SG
Will brokers break private banks?
1 June 2007
New private client brokerages may be about to steal private banks' thunder.
For aggressive clients looking to grow their money, private bankers can seem a little too stuffy. The private banker's core mission has traditionally been to protect rather than to enhance family wealth. Risky investments are out; continuity is all important.
Step up private client brokerages, a riskier model of managing wealthy individuals' money that's being imported into Asia from the US. Merrill Lynch, for example, has rolled out a new initiative known as the Private Investment Banking Group consisting of two three-person teams, focusing on China/Taiwan and Hong Kong respectively.
The target of its affections are 'ultra-high net-worth individuals' as Merrill calls them. They are entrepreneurs, often from mainland China, and are sitting on a minimum of US$1bn in assets. These guys are massive risk takers, and they are not about to stop now.
What's exciting for private bankers at brokerages (rather than those at banks, such as Credit Suisse and UBS) is that they are now in a position to offer a huge range of trades to their clients – and hence see their commission income explode.
"This is a great opportunity for private bankers at these institutions. They will be able to sell far more complex and high margin products than ever before," notes Christopher Lewis, an independent recruiter in Hong Kong.
Goldman Sachs runs a similar brokerage-style operation and recently poached a big team from UBS in Singapore "purely for the bucks," according to one recruiter. "They may have lost some clients but the income you get from commission on brokerage is much higher than the traditional fee you get from running a book."
A VP/director-level traditional private banker might make US$250k per year (off a book of US$200m to US$300m) with the equivalent in bonus if he brings in new clients. At MD level, on the client coverage side, he (or she) would bring in a million take-home. On the admin and investment side, he would bring in around US$300k basic and US$200k in bonus at the same level. But working at a brokerage such as Merrill Lynch, a private banker is effectively a broker, and could easily bring home a couple of million.
Good point. Slowly one can see a clearer segmentation developing in the industry, aggressive clients will be targeted by brokerages turned private banks. In the end, however, it is the cost to income ratio and client retention that will matter ultimately in this battle..
YK 01 Jun 2007
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