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.

Drew Angerer/Getty Images
Show Hide image

Donald Trump wants to terminate the Environmental Protection Agency - can he?

"Epa, Epa, Eeeepaaaaa" – Grampa Simpson.

 

There have been countless jokes about US President Donald Trump’s aversion to academic work, with many comparing him to an infant. The Daily Show created a browser extension aptly named “Make Trump Tweets Eight Again” that converts the font of Potus’ tweets to crayon scrawlings. Indeed, it is absurd that – even without the childish font – one particular bill that was introduced within the first month of Trump taking office looked just as puerile. Proposed by Matt Gaetz, a Republican who had been in Congress for barely a month, “H.R. 861” was only one sentence long:

“The Environmental Protection Agency shall terminate on December 31, 2018”.

If this seems like a stunt, that is because Gaetz is unlikely to actually achieve his stated aim. Drafting such a short bill without any co-sponsors – and leaving it to a novice Congressman to present – is hardly the best strategy to ensure a bill will pass. 

Still, Republicans' distrust for environmental protections is well-known - long-running cartoon show The Simpsons even did a send up of the Epa where the agency had its own private army. So what else makes H.R. 861 implausible?

Well, the 10-word-long statement neglects to address the fact that many federal environmental laws assume the existence of or defer to the Epa. In the event that the Epa was abolished, all of these laws – from the 1946 Atomic Energy Act to the 2016 Frank R. Lautenberg Chemical Safety for the 21st Century Act – would need to be amended. Preferably, a way of doing this would be included in the bill itself.

Additionally, for the bill to be accepted in the Senate there would have to be eight Democratic senators who agreed with its premise. This is an awkward demand when not even all Republicans back Trump. The man Trum appointed to the helm of the Epa, Scott Pruitt, is particularly divisive because of his long opposition to the agency. Republican Senator Susan Collins of Maine said that she was hostile to the appointment of a man who was “so manifestly opposed to the mission of the agency” that he had sued the Epa 14 times. Polls from 2016 and 2017 suggests that most Americans would be also be opposed to the agency’s termination.

But if Trump is incapable of entirely eliminating the Epa, he has other ways of rendering it futile. In January, Potus banned the Epa and National Park Services from “providing updates on social media or to reporters”, and this Friday, Trump plans to “switch off” the government’s largest citizen-linked data site – the Epa’s Open Data Web Service. This is vital not just for storing and displaying information on climate change, but also as an accessible way of civilians viewing details of local environmental changes – such as chemical spills. Given the administration’s recent announcement of his intention to repeal existing safeguards, such as those to stabilise the climate and protect the environment, defunding this public data tool is possibly an attempt to decrease awareness of Trump’s forthcoming actions.

There was also a recent update to the webpage of the Epa's Office of Science and Technology, which saw all references to “science-based” work removed, in favour of an emphasis on “national economically and technologically achievable standards”. 

Trump’s reshuffle of the Epa's priorities puts the onus on economic activity at the expense of public health and environmental safety. Pruitt, who is also eager to #MakeAmericaGreatAgain, spoke in an interview of his desire to “exit” the 2015 Paris Climate Agreement. He was led to this conclusion because of his belief that the agreement means “contracting our economy to serve and really satisfy Europe, and China, and India”.

 

Rather than outright closure of the Epa, its influence and funding are being leached away. H.R. 861 might be a subtle version of one of Potus’ Twitter taunts – empty and outrageous – but it is by no means the only way to drastically alter the Epa’s landscape. With Pruitt as Epa Administrator, the organisation may become a caricature of itself – as in The Simpsons Movie. Let us hope that the #resistance movements started by “Rogue” Epa and National Parks social media accounts are able to stave off the vultures until there is “Hope” once more.

 

Anjuli R. K. Shere is a 2016/17 Wellcome Scholar and science intern at the New Statesman

0800 7318496