Wealthy Investors Shift Funds From Global Banks to Reduce Risks

June 19 (Bloomberg) — High-net worth individuals, those coveted financial-services customers with at least $2 million to invest, are shifting assets from brokerages and large global banks to smaller, more conservative alternatives.

“For the first time in my career, I saw concern about the location of one’s assets,” said Robert Balentine, the head of Wilmington Trust Corp.‘s investment management group. “We’ve seen tangible evidence of very wealthy clients shifting assets out of brokerage firms in great numbers.”

Trust companies like Wilmington are benefiting from record subprime-infected losses at companies led by Zurich-based UBS AG, the world’s biggest money manager for the rich. UBS clients probably withdrew a net $39 billion during the past three months after the company reported more than $38 billion of writedowns and credit-market losses in the past year, London-based analysts at JPMorgan Chase & Co. estimate.

Clients may say “if UBS can’t manage its own capital, then what the hell are they going to do with mine?” said David Maude, a financial services consultant in Verona, Italy, who calls UBS the “Rolls Royce” of the industry. “It does tarnish their reputation, certainly.”

UBS contacted 2.5 million Swiss consumer and wealth- management customers last month after losing 11.5 billion francs ($10.9 billion) in the first quarter and seeing a net withdrawal of 12.8 billion francs in its asset and wealth-management units.

The company has responded with “proactive, ongoing communication” with clients, said Jim Pierce, co-head of UBS’s U.S. Wealth Management Advisory Group, in an e-mailed response to questions. UBS is “willing to have the difficult conversations,” Pierce said.

U.S. Market

“UBS is fully committed to the U.S. market,” Pierce said. “Approximately 30 percent of the world’s wealth is located in the U.S., therefore as a global wealth manager, the U.S. is of great importance to UBS.”

Wilmington Trust was founded in 1903 to oversee the fortune of the DuPont family. Trusts, unlike brokerages, have fiduciary obligations to their clients.

The Wilmington, Delaware-based firm had about 80 advisers in its family office practice at the end of last year, up from 45 in 2006, who concentrate on clients with at least $10 million of assets. The company’s wealth advisory and planning services unit reported a 14 percent increase in revenue in 2007.

Even before the Bear Stearns collapse in March, some clients were questioning the wisdom of Wall Street firms losing billions of dollars on subprime mortgages, then seeking cash infusions from overseas sovereign wealth funds, said Balentine, Wilmington’s investment executive.

Beyond Banking

Today’s wealth managers go beyond banking by offering advice on tax strategies, estate planning and philanthropy. They also will help find the best restaurants, or even arrange travel on private jets and six-star hotel rooms in Dubai, said Rob Hegarty, managing director at the TowerGroup financial-services consulting firm in Needham, Massachusetts.

Fees vary according to the services, and generally start at 1 percent of invested assets.

“You’re licking your chops,” Hegarty said, about the opportunity for advisers to snare new business today.

Merrill Lynch & Co., with more than 16,000 financial advisers, is the biggest U.S. firm in the field. Chief Executive Officer John Thain cited the strategic importance of combining “the world’s leading wealth-management business” with a global investment bank at its April 24 annual meeting.

Merrill Lynch spokeswoman Tricia Nestfield in New York declined to comment.


Northern Trust Corp., a Chicago-based bank with more than $4 trillion in custody, has had an influx of assets from bigger competitors, said Sherry Barrat, the company’s president of personal financial services, in an interview.

Income at Barrat’s division rose 6.4 percent in the first quarter to $228.4 million. The increase in fees resulted primarily from new business, according to a March 31 company statement.

Incoming clients say they’re worried about safety and soundness, Barrat said. They want to make sure their assets survive even if the firm goes down.

“The more they have, the more of an issue it is,” she said.

The market will increase as the number of U.S. millionaires grows at seven to 15 times the rate of the population, Northern Trust Chief Executive Officer Frederick Waddell said in a June 17 analyst conference call.

‘Weather the Storm’

U.S. Trust, the country’s largest private bank measured by assets that Bank of America Corp. acquired last year, has gained clients in the subprime-mortgage crisis and subsequent credit crunch, said Tim Maloney, a division executive at the Charlotte, North Carolina-based company.

“We have the financial wherewithal to weather this storm and emerge out the other side better than other institutions,” Maloney said.

U.S. Trust got its start in 1853 as an executor and trustee of the nation’s wealthiest citizens, including industrialist Peter Cooper and department-store magnate Marshall Field. It later served railroad baron Jay Gould.

In today’s environment, analysts say clients may question whether they’re getting the best advice from the big banks, said Scott Leonard, an independent wealth manager in Redondo Beach, California.

With no stake in any firm’s products, receiving no sales commissions, Leonard said he’s aligned with his clients’ best interests.

“In a truly fiduciary role, independents don’t recommend a lot of brokerage products,” Leonard said.

To contact the reporter on this story: Jeff Plungis in Washington [email protected].

Last Updated: June 19, 2008 00:01 EDT
By Jeff Plungis

Source: Bloomberg

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