Banking for Family Business phần 7 ppsx

In these cases, the cash flows derived from the disinvest-ment have to be suitably allocated in securities, real estate or pension fundinvestments 5.4 Corporate Finance Services in the W

precisely, succession planning services represent a common element derlying all the operations indicated in the column Legal and tax servicesare necessary in order to minimize the tax burden (at the corporate andpersonal level) of corporate financial operations Finally, company valua-tion and corporate finance services are requested for each deal which, aspointed out earlier, is based on the valuation of the company which is theobject of the transaction.

un-Investment management services are instead required for disinvestments

and leveraged intrafamily operations when the entrepreneur is sellinghis/her assets In these cases, the cash flows derived from the disinvest-ment have to be suitably allocated in securities, real estate or pension fundinvestments

5.4 Corporate Finance Services in the Wealth

Management of Entrepreneurs: Effects on the Offer and Prevailing Business Models

The preceding paragraphs show that entrepreneurs and their families are

very special clients in the panorama of services offered to high or very high net worth individuals.

Since they are individuals possessing an income and assets they requireadvisory services which help them identify the most efficient asset alloca-tions in order to reach their desired objectives Generally, from the stand-point of the entrepreneur as an individual, the objectives are often centered

on security, protection of the family members and discretion

As entrepreneurs, the clients participate in the management of the pany and the success of the company is a prerequisite for the achievement

com-of family objectives These objectives depend all the more on companysuccess the greater the family’s financial commitment, the less the firm ismature and the greater the investments required to reinforce the firm’smarket position.8

8The close connection between the business risk and personal risk of the neur and his/her family was the subject of an empirical study carried out in theUnited States In this connection, see the sample of 692 businesses analysed byAng, Wuh Lin and Tyler 1995 and the findings of Haynes and Avery 1996 based

entrepre-on the NSSBF (Natientrepre-onal Survey entrepre-on Small Business Finance) The holding of aconsiderable equity stake by the entrepreneur or family members (and thereforethe dependence of personal wealth on the success of the business) is also docu-mented by Bitler, Moskowitz and Vissing-Jorgensen 2001 According to these au-thors, a considerable financial commitment by the entrepreneur and his/her par-

Optimizing the investment in the firm and consequently even the cashflows benefitting the entrepreneur and his/her family require services andexpertise that – as shown in Fig 5.2 – are not usually found in traditionalinvestment management which usually deals with the administration of as-sets made up of activities different from the entrepreneurial ones The ex-pertise required to perform the services described in the preceding para-graph are more similar to those of strategic consulting, managementconsulting as well as corporate finance and financial advisory services.From the standpoint of a bank, the services are provided by the corporateand investment banking division rather than the private banking or assetmanagement one.

Therefore, wealth management of a family business requires a disciplinary approach comprising at least three types of services:

multi-1 consultancy: as shown in the following paragraphs, consultancy

concerns the personal or family profile of the entrepreneur (for ample, succession planning, optimizing the tax structure, allocatingthe wealth derived from corporate assets) as well as his/her role ashead of the firm (for example, strategic planning, managementconsultancy regarding the organization of the company or group)

ex-2 investment management: the principles of allocating the available

wealth and income of the entrepreneur and his/her family requireexpertise in finding the best risk-return combinations compatiblewith the client’s investment profile This concerns investments inboth securities and real estate These services are likely to be ofcrucial importance to those entrepreneurs whose firms have asteady free cash flow profile and low growth rates of the investedcapital (cash cow firms)

3 corporate finance and investment banking: the management of an

entrepreneur’s wealth might entail adopting an integrated approach

to the efficient management of part of the wealth represented bythe company and the part invested in other assets In this connec-tion, structuring, funding as well as taxation and legal services arerequested when carrying out corporate finance operations

ticipation in the firm increase corporate performance even considering the geneity of the sample analysed

hetero-In short, satisfying the needs of the client in the area of family business

depends on a “client-centric vision” 9in which the three above-mentionedservices aim to provide an integrated wealth management solution

5.4.1 Competitors Offering Wealth Management Services to Entrepreneurs and Entrepreneurial Families

The possibility of providing integrated investment management, tancy and corporate finance services to a highly segmented clientele has

consul-made this market niche extremely competitive and selective

This paragraph presents some models of service providers chosenamong those examined at the international level Based on empirical evi-dence, two types of potential competitors emerge:

- large, integrated banking groups

- consulting firms, especially those oriented towards corporate nancial services

fi-5.4.1.1 Large, Integrated Banking Groups

In the case of large, international banking groups, the situation is not

com-pletely homogeneous in the approach to wealth management services This

applies to large European and American financial intermediaries.10

A common feature of these groups is that wealth management servicesare well established in the private banking divisions or in group-controlledcompanies providing private banking services In fact, historically, all thelarge banks began by assaulting the private high income segment of theirclientele and adopted a relatively undifferentiated approach, regardless ofthe specific needs of this clientele, and focused on asset management ser-vices (often management of securities portfolios)

