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.

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Tony Blair might be a toxic figure - but his influence endures

Politicians at home and abroad are borrowing from the former prime minister's playbook. 

On 24 May at Methodist Central Hall, Westminster, a short distance from where he once governed, Tony Blair resurfaced for a public discussion. Having arrived on an overnight flight, he looked drawn and puffy-eyed but soon warmed to his theme: a robust defence of liberal globalisation. He admitted, however, to bafflement at recent events in the world. "I thought I was pretty good at politics. But I look at politics today and I’m not sure I understand it."

Blair lost power in the summer of 2007. In the ensuing nine years, he lost reputation. His business ventures and alliances with autocrats have made him a pariah among both the public and his party. A YouGov poll published last year found that 61 per cent of voters regarded Blair as an electoral liability, while just 14 per cent viewed him as an asset. In contrast, John Major, whom he defeated by a landslide in 1997, had a neutral net rating of zero. It is ever harder to recall that Blair won not one general election (he is the only living Labour leader to have done so) but three.

His standing is likely to diminish further when the Iraq inquiry report is published on 6 July. Advance leaks to the Sunday Times suggest that he will be censured for allegedly guaranteeing British military support to the US a year before the invasion. Few minds on either side will be changed by the 2.6 million-word document. Yet its publication will help enshrine Iraq as the defining feature of a legacy that also includes the minimum wage, tax credits, Sure Start, devolution and civil partnerships.

Former leaders can ordinarily rely on their parties to act as a last line of defence. In Blair’s case, however, much of the greatest opprobrium comes from his own side. Jeremy Corbyn inclines to the view that Iraq was not merely a blunder but a crime. In last year’s Labour leadership election, Liz Kendall, the most Blair-esque candidate, was rewarded with 4.5 per cent of the vote. The former prime minister’s imprimatur has become the political equivalent of the black spot.

Yet outside of the Labour leadership, Blairism endures in notable and often surprising forms. Sadiq Khan won the party’s London mayoral selection by running to the left of Tessa Jowell, one of Tony Blair’s closest allies. But his successful campaign against Zac Goldsmith drew lessons from Blair’s election triumphs. Khan relentlessly presented himself as “pro-business” and reached out beyond Labour’s core vote. After his victory, he was liberated to use the B-word, contrasting what “Tony Blair did [in opposition]” with Corbyn’s approach.

In their defence of the UK’s EU membership, David Cameron and George Osborne have deployed arguments once advanced by New Labour. The strategically minded Chancellor has forged an unlikely friendship with his former nemesis Peter Mandelson. In the domestic sphere, through equal marriage, the National Living Wage and the 0.7 per cent overseas aid target, the Conservatives have built on, rather than dismantled, significant Labour achievements."They just swallowed the entire manual," Mandelson declared at a recent King’s College seminar. "They didn’t just read the executive summary, they are following the whole thing to the letter."

Among SNP supporters, "Blairite" is the pejorative of choice. But the parallels between their party and New Labour are more suggestive than they would wish. Like Blair, Alex Salmond and Nicola Sturgeon have avoided income tax rises in order to retain the support of middle-class Scottish conservatives. In a speech last August on education, Sturgeon echoed the Blairite mantra that "what matters is what works".

Beyond British shores, political leaders are similarly inspired by Blair – and less reticent about acknowledging as much. Matteo Renzi, the 41-year-old centre-left Italian prime minister, is a long-standing admirer. "I adore one of his sayings,” he remarked in 2013. “I love all the traditions of my party, except one: that of losing elections."

In France, the reform-minded prime minister, Manuel Valls, and the minister of economy, Emmanuel Macron, are also self-described Blairites. Macron, who in April launched his own political movement, En Marche!, will shortly decide whether to challenge for the presidency next year. When he was compared to Blair by the TV presenter Andrew Marr, his response reflected the former prime minister’s diminished domestic reputation: “I don’t know if, in your mouth, that is a promise or a threat.”

The continuing attraction of Blair’s “third way” to European politicians reflects the failure of the project’s social-democratic critics to construct an alternative. Those who have sought to do so have struggled both in office (François Hollande) and out of it (Ed Miliband). The left is increasingly polarised between reformers and radicals (Corbyn, Syriza, Podemos), with those in between straining for relevance.

Despite his long absences from Britain, Blair’s friends say that he remains immersed in the intricacies of Labour politics. He has privately warned MPs that any attempt to keep Corbyn off the ballot in the event of a leadership challenge would be overruled by the National Executive Committee. At Methodist Central Hall, he said of Corbyn’s supporters: “It’s clear they can take over a political party. What’s not clear to me is whether they can take over a country.”

It was Blair’s insufficient devotion to the former task that enabled the revival of the left. As Alastair Campbell recently acknowledged: “We failed to develop talent, failed to cement organisational and cultural change in the party and failed to secure our legacy.” Rather than effecting a permanent realignment, as the right of the party hoped and the left feared, New Labour failed to outlive its creators.

It instead endures in a fragmented form as politicians at home and abroad co-opt its defining features: its pro-business pragmatism, its big-tent electoralism, its presentational nous. Some of Corbyn’s ­allies privately fear that Labour will one day re-embrace Blairism. But its new adherents would never dare to use that name.

George Eaton is political editor of the New Statesman.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad