Ultra-high net worth clients bypassing traditional financial institutions and doing private deals directly is a trend that puts some banks at risk of becoming irrelevant, a top executive has warned.

Joe Stadler, head of UHNW clients at UBS, pointed out in an interview (Bloomberg, 2 July) that family offices, for example, are increasingly completing deals with each other on direct investments, preferring such areas to listed stock markets because their yields are thin. 

The banker referred to the idea that some banks face a “Kodak moment” – a term referring to how the renowned US photography business was crushed by its failure to embrace digital technology. 

UBS and some of its peers have pushed into the UHNW client space more emphatically in recent years – the Swiss bank’s annual billionaire report written in conjunction with PricewaterhouseCoopers, for example, demonstrates how it showcases its work with such clientele. There has long been debate about whether there is actually a “sweet spot” for wealth managers, based on the idea that mass affluent/lower-HNW client services are increasingly commoditised and driven by tech, while UHNW clients, such as those in the $50 million-plus range, are labour-intensive and difficult to serve easily, given their capital needs.

Stadler’s comments chime with those of other bankers who have told Family Wealth Report - and its sister publications in Europe and Asia - that a rising enthusiasm for direct investing, club deals and forms of joint venture among family offices and other ultra-wealthy investors are changing the business landscape. 

It poses the question of whether shrinkage of banks’ balance sheets, while understandable post-2008, has made such lenders less appealing for UHNW clients who have multiple business interests, cross-border currency exposures and a desire to borrow against their collateral. UHNW individuals, particularly at the higher end of the spectrum, will typically have several banking relationships, shopping around in some cases for the most favourable credit solutions.

A few days ago, a former senior banker at , the Zurich-listed private bank, founded his own specialist business, Azura. Ali Jamal has told this publication that a major requirement for UHNW clients is to have access to banks’ balance sheets but they are sometimes frustrated and need help to negotiate terms. (An interview with Jamal is forthcoming.) 

The balance sheet shrinkage and de-risking trend continues. There is media speculation that makes a big point about its ownership model, which it says aligns managers with what clients need in the long run. (This news service has also delved into what practitioners mean by truly “independent” wealth advice.)

Direct investing - while it carries due diligence costs and risks of its own - also shows how the banking sector is as prone to disintermediation and disruption as other economic sectors have been in recent years, whether they be hotels and travel, retail, manufacturing or logistics. A number of technology platforms and businesses are also making it easier for private client investors to access hedge funds, private equity and debt, and other once hard-to-enter asset classes, which also tends to work against traditional channels such as investment banks.