A number of firms have been ramping up their UHNW business lines, but to serve this segment right requires meticulous attention to detail and a breadth of resources.

Sometimes certain business developments look so obvious that it does not require much acuity to realise why private bankers do what they do. As example, consider the chase for the market for ultra high net worth individuals. For that seems, at first sight, to be where the money is. 

There has certainly been a rush of recent activity on this front. Earlier in September, UBS said it was setting up a unit to bring its investment banking operations closer to UHNW clients; US Bancorp says it plans to launch a high net worth wealth management unit for clients with more than $25 million in investable assets. BNP Paribas Wealth Management appointed Rémi Frank as head of its ultra high net worth individuals and independent wealth managers division. Citi Private Bank, under the energetic leadership of Peter Charrington in its North American division, has been aggressively hiring for its business in this area. Credit Suisse’s private bank, meanwhile, regards its UHNW business as a core part of its offering, as it told this publication earlier in the summer. And that bank, in late June, announced a host of UHNW banker appointments for Asia.

Basic economic growth figures help drive the story. According to this year’s annual survey of trends in the Merrill Lynch Capgemini World Wealth Report for 2010 (based on 2009 figures), UHNW individuals’ wealth rose by 21.5 per cent, faster than the 18.9 per cent rise for high net worth individuals.

But funnily enough, some of the commentators who track this industry are not convinced that chasing UHNW business is a sure-fire way to boost profit margins. For sure, getting very wealth clients can be an important prestige-enhancing business. Such client business can be “stickier” than for those lower down the wealth scale. But some observers reckon that this market segment is also hard work.

For example, Sebastian Dovey, head of consulting at Scorpio Partnership, questions the idea that UHNW is “where the money is”, and, more significantly, asks if this client segment is good for margins.

“It’s a crowded space with little to separate between firms. Inside quite a few wealth managers, to be given the role of building the family office or UHNW solution is not envied. There have been quite a few failed attempts in the past where the reason that was cited was 'it’s where the money is'. There is a way to make money in this space but it involves a firm taking a fresh and dynamic approach to the customer requirements,” he said.

Another consultant, Michael Maslinski, broadly agrees. “This sort of business is often `flagship’ stuff and done in spite of, if not because, of the economics,” he said.

Private banks may not be able to operate in the role of trusted advisor to the ultra-wealthy, Maslinski said, although they may be able to write good business in providing certain specialist investment and product advice.

“If you are looking just for investment business [in this client segment], then it’s hard work. But if you are looking at doing other kinds of business here, then you can certainly make large amounts. Family offices aim to get, say, 50 basis points on their management of assets. But there are other things going on with banking that can get much more than that,” Maslinski said.

Consultants agree that one area where a large private bank can really succeed in this space is in offering individuals such as international entrepreneurs the kind of varied, sophisticated advice that is backed up by an integrated banking parent. A classic argument for this sort of business model comes from Ian Dembinski, who heads the UHNW offering at Credit Suisse’s private bank in London. I spoke to him earlier in the year, and one comment from him stood out: “At the ultra high net worth level, you have to deliver a one-bank philosophy. These [UHNW] clients are often institutional in size and require sophisticated tailor-made solutions. The traditional private banking model only partially meets what these clients need”.

For instance, as Dembinski said, investment bankers can spot liquidity events, such as IPOs or M&A transactions, and refer newly-enriched corporate clients to the private bank. And this works the other way – wealthy clients have financing needs which can be handled effectively with the help of the investment bank. So it makes sense for a big bank like Credit Suisse to go for UHNW business. But it is a demanding market; clients have complex requirements, such as multi-jurisdictional properties and other assets, business operations and succession issues. They may also wish to set up a family office, and these structures don’t come cheap.

The issue of whether UHNW clients can be a difficult market to serve took a fresh twist due to recently reported  remarks – which my sources tell me were quoted out of full context – from Gerard Aquilina, of Barclays Wealth. He was reported by Bloomberg to have said that such clients made “impossible” demands. But Barclays Wealth is, as far as I understand, adamant that UHNW clients are highly valued as sources of its business and believes it is better equipped than most to meet their complex needs. This is demonstrated, by that firm's recent appointment of an industry big hitter and new managing director, head of ultra high net worth, Stephanie Drew from Morgan Stanley.

In any event, ultra high net worth individuals are also in need, as never before, of good advice in how to protect their wealth from increasingly revenue-hungry governments. They will pay for this advice and, if banks get their product offerings right, will be duly grateful. But just because they have lots of money, it does not mean such clients are easy business targets.