industry perspective, depolarisation will further clarify the roles between the distributor and manufacturer of financial products. The assumed outcome is that private clients can benefit from greater information, enhanced choice and transparency on fees.
This is because product manufacturers and distributors will be required to adapt their product strategies, structures and processes to comply with the stated code of business practice. Moreover, clients will be more certain that the investments offered are most suited to their interests rather than to the distributor’s interests. This is linked to the sales process surrounding the initial offer.

Hitting home

Most affected will be independent financial advisers (IFAs) targeting the retail consumer. However, many private banking businesses will also be impacted. Moreover, clients with net wealth between £50,000 (e72,000) and £500,000 will become increasingly aware of the improve-ments in the retail market space. They will question whether their private banks are either as competitive, differentiated sufficiently or in step with FSA objectives of improving the lot for individual investors.

Many private banks seem to have judged that given their focus is primarily on discretionary solutions, they are unaffected by depolarisation. Nevertheless, the advisory-related business they offer will be impacted. In addition to business model changes, the respective financial institutions must also consider potentially upgrading their private bankers to IFA status. They will also need to be aware of a changing competitor landscape. HNW IFAs will emerge as a dominant player within this market and offer an enhanced range of products and services.

Thus, the practices of private banking whereby clients are offered tailored financial advice around the range of investments under review will inevitably be affected by the regulatory change. It is judged that the impact will not be to the same extent of other sectors servicing private investors. Most cite that as their businesses are modelled on discretionary services, they are largely exempt from the changes. However, many private banking operations in the UK continue to have significant advisory businesses. Meanwhile, the discretionary business of many other wealth managers may not be construed as discretionary in the eyes of the client or, possibly the regulators.

Significantly, the transition from a polarised to a depolarised regime is not often being thought of by private bankers in the context of the attitudes of either the client reactions or the sales process. However, it is precisely these two factors that will be most affected.

Clients, of whatever segment of wealth, are unlikely to spend time discriminating the differences between discretionary and advisory business – both supply an investment solution to their investment needs. In this context, they may just assume that the positive introductions in standardising and clarifying the financial services offering should be available in the discretionary and the advisory space.

Therefore, the private clients that are currently with the private banks on discretionary accounts may demand that the same standards are adopted by private banks in their discretionary offers.

Higher standards

Ultimately, depolarisation will raise the bar in the level of disclosure and engagement for HNW clients. Private banks that choose to ignore the introduction of the regime on the basis that it does not directly cover their business activity overlook the fact that clients are less discriminatory on this detail. Typically, they seek the best solution at the best price with the best relationship. If private banks fail to upgrade their offer, or at least seek to provide a response to depolarisation that outlines the differences of their approach, then clients will be uncertain of the value-added role of the private banking and wealth management sector.

Sebastian Dovey is managing partner at wealth management strategy think-tank Scorpio Partnership

Chief investment officers are generally judged by their asset allocation calls. But as Klaus Martini, CIO at Deutsche’s Private Wealth Management division, tells Yuri Bender, these calls are worthless unless the correct products are in place to absorb investors’ money

In a bid to make up for lost time in Europe, Franklin Templeton has been diversifying its sales outlets and expanding its strategy to include private banks and discretionary mergers. Simon Hildrey reports

Growing numbers of cross-border investment transactions have been hampered by a lack of international infrastructure, writes Paula Garrido

Investment banks and fund managers are locked in a battle for the favour of distributors of financial products to high-net worth individuals. Paula Garrido pits the banks’ structured products against the managers’ longer termist pooled fund products

Gaining client trust means not only offering excellent portfolio construction and investment opportunities but also a commitment to open architecture

This perfect combination of active and index investment approaches works because it is based on the client’s own assets allocation model

There is some debate about what can be seen as asset management outsourcing, but the definition, like the sub-advisory practice itself, is expanding

Interference by central banks means the currency market is prone to profit-making opportunities

While economists may agree that the age of Asia is rapidly approaching, this doesn’t mean it is all going to be plain sailing. Simon Hildrey reports

Each month in PWM, six top European asset allocators reveal how they would spend E100,000 in a fund supermarket for a fairly conservative client with a balanced strategy.

Bernard Aybran, head of manager selection, LCF Rothschild Based in: Paris, France

“The major equity indices have been oscillating within a (rather declining) trading range for most of the year. Performance in such an environment can be achieved in two distinct ways : trading actively and aggressively or finding the major themes that enjoy a clear trend, outside any trading range. We have found three of them so far : corporate high yield on the fixed income side, high dividend stocks and natural resources on the equity side. Both fundamentals and momentum can keep those three trends going within the next few months.”

Robert Burdett, director for multi-manager and fund of funds, Credit Suisse Asset Management Based in: London, UK

“In a mixed month, our higher quality bond funds did a good job, as did our emerging market equity funds. Elsewhere Japan did poorly, and Atlantis faired worse but we still have great deal of faith in this fund and the market. UK and European equities also did well as the US faltered in Euro terms.

“All this variability gave some opportunity for a re-jig of the portfolio.”

David Bulteel, head of international portfolio management, Carr Sheppards Crosthwaite Based in: London, UK

“In spite of oil prices hitting new highs, most equity markets continued to rally from their mid-August lows and recorded solid gains last month. Bond markets were little changed. Having fretted for a while about slowing global growth, investors are focusing on the positive consequences – a lower peak to the interest rate cycle in the US and UK. In addition, profits and dividend growth in 2004 have exceeded expectations.”

Michael Richter, head of asset management team, Epicon Investment Based in: Vienna, Austria

“As the demand for raw materials and energy should remain high in the coming months, we sold the Fidelity European Growth and replaced it with the broadly diversified First State Global Resources fund, which covers the energy and mining sector. We reduced the JPM Fleming International Bond and the American Express Epic Emerging Markets Liquidity funds and added the CSFB Tremont Investable Hedge Fund Index Certificate.”

Pierre Bonart, head of multi-management, Louvre Gestion Based in: Paris, France

“Our main scenario remains unchanged. We’re still in a transition market where trends on equities only take place in specific market segments. We sold our exposure to mining in March for energy, because of fears about the growth potential of China. These fears, which have triggered a major decline in the mining sector in April, have been exaggerated. We therefore reintroduce this fund in our allocation because of its growth prospects, but remain careful on valuations.”

Marjolijn Breeuwer, manager selection team, Insinger de Beaufort Based in: Amsterdam, The Netherlands

“We decided to add GAM North American Growth to the US equity portion of our recommended portfolio. GAM North American Growth is managed by Gordon Grender ,who has a superb track record as a genuine specialist manager. His long-term horizon and focus on undervalued mid-cap stocks that have good growth potential have been rewarded over the past few years, and these, combined with his absolute return bias are likely to continue to lead to alpha generation.”

Bryan Gordon explains why understanding a creditor’s financial profile is as important as an appreciation of the fundamental value of the asset being invested in