"Should I stay or should I go?" asked The Clash. It’s a question that arises for all next-gens sooner or later, at least when it comes to the people they employ to advise them about investing their money. The evidence suggests that many incline to "go".
A recent report published by Campden Wealth and Morgan Stanley found that 62% of the next-generation members in major family businesses are considering changing their bankers in the next two years, compared to just 25% of the older generation in those businesses.
One of the reasons that younger family business members think this way is obvious: one of the formative experience in their lives so far has been the bruising one of seeing investment banks ripping off customers while raking in huge bonuses, then imploding and leaving investors with losses.
As Jon Needham, head of private client at SG Hambro, says: "Generation Y has picked up on the fact that their families have been paying two-and-20 for pretty mediocre performance and sometimes no performance at all. They have been sold products that are not what they say on the label, and they have got a little bit sick of it, actually."
But there is of course more to it than that; the old image of investment banks just doesn’t appeal to youngsters. "If you’re a dynamic, innovative 3G, well-educated mobile player, what you don’t want is the stuffy cigar-smoking, oak-panelled room scene," Needham says. "That might have been great for your father or grandfather, but that’s not your thing, your life is much busier than that and you want an institution that’s as dynamic as you are."
Next-gens, Needham says, want to be seen as individuals, and some don’t feel that’s possible in the same bank their forebears used. You might say this is an emotional or irrational reaction, but it’s no less strong for that, and one that leads to action.
Obviously, no bank wants to lose the business of an ultra-high net worth family, and that figure of 62% must have them breaking out in cold sweats. Which is why many private banks and other wealth advisers are trying to appeal to family businesses by providing services especially for next-gens. The past couple of years have seen banks launch a blizzard of next-gen institutes, forums, conferences and other educational events.
ABN Amro Private Banking, for example, now has twice-yearly seminars where family business members can meet bankers. This helps their bankers develop a deeper relationship with their clients, which is what younger family business members want, reckons the bank. "Next-gens say: 'I want you to know me'. They really value this," says Eveline Maas, senior solutions manager in the private wealth management division.
She continues: "They want to connect, not just on a professional level, but also on a personal level. I remember one of them said: 'My banker does not need to be my friend, but I want my banker to know me as well as a friend would'." Good bankers are inevitably "emotionally involved" with their family business clients, says Maas, which is necessary because issues such as succession and wealth transfer touch on deep questions, such as mortality.
Such sessions also educate bankers in the ways that next-gens think, says Maas. This means, yes, less wining and dining and more emailing. But it also means that the banker should have a more collaborative relationship with the client. "They also don’t expect their banker to know everything," says Maas. "Knowledge has a different meaning. It’s not like in the past when the banker would be the expert and say: 'Right, you should do X,Y and Z.' The new generation is more likely to check this kind of advice with friends, other bankers or on the internet." The educational process goes both ways.
In a similar vein, British bank Coutts stresses the importance of the Coutts Institute, which they describe as "a meeting place for clients to exchange information, share experiences and seek advice on managing their wealth", and the bank organises internships, education, networking forums, and bespoke courses for next-gens, as well as "working with families on philanthropic initiatives that are designed to help prepare the next generation for the responsibilities of wealth".
The Institute’s executive director, Mark Evans, says the bank recognises a "dissonance of cultures and values between generations" and says the bank can aid communication by "filtering the information, signposting a range of opportunities and putting the next generation in touch with both in-house and external professionals". It also runs an online platform called the Knowledge Exchange where clients can watch tutorials and interviews online, and even take part in discussions.
Other banks have similar programmes. The central theme seems to be that they want to act as good, old-fashioned trusted advisers who want to build a deep, long-term, collaborative relationship. Of course, there is no doubt that banks do want long-term relationships with ultra-high net worth families. That’s their business. But equally there's also no doubt that they do have something to offer.
At ABN Amro they talk convincingly about their commitment to impact investing, which increasingly interests many next-gens. Soc Gen is keen to stress that good family business banking is about "soft skills", and not just suggesting investments. Coutts stresses the importance of dripping wealth to youngsters at the right speed, and with 300 years of wealth management, they are surely good at advising on that.
But big banks still have an image problem, and there are plenty of people willing to take their business. Heinrich Spängler, the sixth-generation chairman of Salzburg-based Bankhaus Carl Spängler & Co, suggests that family-owned banks, such as his own, C Hoare & Co in London, or Metzler in Frankfurt, might understand family business better than listed banking behemoths. It’s not an unreasonable thought. Private banks are certainly talking the talk. But they might have to plug away a bit longer before they endear themselves to bruised next-gens.
A (totally unscientific) straw poll of young family business members suggests that their scepticism about banks is still strong. Those who do see value in courses that deal with issues like communication between the generations, succession and education tend to prefer those run by family business-friendly universities. Banks are certainly trying to build bridges, and to listen to next-gens. If they keep on listening they might well become trusted advisers once more. But it’ll take time. And friends? Maybe that is going to take just a little longer.