Trying to profit from private clients
SA’s notoriously difficult wealth segment under pressure
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.