Does the wealth manager around the corner still have a future?

Although the market is growing, many small private banks and asset managers are putting themselves in the shop window. They point to rising costs due to tighter regulations and digital innovation. But not everyone is thinking of selling. "We don't want our clients to end up with shrewd types.

Five minutes. That's all Philippe Benijts needs to realize he doesn't want to sell the asset manager he's at the helm with when larger competitors propose an acquisition deal.

With more than 400 million euros in client assets under its care, DDEL Portfolio Solution, where Benijts has been working for about a decade now, is perhaps one of the least known asset managers in the country. But since more and more players in the industry are pursuing additional scale, Brussels-based DDEL is also regularly being approached.

Benijts' message is clear. 'We want to remain completely independent. Many potential acquirers see our clientele as commodities,' he says. 'We don't want our clients to end up with shrewd types. Before I started at DDEL, I was also working in the private banking sector. I don't want to go back to the dark side.'

DDEL is quietly becoming one of the last of the Mohicans among the smaller independent private banks and asset managers in our country. Belgium has about thirty private banks, asset managers and brokerage houses dedicated to specialized financial services for wealthy clients. That market is dominated by the four major Belgian banks and about six other major players, whether or not owned by a foreign group. Together, they account for more than 90 percent of the nearly 480 billion euros in assets under management in the sector.

In addition to those big boys, there are twenty medium-sized private banks and niche players. These include annexes of international banks, as well as independent Belgian boutiques that, like DDEL, have less than 1 billion euros in assets under management.

That club of smaller boutiques is prominently on the radar of potential acquirers. And not everyone says no when a competitor comes knocking on the door with an offer you can't refuse. Just before Christmas, it was announced that Dutch listed Van Lanschot Kempen had reached out to Antwerp-based wealth advisor Accuro. Almost three years ago, the Dutch also acquired Belgian firm Mercier Vanderlinden. The Belgian branch of Van Lanschot has been going through life as Mercier Vanlanschot since New Year and does not rule out further acquisitions.

Earlier last year it became known that Frank Vlayen, the former top executive of Dutch investment giant Waterland, had acquired half the shares in Leo Stevens Private Banking, also from Antwerp. In previous years, the private bank Dierickx Leys had sucked up small listed companies like Kortrijk's Lawaisse and Antwerp's Van Goolen like a vacuum cleaner. Brussels-based Leleux snapped up the minuscule East Flanders listed company Bockland. 'Everybody always talks to everybody in this sector,' says one observer. 'But now the market is really moving. At least one goes out every year.'

Private banking, however, is not exactly a job without a future. Entrepreneurs are thinking more often about how to pass on their business and their assets to the next generation, a trend to which just about everyone in the financial sector is responding. Big names such as KBC, Belfius and most recently ING Belgium have announced their intention to significantly expand their private banking network.

Lucrative market

Consultants have argued for years that profit margins here are higher than elsewhere in Europe. Moreover, Belgians generally have no problem outsourcing the management of their assets entirely to the bank. That discretionary management, as it is called in the jargon, is generally cheaper for a bank than building a team to assist clients with individual advice. It makes Belgium, a rather fragmented market in private banking, an interesting hunting ground for ambitious banks looking for scale.

At some point you reach a breaking point and realize it is better to join another group.
- Yves Van Laecke (Commercial Director Bank Nagelmackers)

On the other hand, plenty of investment is needed in new digital applications and measures to keep up with stricter regulations. Some five years ago, the arrival of the so-called European MiFID consumer protection directives was already burdening banks and brokerage houses with mountains of extra paperwork. Since then, requirements have been added to screen clients, professionalize management and check whether internal housekeeping is in order. For those who do not have sufficient critical mass, this task becomes increasingly burdensome.

'One of the main reasons smaller houses go into business with a larger competitor is that their costs continue to rise because of tighter regulations,' says Jason Kalamboussis, ING's banking analyst. 'You have to invest in money laundering controls and in compliance, checking that the rules are being followed everywhere.'

