WHO'S VAULTING UP THE RANKS?

Our review of the Top Private Banks & Wealth Managers

The increasingly desperate state of the economy and consequent erosion of wealth are the primary concerns of SA’s high-income families. At the same time, they express high levels of confidence, trust and even admiration for the people managing their wealth.

This is the eighth year that Intellidex has conducted the Top Private Banks & Wealth Managers survey and what has been impressive throughout is the high regard clients have for their wealth managers. After five years of insipid market returns, however, their range of concerns has widened.

“Many clients have expressed concern at the state of the country and the economy,” says Cyril Chetty, operations manager at Gradidge-Mahura Investments. “Extended hours of load-shedding earlier in the year compounded the low confidence levels.”

Tsakane Zwane, Absa Wealth Management business manager, says the political

situation has been weighing on clients’ minds and they have been moving funds offshore. “It is important to service clients even if they financially emigrate.”

Chetty says markets have been in a sideways trend since September 2014, accompanied by volatility.

“This is a bad combination for investment confidence. Many clients would like to see the political risk in the economy diminish so that confidence can return and the economy can start growing again. The low returns have meant that investors have been losing wealth on an after-inflation basis. Investors expect at least an inflation return in the medium term.”

That expectation adds to the pressures on wealth managers who — apart from their primary focus on managing the wealth of their clients — have to cope with an increasingly burdensome regulatory compliance regime, rising cybersecurity threats and the Retail Distribution Review (RDR) regulations that are having a few unintended consequences. RDR incorporates 55 interrelated regulatory proposals to be implemented over multiple years that aim to protect the consumer.

One of the changes is to do away with upfront commissions and formalise the nature of financial advice. This, one wealth manager says, has already had a significant industry impact. “Many participants have left the industry since their businesses were focused on these commissions and they were either unable or unwilling to change. New entrants who are joining the market, meanwhile, are of the view that risk benefits and planning are not desirable as part of their business model and typically avoid this much-needed area of planning and instead focus purely on investment and annuity income growth.”

While there may be some negative consequences, the wealth management firms all welcome RDR, recognising that the regulations are in the best interests of clients, and many have already prepared for the ones still to come. The compliance burden, however, becomes ever more onerous. One wealth manager says: “It is increasing costs in the business quite meaningfully and we are not sure that clients will be protected from unscrupulous advisers in any case. So clients as a collective ultimately end up paying for this increased compliance burden. Smaller investors will not be able to afford good advice and, ironically, will end up with an increased likelihood of receiving sub-par advice and expensive products.”

All of these concerns, says Rashay Makan, Carrick Wealth’s director of operations, are really encapsulated within one overriding concern: having a relationship of trust with their adviser. “Such trust is paramount to the client feeling they are getting the best advice, are investing in the best assets or products, are not paying too much in fees, and are being

provided with complete transparency. Concerns about all of these relate back to a relationship of trust.”

Such a backdrop reflects the added pressures on wealth managers and private bankers to be competent in areas far beyond the direct management of investments, tax and fiduciary issues. According to their clients, they are excelling in all areas.

Awards

PSG Wealth is the wealth manager of the year in the category for large financial institutions, with NFB Private Wealth Management the winner in the category for boutique firms. The overall award was split into two this year, a result of the new format (see Methodology on page 14).

PSG has performed consistently well in this survey over the years but clinches it this year with the higher emphasis on client rankings. It scored well across all archetypes (where the boutique firms compete head-on with the larger financial institutions) and wins in two archetypes: young professional and successful entrepreneur.

Clients gave it particularly high ratings for transparency of fees, and said they have a full understanding of the implications of all their decisions. There are also high satisfaction levels with the performance of their portfolios.

Standard Bank Wealth & Investment comes in second in the large financial firm category, followed by the FNB/RMB offerings.

Private Client Holdings, a newcomer to this survey, put in a very good performance and takes second place in the boutique wealth manager category, edging ahead of last year’s winner, Gradidge-Mahura Investments.

NFB also wins in the passive lump-sum investor archetype and gets the people’s choice award as top wealth manager. The firm impresses with its solid all-round offering. Its clients gave it consistently high rankings across all the service quality, transparency and trust questions and the advice they received covered all bases, from children’s education and medical expenses to implications of the client’s marriage contract. Investment returns also got a big thumbs up from clients.

