Nouveau riche fuel boom in private banking

Ireland's private banking and wealth management sector is in the midst of a boom, writes Dominic Coyle.

Fueled by the millions made during the Celtic Tiger, the industry is growing faster here than in its more traditional heartlands and its practitioners are bullish about their prospects in the coming years.

Ireland featured this year for the first time in the PricewaterhouseCoopers Global Private Banking/Wealth Management Survey, which is in its tenth year.

Mr Denis Cremins, PwC partner for high net worth clients, says there are a number of reasons why the outlook for the industry is good. "People are noticeably wealthier than heretofore," he says.

"You see names appearing among the very wealthy who weren't there until very recently. People are also a good deal more sophisticated in their tastes and in what they require from financial institutions. They want the services associated with private banking."

The PwC survey showed that Irish private banks were more optimistic in terms of market growth than their peers in Europe and the United States. "The survey predicts that growth rates for revenues and assets under management for the next three years for Irish private banks to be well in excess of the growth rates predicted for their European counterparts," said Mr Cremins. He concedes this is, in large part, because the Irish industry is at an earlier point in the cycle than its more mature peers overseas.

"This industry is a reasonably recent innovation here, certainly on the sort of scale about which we are talking today," he says.

Private banking clients are broken up into four categories. These are: the affluent - people with around half a million dollars in liquid or near liquid assets (not including people's homes and pension funds, for example); high net worth individuals with resources between half a million dollars and $5 million; very-high net worth individuals with $5 million- $50 million at their disposal; and the ultra-high net worth - the super-rich who are worth more than $50 million.

Private banking is a distinct business from wealth management. The former provides a full suite of banking services, including access to borrowing and gearing for clients while the latter manages or preserves customers' wealth.

While wealth management companies like Irish stockbrokers and the likes of Morgan Stanley Quilter may target those with free assets of around €250,000, private banking is really only the preserve of the truly affluent.

There are four major private banking operations in Ireland and they are run by the main domestic banks - AIB, Bank of Ireland, Anglo Irish Bank and Ulster Bank.

The number of wealth management operations is harder to tie down, with more arriving all the time.

"One of the things that has been noticeable in the Irish market recently is the amount of effort foreign firms are making to get in here," says Mr Cremins.

He says this is happening in two ways: financial institutions establishing a physical presence in the State, like Morgan Stanley Quilter did last week, or those that are looking to target business by flying in to visit clients.

"In some ways, Irish people might like the latter approach as many would see Dublin as being small," says Mr Cremins.

This may be exacerbated by another finding in the survey - whereas 60 per cent of the wealth in Europe is traditional family wealth, 85 per cent of the wealth in Ireland is accounted for by new money (well in excess even of the 55 per cent figure for this category in the entrepreneur-friendly United States).

As Mr Brian Weber, Dublin head of Morgan Stanley Quilter notes, new money tends to be more hands on in how it is managed and invested.

Mr Cremins believes the key issues going forward will be client retention "with a sharper focus on tailored products and services".

He also sees the industry dividing into those who produce financial products and others who distribute products from a range of suppliers to their clients.

Only the largest firms - the Deutsche Banks, HSBCs, the Credit Suisses and the likes - will be able to operate on a truly global scale, he believes but that still leaves plenty of scope for local firms to be a success in the Irish market.

One of the reasons Irish wealth managers and private banks can be so optimistic about the future is their acceptance of the need for good risk management and, as importantly, corporate compliance, Mr Cremins argues.

"Regulation has been welcomed and people see it as giving them a strategic advantage in the coming years," he says. "Irish banks have been working very well on that."