Banks woo the wealthy to ace stable income streams
As the great and the good prepare to gather at Wimbledon, banks are serving up glamorous treatment to woo the wealthy. In this week’s column Samuel Norman looks at the players looking to call game, set, match.
If you want the Centre Court treatment from your bank, you’re going to need to arrive with a seven-figure racket.
Gone are the days when the local branch manager would greet you at the baseline with a friendly handshake and a novelty piggy bank. Nowadays, retail banks are opting for a much slicker surface.
While banks aren’t abandoning the masses, a backdrop of volatile monetary policy has triggered a desperate hunt for stable fees and a major arms race for affluent clients.
I found myself at the other side of the velvet rope last week as HSBC convened its first-ever UK Wealth Summit, coinciding with the Queen’s Summit tennis championship.
Like its FTSE 100 peers, HSBC has set its sights on becoming the dominant banking player in the wealth arena, but faces stiff competition from the incumbents and digital rivals.
Top lenders go for the top earners
Natwest snapped up Evelyn Partners for £2.7bn earlier this year, in a major advancement for its wealth management prospects. Barclays framed its takeover of UK fintech Gohenry last week – which this paper revealed cost the lender some £180m – as a key driver of its push to capture the mass affluent. Or at least their kids.
Meanwhile, fintech disruptor Revolut bagged approval from the Financial Conduct Authority (FCA) to broaden the scope of its wealth management operations in the UK. The greenlight put it on the path to the launch for its private wealth services, which Bloomberg Intelligence forecast could generate £250m in annual revenue in the UK alone.
These very banks were likely left salivating as they watched wealth management giant Rathbones shares tumble over 15 per cent as a result of a City watchdog probe, leaving a window of opportunity to claw out market share and lure some customers.
“The fragmented landscape means no dominant player defends mass affluency aggressively,” analyst Tomasz Noetzel wrote.
He added Revolut would not need to “win private banking outright” but even clinching a modest share it could “be transformative at scale”.
Wealth is already proving a booming service game for the $75bn fintech giant’s operations. In the last year, the division notched a 31 per cent rise in revenue to £663m, which helped propel group profit to £1.7bn.
Between the welcome canapés and the three-course banquet at Queen’s, I put the question of this digital threat to Emma Tilt, HSBC’s head of digital wealth.
“It’s not intimidating,” she says, on the entrance of Europe’s largest fintech to the market.
“It just gives rise to the change in customer needs and what they expect digitally”.
Banks scout for stable income streams
HSBC is also firing on all cylinders to hold court with wealthy clients. Beyond a day out at the tennis with Olympic gold medalist Alastair Brownlee and former British Ambassador to China Sir Sebastian Wood, Europe’s largest lender is rolling out the red carpet for a luxury office experience.
The bank splashed $5m on a new wealth centre in London to cater to the high-earning clients, which boasts an open-plan event space for various private functions.
Of course, this lavish playbook has been tried and tested. The King’s bank, Coutts – nestled under the Natwest umbrella – wrote the manual on this grand slam with its silk card holders granted access to private box tickets and Michelin star restaurants.
Behind the glamour rests one thing banks clamour for on all fronts: stability. With premier customers comes the stability of fee revenue, which is less reliant on the volatility of interest rates and the cyclical credit risks of everyday retail lending.
If a firm can lock in a premier customer, they in turn secure a steady and recurring lifeline of management percentages, structured advice fees and elite subscriptions.
And more importantly, this is the sort of cash that keeps on flowing no matter how much spin central banks put on interest rates.