In the end, however, this approach turned out to be quite inefficient both

in commercial and strictly economic terms.11 This led to a second stage in

9As will be shown, UBS uses this term to describe its approach to wealth agement services

man-10 Since the business of wealth management is almost exclusively represented bylarge banking groups, the intermediaries we chose to analyse were taken from theavailable League Tables The European intermediaries (Source R&S – Medio-banca) and the American ones (Source: The Banker) rank among the top 10 byvolume of revenues and total assets

the development of private banking services in which asset managementwas accompanied each time by services focusing on the specific needs ofthe high or very high net worth segments of the clientele In short, thestrategies of the most trustworthy competitors began to shift towards thephilosophy of the “global management” of the client’s assets or wealthmanagement and not just “financial” private banking.12

These services are offered by many foreign banks

Deutsche Bank is the leading European banking group in terms of nues and total assets In October 2002, it began restructuring its PCAM(Private Clients and Asset Management) division in order to set up a spe-

reve-cial division devoted to Private Wealth Management closely integrated with SBB (Small Business Banking) activities This integration is designed

to enable the bank to provide an integrated offer in which the core services

of private banking are heightened by those closer to corporate and ment banking: in addition to active advisory, portfolio management, alter- native investment services (centered on hedge and real estate funds), “Spe- cial Services” include family office, financial planning and fiduciary

invest-services

Since this integrated service is still in its early stages, the focus stilltends to be on private banking services (see Fig 5.3)

Services similar to those provided by Deutsche Bank are also provided

by BNP Paribas to a high or very high net worth clientele through its vate Banking (Banque Privée) division Even in this case, there is a ten-

Pri-dency to integrate management and personal financial planning with

cor-porate financial consulting services13 However, the latter are still handled

at the local level by the Corporate and Investment Banking division

11 “Unlike competitor banks, some of which reported losses ranging from 30 to50% last year, the Citigroup Private Bank had earnings growth of 45% over thelast two years” See Citigroup (2002)

12A more personalized approach was naturally accompanied by an increase in theaccess threshold to integrated wealth management services The family office of-fered by Deutsche Bank, besides being available to only German or US-residents,has a minimum threshold of 30 million US dollars; those offered by Credit SuisseTrus, 50 million euros

13 In addition to the traditional asset management consulting services and the vestment funds and securities services, BNP Paribas Private Bank also offers theso-called “Personalized services” in the areas of art advisory, real estate manage-ment, prestige land and country estates, luxury properties transactions (the last 2managed directly by the Paris headquarters), trust and family holdings It is obvi-ous that, except for the last consulting service for the group structure, the BNP ap-proach still tends to be mainly oriented towards private banking and personal fi-nancial planning services

in-through external partnerships with professionals and consultants ized in corporate taxation and corporate finance.

special-Fig 5.3 The approach of Deutsche Bank to wealth management

Source: Deutsche Bank, Company Information, 2003

The approach of UBS, focuses more on the small business and neur clientele segment In fact, for some time, the Wealth Managementand Business Banking division has adopted a very segmented approach toits private clients: in addition to the “Sports and Entertainment Group”,there is also a “Family Business Group” division devoted to entrepreneursand entrepreneurial families UBS PaineWebber (see Fig 5.4) also tends tooffer personalized wealth services

entrepre-Credit Suisse is also trying to focus more on the entrepreneur clientele

by introducing its Credit Suisse Trust in its Private Banking Division in

order to offer integrated wealth management services for very high net worth individuals The fact that the bank is also planning to create a family

office is a clear indication of the Group’s strategy (Fig 5.5)

DIVISIONAL COMMITTEES

Corporate and

Investment Bank

Corporate Investments

Private Clients and Asset Management

Private and Business clients

Private Wealth Management DWS Investments

Deutsche Asset Management

Scudder Investments

Fig 5.4 UBS: the “client centric solution” approach to family business

Source: UBS, UBS Family Business Group, 2003

Fig 5.5 The approach to wealth management of the Credit Suisse Group

CREDIT SUISSE GROUP

CREDIT SUISSE FINANCIAL SERVICES

Life and Pensions Private Banking Corporate and RetailBanking

Credit Suisse Trust

CREDIT SUISSE

FIRST BOSTON

Insurance

Family Office

Source: Credit Suisse Group, Company information, 2003

As regards the American banks, following the wave of mergers betweencommercial and investment banks which characterized the late ‘90s, bankshave recently begun to change their approach to private wealth manage-ment services Due to their strong position at the international level and theexpertise they acquired by integrating investment banking structures, thelarge American banks are adopting a very aggressive strategy of highlypersonalized services

Investment Banking Corporate Finance

Investment Management Consulting

Services

Citigroup, for example, the leading American bank in terms of total sets, opened a specialized Citigroup Private Bank division in May 2002.This division has become the commercial vehicle offering private clientsall the bank services including the traditional private banking services and– in the case of entrepreneurs and entrepreneurial families – corporate andinvestment banking The underlying idea is to demonstrate that Citigroup

as-is not a private banker but a “private partner”.14

The model represented by JP Morgan-Chase and Bank of America arequite similar since they have concentrated their wealth management ser-vices in their respective Private Bank divisions In addition to asset man-agement these divisions offer the following services:

