In a climate of scandal and general public mistrust in the banking sector, many small private client businesses are feeling the pressure through association, having the misfortune of operating in the same sector as the culpable parties.
Lee O’Leary, managing director of Swiss family-owned bank Hottinger’s London operation, argues the wealth management industry has been unduly hurt by a string of misdemeanours in broader financial services.
While private client businesses have experienced far less in the way of scandals, they have been tarred with the same brush as big banks, O’Leary argues.
‘It’s a shame because we have seen these situations and the private client side is pretty much unscathed, but tarnished by it,’ he says.
‘Some clients will say to a very good investment manager “it’s a shame you work for them”. But it’s not the individual they are concerned about, it’s the institutions, and we can’t control the institutions. I think the private client side has been tarnished unfairly because they tend not to have been involved in those situations.’
As the family-backed business holds no client money itself and lacks the teams of product-pushing salesmen and advisers that have caused problems for other players, O’Leary believes the firm is not subject to short-term pressures like others.
‘We don’t have those high level pressures on us. The Hottinger family has been very supportive; I have no real pressures from them.’
Against this backdrop, O’Leary is seeing increased interest from prospective clients wishing to have their investments managed by a Swiss player.
‘We have done absolutely no marketing, we have no public side of it. We are a very discreet organisation. The [Hottinger] family want us to be that way and we want to be that way,’ he says.
O’Leary was working as a director and senior asset manager at Julius Baer, with over 30 years’ experience under his belt, when he was approached by the investment arm of Swiss private bank Hottinger to set up a London office to complement its New York and Luxembourg operations.
The office was launched in 2001 with O’Leary working alongside executive director Tim Sharpe. The pair have since taken on a series of recruits from his former employer Julius Baer, a place he describes as ‘top-notch’.
‘If you look at the list [of team members] almost everybody is from Julius Baer. I think the good thing about that, though, is that we know each other, we know each other’s strengths and weaknesses.’
Many chiefs of smaller businesses will say, with varying degrees of conviction, that they have no ambitions to become an investment behemoth. Often their actions belie the words. But when O’Leary, with his total of 48 years’ experience, says he has no hugely ambitious plans to scale up the business, it is clear he
‘I’ve been with the big organisations, I’ve been with two of the biggest in the country and frankly all of my colleagues have worked for big organisations. I think that is the past now for proper investment management,’ he says.
The business has 280 accounts and has grown from a start-up in 2001 to managing £400 million in assets today. There are plans to hire more investment managers, but O’Leary is adamant that taking on teams of people from other businesses would disrupt the culture that has been carefully been established.
‘We are not going to go on the acquisition trail, although we could tomorrow,’ he states firmly. ‘It’s dangerous. You’re buying a business and the people might not stay. There are no guarantees.
‘Why would I buy a business when I have identified there are a number of people out there who are like us but have become a little disillusioned?’ he argues.
‘There are people who are disillusioned that they are working very hard for their clients and the parent [company] has become tainted, and they are suffering for it.’
He believes the industry is changing for the better in two ways: clients are becoming more demanding – and rightly so, he says – and as a consequence of that there is more scope for specialist investment managers to carve out their space in the market.
‘[Clients] want to feel as if you know them and are not a number. And we all know that that happened in the past. I remember when people used to look after 500 clients on their own,’ he says.
‘As a consequence of that, the niche investment managers are coming out. The investment managers are looking after their clients as they perceive it correct to.
‘A marzipan layer called management that existed in the 1980s and never achieved anything, but put pressure and costs on clients has disappeared. That’s very helpful because most of those people did not understand investment.’
After spending almost 20 years at Hottinger and Julius Bear collectively, O’Leary notes the impact this has had on his investment philosophy today.
‘The culture was security and safety, putting clients’ investment portfolio first. Not as it used to be in the stockbroking world where it was stock selective,’ he says, adding that the more global outlook of the Swiss businesses he has worked for has rubbed off on him. ‘We’ve been able to identify with that.’
In fact, the managing director entered the investment industry at an early age after leaving school at 16. He recalls he ‘couldn’t wait to get to work’ and since numbers were his forte, he aimed to get a job in the City.
He was offered a position at stockbroker Grieveson Grant in 1965 and has been in the private client investment business ever since, although he has never been tempted to move over to the institutional side.
‘I would never do institutional, I have been private client-orientated all my life. You talk to clients about their lives, what they are looking for in life and you also talk to them about their families,’ he says. ‘It’s an unbelievable variety of people that you get to meet.’
Two decades later in the post-big bang world, Grieveson Grant was taken over by Kleinwort Benson, and the change in working culture was noticeable, he says – mainly since bigger organisations were trying to do too much, he felt.
‘Things changed markedly in the few years after Kleinwort Benson took over,’ he says. ‘The culture change was dramatic in the 1980s from private clients and people looking after them, and the organisations concentrating on what they were good at.
‘The merchant banks believed they could do all things for all men and as a consequence they were trying to do their trust work, their law work and their investment management – and I didn’t get on too well with that.’
The acquisition was the catalyst for O’Leary to leave a business he had worked at for 27 years, and join Julius Baer, his first time at an internationally focused business.
As a director and senior asset manager, O’Leary remembers the time as ‘a good nine years’ and also a place where he broadened his horizons and had the chance to learn about assets and currencies, which were growing in prominence but which more traditional businesses ‘had never given thought to’.
‘I went from a UK house looking after people in the UK to a global investment house that really had a different idea of how you approach investment. They were much more security-orientated [and] modest growth, unusually currency-orientated, and it was global in its investments.’
While O’Leary is positive about the prospects for smaller wealth managers to win business, he is realistic about the biggest force facing his and other businesses: that of rising regulatory costs.
‘I think the danger to the smaller organisations – and even the bigger ones, I’m afraid – is the burdening costs of regulation. And what does it achieve?
‘If the new Financial Conduct Authority can get out of the industry those suspect people who have caused all the damage, and this is what they are actually now doing with the retail distribution review, then there won’t be those organisations blatantly going off and doing things wrong, and therefore costs should drop.
‘We need to get the costs under control. Then I think it’s worth doing but, we have to be very careful,’ he says.