Schroders Private Bank is wholly owned by Schroders. It offers a range of solution-led, specialist investment, structured products and banking services predominantly for high net worth individuals and trustees. Managing 7.5bn (investment 6.3bn and banking 1.2bn, as at December 31, 2004), the bank’s three main hubs are Britain, the Channel Islands and Switzerland.
Q: How does your investment advisory service work?A: In London the majority of our clients are discretionary clients rather than advisory. If you look at our investment proposition in general, first and foremost we aim to maximise returns through a risk-adjusted approach to investment. We place massive importance on achieving and preserving wealth. When we construct portfolios we invest across a broad range of asset classes, from the lowest-risk of cash to the highest-risk, highest-return of private equity. We also tend to run a lot of specialised mandates for our clients: for example, specialised Asian or pan-European mandates. If you look at the way we construct portfolios, we effectively try to combine products that are offered through the Schroders group with third-party exposure. We believe that there are certain asset classes where adopting an open architecture approach is beneficial and other classes where it is not. At the end of the day, we are trying to mix and match to benefit the client, between in-house and external products, but we do recognise that external products will be of additional cost to the client. Q: Do you consider yourselves to be whole-of-market or do you offer a “best of Schroders” approach? A: We start very much from the premise that we are unashamedly Schroders. However, the private bank is kept at arm’s length from the group. At the private bank, we take what we believe to be the best of the group and leave that which we think is ordinary. In publicly traded equities we have a definite bias toward in-house products. However, in private equity and hedge funds, it is almost exclusively external. We believe fundamentally that for asset classes such as hedge funds and property, which tend to be more skill-based, there is a much greater case for constructing portfolios from the market at large. In the public equity market we are probably 80-20 in favour of Schroders, but that could change. Ultimately we aim to do what is best for the client by looking at the relative performance and relative cost of the decision. Q: How many funds do your clients have access to? A: In effect, they have access to the entire stable of Schroders products. We also have a fund selection capability within the group that seeks to identify managers from the market at large. If you look at our portfolios, we have made investments with 12-15 other fund management companies. Q: As an independent arm, how does your relationship with the rest of the Schroders group work? A: While the relationship is clearly stronger than it would be if we were another private bank, we encourage the group to view us as if we were HSBC or Citigroup in terms of the service we would like to receive. We do not want to be tied to having to offer products from the group. We want our clients to feel that we are indifferent with respect to offering an in-house or external product. Q: How would you describe your typical client? A: We have several different types of client, but if you look at the typical size of a client, it tends to be between 3m and 10m. We also have international clients, as well as charities and foundations. In terms of other types of client, we run a lot of trusts and work closely with a number of family offices. Q: What sets your investment advisory service apart from those provided by other private banks or private client stockbrokers? A: First and foremost, as an organisation, internally we have an extensive product range and expertise across almost all asset classes. When it comes to delivering the right solution for each client, we have really premier internal capabilities. This ranges from asset allocation at the strategic and tactical level right through to investment selection, both internal and external. We are a bank, so our investment proposition can be extended more broadly for clients. We are in a fortunate position today, with respect to our ownership. I think the stability of ownership and continuity that brings, particularly in the private client world, is a strong point for us as an organisation. We are not a product-pusher organisation. We are very much about building long-term relationships by building customised solutions, which vary from client to client. Q: What services or products do you provide to the private client market that the mass market may not require? A: That revolves more around the structured product area in terms of providing bespoke solutions for wealthy individuals. It may involve hedging a stock in a particular business, looking to provide liquidity against a single line of stock, or putting a currency hedging structure in place for a particular client. We are looking to tailor our structured products more towards the top-end client, providing greater transparency around pricing. On the investment side, some of our property products, hedge fund products and private equity products are not readily available to the mass market. It is about the solution and coming up with a bespoke solution rather than a product that is readily available on the shelf. Q: Is your charging structure fee-based or commission-based? A: It is fee-based. Commission, in terms of transaction charges, is almost non-existent here. We favour transparency and clarity around fees. Increasingly, we are being asked to run money on a performance-fee basis and we are happy to do so. Q: Has any part of your service changed as a result of depolarisation? A: Depolarisation is going to be important with respect to advisers. At the moment, our advisory business is relatively small. If we decide to expand it, it will be aiming to provide clients with an open-architecture proposition to avoid a lot of the issues surrounding depolarisation, but it is early days on that one. Q: Which products are your clients most interested in at the moment? A: Those products that can typically provide them with reasonable upside participation or growth, while at the same time preserving capital. One example is equity long/short products in the hedge fund space. The other area is structured products, where clients can participate in the upside, but where we can protect them against downside risk. In the publicly traded space, clients continue to look for a higher alpha product where managers are seeking to generate higher returns through stock selection rather than hugging an index. Property as an asset class has become very fashionable, and we have seen a lot of demand there, particularly from charities and foundations.