The second group of actors providing wealth management services to

en-trepreneurs is made up of consultants in the areas of strategic and financialplanning

The phenomenon should not be surprising since a considerable part ofthe personal financial planning of entrepreneurial wealth requires the pro-fessional services already provided to companies by management consult-ants or by experts in corporate finance

Among the financial consultants, the Price Waterhouse Coopers SmallBusiness Centre provides highly segmented solutions to entrepreneurialfamilies This business unit was set up to replace traditional “corporate”services with “corporate and individual” or “corporate and family” basedservices (see Fig 5.6)

14 “The Citigroup Private Bank quickly began to transform itself from the classicprivate banking model into a new paradigm: It evolved to become an entry point

to the breadth of financial and investment resources of Citigroup for its affluent clients around the world…The Private Bank works with the wealthiestfamilies in the world As a result, we are always leveraging the best investmentopportunities of Citigroup in order to increase our share of their portfolios” SeeCitigroup 2002

ultra-Fig 5.6 The approach to wealth management in Price Waterhouse Coopers Small

Business Centre

PWC FAMILY BUSINESS CENTRE Succession Planning

Services

Taxation Services and CorporateValuation

Finance Tangible Assets

Retirement Plans Consulting

Investment Management Services Retirement Planning

Capital Expenditures

Source: Price Waterhouse Small Business Centre, Company Information, 2003

The approach of Grant Thornton and its People and Relationship Isssues

in Management (PRIMA) Service is similar to the approach of PriceWaterhouse Coopers The strategic consulting services focus on the rela-tionship between the individuals who manage the business and the consult-ing services offered to the company :

“As well as dealing with the business needs in terms of audit, tax pliance and other services traditionally associated with business and fi- nancial advisers, we have been working with business owners for many years and recognise the unique challenge they face […] (We) are able to provide a valuable insight into the crucial relationship issues surrounding business management, and the financial and commercial options that are available to help resolve internal conflict” 15

com-5.4.1.3 A Summary of the Market Trends of Wealth

15See Grant Thornton 2001

Fig 5.7 Strategic groupings and forecast trends in the wealth management of

en-trepreneurial families and entrepreneurs

With the rare exceptions of some European and American banks, thecases empirically found to be more numerous are concentrated in Box Iand III The first is made up of banks still oriented towards an undifferen-tiated private banking service and the third is made up of management andcorportate financial consultants who are organizing special groups or cen-tres to provide services to entrepreneus or their families

It is likely that in the future a completely integrated wealth managementservice will be provided only by the large multinational intermediariessince only they can provide independent commercial banking, investmentbanking and consulting services regarding asset management and corpo-rate finance issues

Smaller, national banks and consultants will tend to make outside ances and partnerships to deliver the services they cannot provide because

alli-of operative and regulatory constraints (for example, in Europe, asset agement services are by law the domain of investment companies) or con-straints regarding the available human and financial resources The bankswill look for legal, tax and, in part, corporate financial consulting servicesabroad, as is now the case The consultants will tend to directly carry outthe activities of wealth management, legal and tax optimization and corpo-

I II

Integrated Wealth Management Service Providers

Largest Banks: Full Service Integration

National Banks: Joint Ventures Corporate

Finance Services

Joint Ventures with Banks for Asset Managements Services

rate finance by stipulating “portage” agreements with the banks in order to offer their clients asset management services or finance services for entre-preneurial families

Daniela Ventrone

6.1 Introduction

The sector of private banking is undergoing growing changes and familyoffice has now become an interesting and highly potential reality Cus-tomer requirements increase and grow diversified and the deeper aware-ness of risk/return profiles provoke migration from one bank to another, inpursuit of reliability and professionality In Western countries familiesshow a more critical attitude versus financial intermediaries: the relevantlosses experienced by asset management, often higher than expected, haveled a lot of private customers to reconsider the trustworthy relation withtheir advisor The phenomenon has been undoubtedly accentuated by thedeeper awareness of possible conflicts of interest within the financial in-termediary, a problem that has involved not only great international mer-chant banks, the protagonists of several legal proceedings in the past fewmonths, but also national banking groups1 In this respect, a recent study

by Price Waterhouse Coopers Consulting2 has shown how some of thechange fundamental motivations that up to some years ago had only a mi-nor relevance (e.g product and service pricing, lower performances,dissatisfaction with services and new regulations, etc.) are now growingmore important and will become of crucial importance in the forthcomingfuture.From the point of view of family business, the demand often goes be-yond mere asset management to embrace the management of the complexrelation between the family and the enterprise As we have seen in the pre-vious chapters, the effort made by several financial intermediaries aims atsuccessfully managing the evolution from private banking to wealth man-agement logic, for the purpose of coordinating the set of variables making

up the firm and the family wealth If the set of services provided by the termediary can be easily listed, from asset management to corporate fi-nance – here including for example fiscal, legal and real estate advisory –

in-it seems much harder to establish, in the first place, whether skills and

re-1See contributions by Corbetta G and Marchisio G in this research.

2The study has been carried out in Europe, USA, Australia, Canada, Switzerland,Japan and Hong Kong See PWC Consulting,” Global Trends in PerformanceMeasurements”, 2001