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.

Photo: Getty Images
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The buck doesn't stop with Grant Shapps - and probably shouldn't stop with Lord Feldman, either

The question of "who knew what, and when?" shouldn't stop with the Conservative peer.

If Grant Shapps’ enforced resignation as a minister was intended to draw a line under the Mark Clarke affair, it has had the reverse effect. Attention is now shifting to Lord Feldman, who was joint chair during Shapps’  tenure at the top of CCHQ.  It is not just the allegations of sexual harrassment, bullying, and extortion against Mark Clarke, but the question of who knew what, and when.

Although Shapps’ resignation letter says that “the buck” stops with him, his allies are privately furious at his de facto sacking, and they are pointing the finger at Feldman. They point out that not only was Feldman the senior partner on paper, but when the rewards for the unexpected election victory were handed out, it was Feldman who was held up as the key man, while Shapps was given what they see as a relatively lowly position in the Department for International Development.  Yet Feldman is still in post while Shapps was effectively forced out by David Cameron. Once again, says one, “the PM’s mates are protected, the rest of us shafted”.

As Simon Walters reports in this morning’s Mail on Sunday, the focus is turning onto Feldman, while Paul Goodman, the editor of the influential grassroots website ConservativeHome has piled further pressure on the peer by calling for him to go.

But even Feldman’s resignation is unlikely to be the end of the matter. Although the scope of the allegations against Clarke were unknown to many, questions about his behaviour were widespread, and fears about the conduct of elections in the party’s youth wing are also longstanding. Shortly after the 2010 election, Conservative student activists told me they’d cheered when Sadiq Khan defeated Clarke in Tooting, while a group of Conservative staffers were said to be part of the “Six per cent club” – they wanted a swing big enough for a Tory majority, but too small for Clarke to win his seat. The viciousness of Conservative Future’s internal elections is sufficiently well-known, meanwhile, to be a repeated refrain among defenders of the notoriously opaque democratic process in Labour Students, with supporters of a one member one vote system asked if they would risk elections as vicious as those in their Tory equivalent.

Just as it seems unlikely that Feldman remained ignorant of allegations against Clarke if Shapps knew, it feels untenable to argue that Clarke’s defeat could be cheered by both student Conservatives and Tory staffers and the unpleasantness of the party’s internal election sufficiently well-known by its opponents, without coming across the desk of Conservative politicians above even the chair of CCHQ’s paygrade.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.