London — more financial entrepreneurship needed

Entrepreneurs work hard to develop products, attract and delight customers, build market share and company value. This is ultimately with an ‘exit’ in mind, when the company is sold and the entrepreneur walks away with a large cheque.

Thought is rarely given to what happens after the exit. Apart from the sense of vacuum and the natural restless nature of the entrepreneur not being well suited to lying on a beach for weeks at a time, there is also the question of what to do with all that money.

You can’t just deposit a few million in a bank, because it’s not safe, as we’ve seen recently. It needs to be invested. But many entrepreneurs have been so focussed on their own companies they have little experience of investing or perhaps even of saving. There is also the question of taxation (no one wants to pay more than necessary), of capital protection and of inheritance.

This is where Swiss private banks have traditionally excelled: safe places for fortunes, where secrecy and discretion are more important than fee levels or investment performance.

All that has changed, mainly because of pressure from the USA for banks to be more open and to make sure taxes are paid. There’s for example the FATCA legislation (wouldn’t it be wonderful if FATCA had a ‘T’ at the end of its abbreviation, after all it is about catching fat cats who try to avoid paying tax?) and the EU has enforced a system of automatic exchange of financial information. One by one, the tax havens are being brought into line.

Traditional tax havens now need to compete on fees and performance, neither of which they are necessarily very good at. Fees dull performance, however good a Chief Investment Officer. Over time, compounded fees mean a huge difference in the size of the fortune.

Back on my theme of Boris Johnson’s London tagline, “the greatest city on earth”, this is a financial services sector where London excels, but is little known. London has never been a tax haven and has always had to compete on fees. But it has a concentration of expertise, a robust regulatory environment and a huge deal flow: almost every project that seeks funding can be found in London. Wealth managers go out of business if they do not perform. So London, arguably more so than Switzerland, should be on the shopping list of everyone looking for a wealth manager.

During a recent set of visits to many European wealth advisors in a number of countries, we noticed the quality of London’s offering: London providers topped the performance comparators and had the lowest fees. What’s lacking is a collective will to market and promote. There’s no sign of UKTI messaging, no promotion of London’s innate skills and advantages and little attempt to appeal to an international audience; for instance one set of marketing material we saw spoke of “Domestic Bonds” (meaning UK-issued bonds).

I believe a European-focused campaign by a London wealth manager could win significant business that would otherwise go to Swiss Private Banks. Some marketing activity from UKTI would help. The world of wealth is moving from hiding fortunes to getting them to perform well and London is best placed to lead the industry.