Kleinwort Hambros: Maintaining a high-touch personal service
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WEALTH

Kleinwort Hambros: Maintaining a high-touch personal service

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Paul Kearney, head of private banking at Kleinwort Hambros, says that there are two overriding prerequisites for success in the competitive private banking market: relevance and efficiency.

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Being relevant, he adds, does not just mean remaining sensitive to clients’ evolving requirements. It also means being equally prepared to identify what clients don’t need. Keeping up to speed with these shifting preferences calls for a continuous dialogue between the private bank and its clients. This is why Kleinwort Hambros, which is the private banking and wealth management unit of Societe Generale in the UK, hosts regular forums aimed at eliciting what Kearney describes as “frank and candid” feedback from its clients.

Recently, says Kearney, the message from Kleinwort Hambros’ high and ultra-high net-worth clients has been that the advance of digitalization has done little to diminish the value of personal service. “We are balancing our investment in digital and self-service capabilities against maintaining our core USP,” says Kearney. “This is still based on preserving long-term relationships between clients and their trusted private banker.” 

The Kleinwort Hambros model, Kearney adds, is based on assigning each client with an individual banker who is supported by a constellation of specialists providing advice on areas such as wealth planning, credit, investment strategy and portfolio management.

The challenge now, says Kearney, is to assess how the private bank can harness technology to augment the personal service provided by individual bankers – but never to replace it. “I’m glad we didn’t rush down the most cost-effective route by dissolving everything into an app, because the vast majority of clients still value our high-touch personal service,” Kearney says. “But they also require the optionality that self-service gives them.”

Achieving a judicious balance between preserving personal relationships and using technology to maximize efficiencies is especially important in a market where regulatory and other pressures continue to drive up costs and break-even levels across the private banking industry. “Private banking has become an increasingly expensive business to run, particularly when you provide such a broad and deep range of products and services,” says Kearney. “Competition has also remained intense, because there has been less industry consolidation driven by rising costs than many anticipated.”

Kearney adds, however, that it is important not to over-egg the disadvantages generated by operating in a competitive environment and a geographic region where the wealth management industry is relatively mature. “It is widely acknowledged that the private banking industry in Europe is growing more slowly than it is in the US or Asia,” he says. “But the UK remains a very attractive financial centre and the Kleinwort Hambros brand is also well-established in the Channel Islands and Gibraltar. Both are important hubs for global financial services in general and wealth management in particular.”

Besides, while annual indigenous expansion of 4% or 5% may look modest in comparison with, say, 10% in Singapore, it is encouraging in an environment of limited economic growth, low interest rates and subdued inflation.

Investment strategy: ignore the noise

Against this economic backdrop, Kleinwort Hambros remains constructive on the outlook for equities, according to its deputy CEO and chief investment officer Mouhammed Choukeir. He says that the investment advice the bank offers its high and ultra-high net-worth clients can typically be split into two categories. The first relates to the structure and planning of their wealth. “This is where we work with clients to identify their objectives and advise on how these can be met under a range of different scenarios,” he says. “This involves addressing wealth-structuring questions which are very client-specific.”

The second area of investment advice provided by Kleinwort Hambros relates to performance. Here, its message to all the private bank’s clients is clear. This, says Choukeir, is that investors should not allow themselves to be distracted by short-term geopolitical influences on asset prices. “The history of financial markets tells us that their long-term performance is driven not by geopolitics but by fundamentals,” he says.

This is an argument that has been strongly supported by the performance of equity and credit markets over the last decade, as well as during the last 12 months. “Over the last decade we have seen existential threats to the eurozone, a sharp slowdown in the Chinese economy, and the rise of populism and protectionism, not to mention the uncertainty arising from the UK’s referendum,” says Choukeir. 

“Intuitively,” he adds, “all this should have caused investors to be fearful. But over the last decade financial returns have been extremely rewarding for investors. This is because the corporate sector has been able to work round geopolitical and economic uncertainty, not just by cutting costs but also by growing revenues.”

The resilience of the corporate sector is one of several reasons why Kleinwort Hambros is currently recommending an allocation to equities in a balanced or moderate risk portfolio of 55%. There are three other reasons for Choukeir’s continued confidence in the outlook for equities.

First, valuations which are now close to their long-term average suggest that although returns may not be as compelling as they have been over the last decade, equities should continue to be appealing relative to bonds and cash.

Second, the outlook for global monetary policy has shifted conspicuously in recent months, with many economists now believing that the Federal Reserve is more likely to cut interest rates than to raise them over the foreseeable future. “We share the view that rates are likely to remain anchored at their current levels or even move lower,” says Choukeir.

Third, investor sentiment does not yet suggest there has been any return to the irrational exuberance which signalled previous equity market downturns. “There is very little in the way of the investor euphoria which is said to typify the top of the market,” says Kearney. “Up to now it has been what I would describe as a grudging bull market.”

Against this background, he adds, part of the value that Kleinwort Hambros can add for clients is to urge them to resist a natural temptation to follow the herds out of the market during short-lived corrections. 

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