Not everyone can handle the rising costs of doing so, adds Yves Van Laecke, the commercial director of Bank Nagelmackers. "The regulator is imposing increasingly stringent requirements, and these are not always commensurate with the size of the bank or asset manager that has to adapt to them. Some houses want to stay an independent course, but don't have the tools or resources to meet all the regulatory requirements. At some point there is a breaking point and the realization grows that it is better to join another group.'

'Those stricter regulations are indeed often cited to indicate why smaller houses put themselves in the shop window,' responds Accuro's Hans De Schouwer. 'But that was not the reason for us to partner with Van Lanschot. You may have questions about the proportionality of some measures, but in itself these regulations are not so stifling. With Accuro, we did receive a proposal to sell every two years, but we were always able to continue under our own steam. That we are now selling anyway is because we share the same values with Mercier Van Lanschot and together we can grow into one of the most relevant players in investment advice in Belgium.

At Ghent-based Value Square, founded nearly twenty years ago by some ancients of the former securities bank Bank Corluy, CEO Koen Hoffman says that in recent years much has been invested in further professionalization and digitalization. 'That took a lot of time and energy, but we are now reaping the benefits. From onboarding new clients to managing our assets under management: everything is automated. It has to be in order to survive. You have institutions that look very stately from the outside, but run on underlying systems that are completely outdated. Sooner or later those run into themselves.'

We are not the type of banker who drives around with an expensive car or needs a fancy office. We keep costs low.
- Philippe Benijts (Partner DDEL Portfolio Solution)

Benijts of DDEL Portfolio Solution by no means denies that regulations have driven up operating costs considerably. 'But we are also not the type of banker who drives around in an expensive car or needs a fancy office. We keep costs low, we specialize in passive asset management and do not engage in stock picking or speculation. As a result, we also don't need a large back office or analyst teams. We also don't do marketing and work by word of mouth. But the returns are there, and we are growing like an oil slick. About a fifth of our clients work in banking themselves. Some are even CEOs of major banks.'

Still, a distinct approach or tapping into a specific niche does not guarantee that you will be able to steer your own course forever, says a banking expert. 'It is quite possible that you will still bump into walls at some point. Suppose you start out as a small independent house, with acquaintances and family members as your first customers. Then as you grow, sooner or later you meet potential customers who are more likely to demand the same services and products as at the larger houses where they are already customers. It becomes harder to stand out from such competitors. For example, they can afford a team of seven analysts, you can't.'

Shopping at Carrefour

Hoffman disagrees. "We don't want to play private bank; we have our own face. We do everything we can to keep our business model as simple as possible. We focus on value investing with our funds and don't do things like private equity, investing in companies that are not listed. We grew last year, also thanks to the returns we were able to present to our clients in the past. We see more and more people who want to have a talk with us. So they find their way to our specialty store around the corner.'

There is still room for new entrants. People still go to a deli, don't they?
- Koen Hoffman (CEO Value Square)

Yet no new specialty stores seem to be adding. DDEL, Value Square and a few other independent players that remain today were founded in the early 2000s by private bankers and asset managers who wanted to work on their own account. But you don't see that kind of initiative for years. 'We ourselves as former private bankers started Accuro in 2006,' says De Schouwer. 'Today that would be a lot harder. If only because you need a lot more staff. The war for talent also plays a role: you can't find a compliance officer on every street corner.'

That doesn't mean you wouldn't stand a chance if you launched your own wealth management company today, Hoffman says. 'If you really want to, you can. The regulator has become stricter, but it's not unreasonable. You also have to do things as efficiently as possible: if your intention is to manage 1 million each with 10 people you won't get there. But there is room for newcomers. Compare it to shopping: you might always go shopping at the Carrefour, but for some things you keep swearing by the deli. It's the same way in the world of asset managers.

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Source: The Time

Link: https://www.tijd.be/ondernemen/banken/heeft-de-vermogensbeheerder-om-de-hoek-nog-een-toekomst/10518963.html

Author: Pieter Suy

Date: 16/01/2024

Photo: Photo by Scott Graham on Unsplash