Wealthy families have struggled with transition of assets and responsibilities from elders to younger inheritors and the same is true of private banks who work with these clients.
With $68tn forecasted to change hands between generations by 2050, private banks and family offices are preparing their operations to cope with new money, invested by clients with different mentalities.
Key to this industry shake-up is the handover of power at leading wealth managers, aiming to mirror the demographics and world view of key clients.
At Stonehage Fleming, a family office for the Fleming family, which later expanded to invest for other private clients, partner Matthew Fleming talks about the need to bring in the next generation of expert staff.
He recalls his own highly eventful past, as an army officer in the Royal Green Jackets, then as a professional cricketer representing England, before joining the family’s investment management business in 2004, at the relatively senior age of 40.
To start with he oversaw James Bond Enterprises — honouring his great uncle, 007 author Ian Fleming — and becoming a partner in the multi-family office almost a decade later.
“There was always a culture and heritage of family business there,” he recalls, referring to the influence of Robert Fleming, who was launching investment companies in Scotland in the 1870s, before moving to London and building a famous bank and asset management firm.
“It’s taken me a long time to figure out exactly who I am, and I know now that I’m not very entrepreneurial, I’m very institutional,” says Mr Fleming, who recently turned 60. “I like a framework of an institution around me. I like a culture that I can help influence and shape. I like leading.”
He picked up leadership skills during army training at Sandhurst, through active service in Northern Ireland and Hong Kong, and captaining the Kent county cricket side. He eventually came to understand how important it was to “inject a traditional culture” into an organisation.
“I think families that survive multi-generationally become adept at enabling the family to consistently influence culture, strategically and operationally, when it’s appropriate,” says Mr Fleming. “If they get that wrong, the business normally fails.”
Introducing a succession plan is currently very much on his mind. Priyanka Hindocha was recently promoted to partner and running the firm’s UK family office business. Lucy Birtwhistle, who advises large families on succession issues, is also highly regarded. Both are still in their 30s.
“It’s really important that you mix generations and genders when it comes to working with families across the group,” says Mr Fleming, a father of three daughters.
Born for a purpose
In order to transition successfully between generations, both families and wealth managers need to “create a framework underpinned by a clear sense of purpose or mission, with a set of values that are non-negotiable, and yet enable the next generation to move with the times”.
This is much more challenging in smaller firms, says Paul Whelan, UK-based director of wealth management at Swiss bank Mirabaud. “At a large bank, the tenure of a CEO is typically 15 years. In a small firm, they can stay for 20 or 30 years. The ones that manage the handover well are those that gradually grow talent over time.”
There is also a perennial question affecting wealth managers and the families they service: “When do you bring in external talent? A lot of families don’t do succession planning well. Often a family member not fit to run the organisation is put in place,” reflects Mr Whelan.
One private bank that has handed over the reins successfully from the older generation to the younger is Banque Syz in Geneva, where Nicolas and Marc have taken over running the business from their father Eric, who co-founded the investment-led boutique in 1996.
“The first challenge was identifying what role I wanted to have and getting clarity around that, before projecting this decision into the business,” says Nicolas Syz, head of wealth management at Syz Group. “This involved a lot of self-reflection, before talking to my father, just sharing with him what my vision was and then hearing him out.”
For the younger Mr Syz, it was vital the handover would allow him to bring the skills he learned outside the group to the private banking table, particularly from fragrance specialist Firmenich, which developed flavours for foods and beverages manufactured by Unilever.
“You spend a lot of time understanding consumers’ focus groups, around why would you drink green tea instead of black tea, and what do you like about this flavour?”
Sweet emotion
The answer, he remembers, was generally about emotion. “It’s about how you feel when consuming that product. So I was visiting 20 people a day, going to their home and thinking about how to recreate that positive feeling.”
This was when the penny dropped about the new type of private bank he wanted to lead, following on from his father’s creation. “I called my dad and told him: we don’t do this in private banking. We don’t ask clients what they want. We come with a finished solution. We simply tell them: this is what you need. Bankers would sell something, make a profit and then leave the client alone.”