Investec receives multiple awards. Investec Private Bank wins the top banking services firm award and gets the people’s choice award as top private bank, while Investec Wealth & Investment wins in two archetypes: the wealthy executive and the internationally wealthy family.

Big-picture concerns

For clients, the “big picture” concerns are mounting while — naturally — they remain concerned about a financially secure retirement.

“Clients are concerned about the recent poor performance of the local market and the impact on their retirement savings, especially relevant in a low-return environment,” says Brian Butchart, MD of Brenthurst Wealth Management.

“Other concerns are proper tax optimisation of their investment portfolios and an international downturn and the impact on their portfolios. Estate planning is also a great concern, despite many clients admitting they can’t remember when last they reviewed their will. Other factors are concerns regarding children and their education.”

That list of client concerns encapsulates the diverse nature of the wealth management business: it is not just about managing money.

PSG Wealth says the years of disappointing market returns, coupled with macroeconomic and political instability, has seen many clients become disillusioned about their investments.

“As a consequence, we find many investors are tempted to abandon their investment plans and strategies,” says chief marketing officer Tracy Hirst. PSG is responding by focusing on client engagement events and

“Many clients would like to see the political risk in the economy diminish so that confidence can return and the economy can start growing again

educating clients about the importance of focusing on the factors within their control.

William Higgs, COO of NFB Private Wealth Management, says: “In the current environment there is significant concern as to the stability of the country’s political and economic picture, and whether the value of local assets will be able to hold their own in a global context over time.

“The concern extends to whether the asset bases that clients have generated will be meaningful in the event of emigration.”

Investments protected

“We find that clients place a high premium on knowing that their investments are not only growing but are also well protected against a variety of potential risks, and it certainly is one of the most common concerns of high net worth clients we advise,” says Carrick’s Makan.

“Most clients are also concerned about inflation eroding the value of their investments and seek advice on inflationbeating growth options. High or non-transparent fees and unforeseen, unnecessary or high taxes eating into their investments are also some of the top concerns. They want to know upfront exactly how much they will be paying in fees, and for what, and they also want to know what types of taxes can affect their estates and their wealth, when and how.”

Higgs says clients want the issue of increased longevity addressed, along with the ability of capital bases to maintain income levels in real terms. These concerns escalate “if we see significant increases in inflation as a result of a weakening currency and high input prices — fuel and electricity, as well as imported food inflation.”

He says low levels of returns have made clients concerned that “the wealth plan

ning assumptions that were made, based on return levels which have not been seen in the short term, are incorrect. The lack of return has had a number of consequences in terms of client behaviour, with some clients wanting to gravitate towards the certainty of cash, while others have, sometimes unknowingly, wanted to take on inappropriate levels of risk to generate higher returns.”

Succession planning is an increasingly important factor for clients at the upper end of the wealth scale.

Research done by Stonehage Fleming, which operates exclusively in the internationally wealthy family segment, found that succession planning has overtaken capital preservation as the No 1 concern for the future.

Tax planning was third, followed by capital appreciation.

Reyneke van Wyk, head of Stonehage Fleming’s investment division in SA, says respondents identified the top risks to long-term family wealth to be family disputes and lack of planning, as opposed to purely financial or investment risks.

Rapid rate of change

Van Wyk says the rate of technological, social and political change, “probably greater today than it has been for any generation in living memory”, is also an important issue for such clients.

“One leading academic tells us that families have historically addressed generational change every 25 years. Now there is evidence of significant shifts every seven.”

At this end of the wealth spectrum, managing family issues becomes an integral part of the service — so much so that these businesses are called family offices.

“Succession planning is an increasingly important factor for clients at the upper end of the wealth scale

Standard Bank Wealth & Investment, for example, runs academies for children of wealthy families. The eight- to 12-year-olds are taught about the importance and challenges of making, spending, investing and giving money. From 13 to 17 the focus is on providing insights into their personal investor profile and guiding them in navigating their financial lives. More advanced financial management courses are held for older family members and women.

Each firm responds to the range of client concerns in their own manner, but what is consistent is that they all spend much time in discussions with clients to gain a better understanding of their individual issues, explaining market forces and managing expectations. They go through the range of in-house products and services available to clients, as well as those that might be offered through third parties, giving detailed explanations as to how each works, the costs and the implications for the wider portfolio.

Such a holistic approach is necessary in a world that is changing quickly, where more and more factors are coming into play that affect a client’s portfolio or their sense of wellbeing.