Try­ing to profit from pri­vate clients

SA’s no­to­ri­ously dif­fi­cult wealth seg­ment un­der pres­sure

Finweek English Edition - - COMPANIES & MARKETS - BRUCE WHIT­FIELD brucew@fin­week.co.za

IF YOUR COM­PANY is based across the road from a me­dia or­gan­i­sa­tion and you’re at­tempt­ing to host a pri­vate farewell party for the CEO, turn down the PA sys­tem. That’s how Fin­week and any­one else within earshot of the plush, new RMB Pri­vate Bank of­fices learned of the de­par­ture Sean Far­rell. He packed his bags in De­cem­ber. Par­ent FirstRand would prob­a­bly have wanted a lit­tle more time to fi­nalise the struc­ture of its newly over­hauled wealth man­age­ment di­vi­sion and ap­point suc­ces­sors, not only to Far­rell but also to Niven Arendse, the head of FNB Trust Ser­vices. Arendse quit his po­si­tion at about the same time as Far­rell left his.

Both ap­pear to have re­signed in re­sponse to the bank’s new struc­ture, which is de­signed to re­move costs and du­pli­ca­tion across busi­ness units that re­port to di­vi­sional CEO Iris Dempsey. The en­larged wealth man­age­ment busi­ness will con­tain not only RMB Pri­vate Bank and FNB Trust Ser­vices but also its pri­vate clients arm of the re­tail bank, FNB Pri­vate Clients, plus Is­lamic Fi­nance, off­shore as­set man­ager Ash­bur­ton and the newly acquired pri­vate clients stock­broking di­vi­sion of BJM.

The re­struc­ture is sig­nif­i­cant but not unique to FirstRand, as South Africa’s bank­ing sec­tor grap­ples with the com­plex­i­ties of pro­vid­ing top-end bank­ing ser­vices to a rel­a­tive hand­ful of high net worth in­di­vid­u­als, as well as the nou­veau riche and emerg­ing pro­fes­sion­als with strong earn­ings po­ten­tial.

SA’s pri­vate bank­ing and top-end wealth man­age­ment sec­tor seems to have been in a per­ma­nent state of flux for the past decade. Even In­vestec, which has suc­cess­fully cor­nered the up­per end of the seg­ment, has had to re­assess is­sues such as struc­ture and pric­ing over re­cent years. The of­fer­ings at each of SA’s Big Four bank­ing groups are yet to find a suit­able op­er­at­ing model for the do­mes­tic en­vi­ron­ment. Sim­ply, the mar­ket is nei­ther big nor wealthy enough to sus­tain a tra­di­tional Swiss-style pri­vate bank­ing of­fer­ing and lo­cal banks have con­stantly com­pro­mised on ser­vice in favour of driv­ing vol­ume in or­der to get their up­per end op­er­a­tions to de­liver any sort of de­cent re­turn.

“There have been di­min­ished earn­ings in the wealth sec­tor re­cently,” says Dempsey. “Mar­gins and re­turns have been an­ni­hi­lated: we just don’t have the lux­ury of over-ser­vic­ing the mar­ket.”

But she de­nies clients will see any no­tice­able de­cline in stan­dards – in­sist­ing the in­te­gra­tion of the back of­fices shouldn’t be no­ticed by clients of the var­i­ous brands. Those brands, prom­ises Dempsey, will stay, ac­cord­ing to the group ethos of driv­ing, sus­tain­ing and grow­ing in­di­vid­ual com­pa­nies un­der the broad cor­po­rate um­brella.

The South African mar­ket may be small and tightly con­tested, but Dempsey plans to piggy-back the newly in­te­grated wealth of­fer­ing off the back of the group’s Africa ex­pan­sion strat­egy. FirstRand has very clear plans to ex­pand into other African coun­tries and plans to ex­tend its wealth of­fer­ing into new territories, where wealth­ier clients haven’t been given the more fo­cused ser­vice Dempsey aims to pro­vide.

“We’ve lost so many op­por­tu­ni­ties due to a lack of in­te­gra­tion. We have to lever­age Ash­bur­ton more ef­fec­tively,” says Dempsey, who is also in charge of en­sur­ing the BJM ac­qui­si­tion made last year pays off.

The risk the in­te­gra­tion of the wealth man­age­ment clus­ter poses is that the tra­di­tion of FirstRand’s owner/man­ager cul­ture could be di­luted. The phi­los­o­phy of the group’s found­ing tri­umvi­rate – Lau­rie Dip­pe­naar, Paul Har­ris and GT Fer­reira – was to al­low busi­nesses to grow and de­velop in­de­pen­dently of one an­other while al­low­ing them to lever­age off the FirstRand brand and in­fra­struc­ture. Dempsey de­nies that at­ti­tude will be lost. “The em­pow­er­ment phi­los­o­phy re­mains strong,” she says.

Far­rell re­ferred ques­tions about the fu­ture of the group’s wealth man­age­ment op­er­a­tions to Dempsey. He says af­ter 12 years with the bank he was look­ing for­ward to tak­ing on new projects in the Western Cape and was re­lo­cat­ing to Cape Town with his fam­ily.

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