Three reasons bankers ditch a client

The boot's on the other foot.

HNWs are usually the ones who complain about their bankers, but 2013 has seen a power shift: the John Lobb boot is on the other foot. The introduction of a regulatory overhaul, the Retail Distribution Review, has made it more time-consuming to service clients, and so advisers are increasingly discerning in whom they work for. With mounting numbers of wealthy clients therefore being ‘managed out’, an explanation of what makes a relationship tricky and how you can avoid the cull is timely.

The chief complaint that bankers make is the level of attention that clients demand. Have you ever interrupted your adviser’s wedding anniversary with a telephone grumble about the S&P or disturbed their sleep with a quibble about the Nikkei?

Such behaviour (unsurprisingly) irks bankers, despite all their protestations of intense availability for your needs, because at the top end of the market they are only allowed to work for 30 clients, to guarantee five-star service, and if one of their clients takes up double the amount of time that leaves less time to reap fees from others. (Their fees are not your first concern, clearly.)

Equally, at the lower end of the market, bankers take on up to 400 clients, meaning that HNWs who insist on daily dialogues chew into time that could be devoted to attracting new accounts paying 1 per cent per annum. 

The wealthy will rebuke their bankers on the grounds that many sell themselves on bespoke service. Beauty parades are often won with platitudes like ‘I’m just a phone call away’, as well as assurances that advisers in local jurisdictions are accessible day and night. 

The solution, therefore, is to have your banker explain at the outset how much time they intend to dedicate to you. "That solves the most frequent problem," says a top CEO, "which is when clients say that they are happy with discretionary relationships whereby bankers do the day-to-day investment and then report back quarterly, when, in fact, they want much more active roles discussing portfolio moves weekly in a manner reminiscent of advisory relationships.’

The reverse — a communication freeze — is not much liked by bankers either. The reason is that snap-firing decisions are much more likely when clients aren’t given regular outlets to vent their frustrations — ‘so it’s important to use the annual lunch to explain your position and give your banker the chance to change," says the CEO. "Silence may suggest happiness on the surface, but it often doesn’t under the veneer, so bankers will always appreciate hearing from you approximately four times a year."

Beyond communication levels, the second sin that bankers complain about in their clients is when they vary their expectations. While legitimate after a radical transformation in circumstances like a lottery win, those who change their minds based on market movements are not appreciated.

For example, in the mid-Noughties, many bankers would report to clients that they had made 10 per cent and the response would often be:"My friend got 15 per cent — I’d like to take more risk, please." Now, however, the economic winds have changed and those same clients are happy if offered 4 per cent — proof, if ever there were, that expectations can fluctuate as much as the FTSE.

Of course, bankers find the practice trying because it requires readjustments of client portfolios. Such shuffling increases costs and eats into performance while also taking up time in workloads which, at the firms focused on sub-£3 million accounts, already include relationship and investment management. And although HNWs will quite properly query who serves whom, a balance must be struck because, according to Barclays, HNWs lose as much as 3 per cent per annum from portfolio adjustments. 

The solution starts with getting bankers to explain what they intend to deliver in military detail at the beginning of relationships so that clients won’t feel aggrieved by the results thereafter. Then it’s a matter of looking through market movements and remembering that bankers tend to underperform indices in the early stages of rallies, such as in 2012, and outperform in downturns, as in 2011, because they understand that private clients don’t like losses and so they manage money with one eye on benchmarks and the other on absolute returns. 

Expectations aside, the third thing bankers complain about is when clients don’t act as part of a team. That manifests itself most obviously when clients look over their shoulders and second-guess decisions. A glittering example is Apple: in September, the technology stock was trading at $700 but since January it is has been below $500. Losing 30 per cent has of course had plenty of HNWs prodding their bankers as to why the stock wasn’t sold, but in doing so they have overlooked the fact that many bankers backed Apple in 2010 when it was $250. 

The shortened sense of perspective is in part attributable to the media, which play up star stocks and make finance dinner-table conversation. But bankers are always keen to remind clients to look through the markets and take a five-year view. As the anonymous CEO says, ‘It always pays to remember that Robert Peston and co cover big falls in the FTSE, but they are half as interested in the rebound the following day.’

Another example of lack of teamwork between bankers and clients is, more subtly, when HNWs don’t recognise good performance or promote it to their friends. No, bankers don’t expect referrals. But they know that, in terms of time and cost, referrals are the most effective form of business development, and therefore they get frustrated when clients feel embarrassed about talking finance to friends.

HNWs will find that referring their bankers is profitable for their own balances as well, because when advisers are freed from business development and allowed to focus on their day jobs their investment results and service levels improve. (If this seems like you’re doing their work for them, perhaps that’s right.) 

HNWs who repeatedly trespass across the three boundaries will find that they aren’t so much dismissed by their bankers as marginalised. If their portfolios are over £200,000, then they’ll be passed to junior bankers, whereas if their accounts are underneath the threshold they will be pushed into a fund-of-funds service. 

In an age when the regulator requires an annual review of everyone’s portfolios and financial circumstances, bankers with 400 clients and 250 working days will find themselves stretched with even the most understanding clients — so it’s crucial to remember that the best business relationships are mutually beneficial and that making sure you fit in well with your banker’s expectations is just as important as double-checking that they fit well with yours.

Alex Pendleton writes for Spear's.

This piece first appeared on Spear's

A London Bank. Photograph: Getty Images

This is a story from the team at Spears magazine.

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
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Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

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