Around the time of the financial crisis, Mr Syz began to see a gap and opportunity that came with it. “I told my father that this is something I feel very strongly about, that we should take a lot more time to sit with people and listen, asking: where are you going? Where are you coming from? What’s your concern? What’s your financial goal now and for your wife, your family and kids?”
Wealth managers who fail to make this transition, whether they are smaller boutiques or larger universal players, will inevitably suffer in their relations with clients, believes Mr Syz.
“Everybody sees this transition of needs from the clients, and it’s just a question of time until it significantly hurts,” he says. “You only start adapting when something really disturbs you, otherwise you brush it away. As an entrepreneurial family, we think differently. I put myself every day in the shoes of my clients, and ask: how would I want to be treated or how would I want to be listened to?”
This mindset led him to launch tokenisation and cryptocurrency strategies, because his conversations with younger generations have led Mr Syz to believe these assets will eventually form a major part of the private banking menu.
Accommodating this new thinking is key to successful succession planning, believes Alois Pirker, Boston-based CEO of strategic consultancy Pirker Partners, previously at UBS Wealth Management.
“We are looking at a new breed of wealth firms,” believes Mr Pirker. “It used to be all about the basics, like onboardring. Now it’s all about AI and the customer experience. This will matter a lot more. As a new generation boss you need to be thinking of the impact of AI on the cultural journey and take the workforce with you. The old school are still looking at AI and wondering: will it stick? There is definitely some cultural resistance. Everybody is talking about the new view of how the future client needs to be serviced.”
While some firms have been slower to adapt to the changing landscape, “the disruption of the next decade is inevitable,” says Jun Li, global and Americas wealth and asset management leader at consultancy EY. Those who choose to ignore these changes will find themselves at a significant disadvantage to other wealth advisers,” he says.
Mr Li predicts transfers as high as $118tn by 2030 among those with net worth of more than $5m, highlighting the urgency for firms to adapt to needs of younger clients.
Younger cohorts, he believes, may “gravitate towards firms that showcase a balanced leadership team, who demonstrate a modern understanding of wealth management that resonates with their values”.
This should force banks to reconsider their approach to different segments of wealth. “Now is the time to take action with bespoke business models, especially for female and next-generation inheritors.”
Something in the air
This impetus for banks to take their next generation clientele more seriously should not be under-estimated, says Charlotte Thorne, founding partner of London-based multi-family office Capital Generation Partners.
Significant consolidation in private banking, particularly the absorption of Credit Suisse into UBS, has forced clients to diversify relationships, taking advantage of a broader suite of providers, adding “much needed fresh air” into the sector.
“Smaller family banks are notably much more visible in the private client space than previously and seem to be treating this evolution as a real business growth opportunity for them,” says Ms Thorne, formerly a UK Treasury adviser. “Where the new leadership differs from the old, is in less willingness to accept the status quo, more willingness to exploit the gaps left by the bigger banks and more willingness to talk to new customers about what they want, shaping the offer accordingly.”
Ms Thorne refers to “horror stories” of major banks fielding “horrifically unbalanced and forbidding teams who seem to be focussing on enjoying their career status rather than on making sure their client is engaged and being well served”.
But things are beginning to change, with clients more empowered to speak out. “Clients are far more prepared to be candid now about what they don’t want to experience from their bank,” she says, with banks realising they must pass on skills, knowledge and key relationships to younger advisers.
“The most useful thing the senior bankers can do is ensure they are coaching younger team members and introducing them into relationships early so that everyone has a chance to grow into this relationship,” confirms Ms Thorne.
When it comes to handing over responsibility to the next generation, Mr Fleming remembers the conversation he had with his father about whether to retire from professional cricket at the age of 37.
“I told him I was fit enough and good enough to keep playing,” recalls Mr Fleming. “But he told me that a great leader always leaves a restaurant slightly hungry, to enable the next person to succeed. Ultimately, that’s how the families we look after are judged by their children and grandchildren.”
