Wealth Bulletin, 1. Dezember 2008

Business booms for Germany`s independent private banks

Financial turmoil and the onset of recession push multi-family offices and independents to the fore

Small is increasingly attractive in German wealth industry circles as clients opt to use the countrys independent private banks to service their accounts. The trend means the big banks are losing out and domestic competition is heating up as more wealthy Germans decide to keep their money at home. This follows a tax clampdown on offshore financial centres and proposals to alleviate tax burdens onshore.

Berlin-based research company FUCHSBRIEFE and the Hanover-based consultancy Institut für Qualitätssicherung und Prüfung von Finanzdienstleistungen (IQF) have published a list of Germanys top advisers. Of the top 20 wealth advisers, 14 were independent small and mid-sized wealth managers or regional Landesbanken. The top place went to Feri Wealth Management, a manager based in Bad Homburg, a town near Frankfurt that is said to have the highest concentration of multi-millionaires in Germany. Feri, which specialises in managing ultra-high net worth individuals, is majority owned by MLP, a financial services provider. The second and third places went to bigger brands, Credit Suisse and Rothschild, but the next three went to independents.

Ralf Vielhaber, editor in chief at FUCHSBRIEFE, said: "Independent wealth managers are flourishing in Germany. They are winning in customer service and investment performance. The financial turmoil and the onset of recession will see many wealthy Germans moving their money across to multi-family offices and independent wealth managers."

Some big brands, including UBS and Deutsche Bank, did not even make the listing’s top 20. They were placed in 50th and 65th respectively in a longer list of the 100 top wealth managers in the FUCHSBRIEFE study. The annual study assesses wealth managers by awarding them points out of 100 across three areas: their quality of consultation (up to 40 points), investment advice (40 points) and data analysis (20 points).

FUCHSBRIEFE and IQF use a mystery shopper to question wealth managers about the investment and advisory services they offer to prospective clients. Vielhaber said: "Mystery shoppers ask as many as 100 questions of wealth managers and feed back as much qualitative analysis as possible, which we weigh to give us a score out of 40.” The study takes into account investment performance over a 10-year period and looks at wealth manager statistics such as assets under management, new money flows and fee and commission charging.

Germany has the second- largest high net worth population in Europe, with almost 400,000 individuals with USD 1 million or more in free assets, according to UK-based research group MDRC. The UK has the biggest, with more than 500,000 high net worths.

Vielhaber said wealthy clients use the report as an important benchmark and some shift assets to higher ranking wealth managers when the results of the study are published. "I get a stream of calls from wealthy Germans trying to get more details on individual private banks. The financial turmoil has increased their nervousness and their desire for as much information on wealth managers as possible", he said. Equity and corporate bond performance has been poor and there are concerns over the security of covenants attaching to structured products.

Putting aside uncertainty relating to the financial crisis, analysts said the rising competition is also due to the trend for a growing number of the country’s wealthy keeping their money at home rather than depositing it in offshore bank accounts. "Although it is difficult to get any statistical evidence to back this up, there appears to be a trend towards the very wealthy moving less of their money into offshore accounts," said Murat Ünal, a senior analyst at the Frankfurt-based strategy consultant Funds@Work.

Vielhaber shared this viewpoint. He said: "Young, wealthy Germans are definitely keeping more of their money at home." The German authorities have been at the forefront of efforts to clamp down on offshore centres, especially Liechtenstein and Switzerland. This culminated in the German Finance Minister Peer Steinbrück calling for Switzerland to be placed on the Organisation for Economic Co-operation and Developments blacklist of un-co-operative tax regimes. Uncertainty over the future status of confidential Swiss bank accounts and problems at UBS mean the haven status of the Swiss franc has weakened.

Ünal said money staying at home should be a further boon to independent wealth managers in Germany but said Swiss private banks would redouble their efforts to capture this onshore money.

Swiss wealth managers, the biggest recipients of German offshore money, have been aware of this trend for a number of years and have been active in growing their onshore business in Germany. Credit Suisse and Julius Baer are beginning to see the fruits of their efforts paying off by scoring well in the FUCHSBRIEFE study. But other Swiss banks are also raising their efforts in the German market. Zurich-based Vontobel opened an office in Hamburg in October - its fourth in the country. Dirk Drechsler, head of Bank Vontobel Europe, said: "There is a trend towards a faster growth of the onshore business. Therefore, we are about to intensify our onshore activities in Germany."