Saloni Sardana finds that the number of UK entrepreneurs is increasing despite the encroachment of Brexit. Competition for their custom, however, is increasing among private banks.
Research by Private Banker International shows growing optimism in the wealth management sector on the future of UK entrepreneurs.
Higher entrepreneurial activity is typically correlated with greater demand for wealth management services, as entrepreneurs are likely to need professional advice as their wealth grows.
A survey of 262 entrepreneurs showed that 85% of use a wealth manager according to John Bowen, author of book ‘Becoming Seriously Wealthy’.
What about Brexit?
According to the Global Entrepreneurship and Development Institute’s 2017 GEDI Index, the UK ranked fourth of 137 countries for entrepreneurship. The index measures the health of entrepreneurship systems across 137 countries.
Annabel Bosman at Swiss private bank Julius Baer, comments: “We continue to believe in the long-term potential of this sector due to the strong culture of entrepreneurialism across the whole of the UK and Ireland and our belief that private businesses are crucial to further economic growth across the country.
“We have seen an increase in the number of business owners and individuals seeking advice and wealth solutions to help support their needs as their businesses grow and evolve.”
John Younger, RBC Wealth Management’s managing director and head of client, business and strategy echoes this view: “Despite the headwinds resulting from Brexit and other geopolitical challenges, the entrepreneurial sector [in the UK] seems to be thriving.”
According to Younger, the UK remains a very business-friendly place to grow a company and “once the uncertainty of Brexit has passed, the pace of entrepreneurship will only quicken in the UK.
“Many entrepreneurs are concerned about the impact of Brexit on their businesses and the innovation economy more broadly. However, with a noticeable increase in the number of business owners, there is obviously an appetite for business expansion and growth.”
Nick Travis, partner at wealth management firm, Smith & Williamson, remarks: “The mind set of the UK is moving away from a start-up culture to a scale-up culture. There are lots of interesting, high-tech businesses in the UK receiving large amounts of funding from all over the world and the future looks bright.”
In 2016, 660,000 UK start-ups were established, up from 608,000 in 2015 according to the think tank Centre for Entrepreneurs.
Arjun Chopra, head of private capital for the UK, at Investec Private Bank, says: “On the surface, the outlook for businesses in general seems to be dominated by Brexit uncertainty, which is a constantly evolving story. But what we can be certain of is that entrepreneurs always find a way to combat challenging markets and create value.”
Why entrepreneurs’ needs are changing
Almost all private bankers interviewed by PBI note a growing affinity by entrepreneurs to invest more responsibly and generate a social impact.
This means demand for environmental, social, governance (ESG) investment opportunities is on the rise among entrepreneurs.
Richard Clarke, head of wealth management at KPMG says: “One factor that may alter wealth managers’ overall approach to entrepreneurs in the future is millennials’ desire to impact invest, say through ESG products”.
Impact Investing is a when investors put their wealth into funds and firms that seek to produce a positive social and environmental impact as well as generating a financial return.
“Wealth managers are already starting to build out their impact investment offerings. Changing their approach to adapt to these new demands as millennial entrepreneurs increase in volume will be key,” says Clarke.
BNP Paribas Wealth Management’s 2018 Global Entrepreneur Report shows that 39% of entrepreneurs consider positive impact to be a core indicator of their business performance, compared to 10% as recent as two years ago.
Aurelin Drain, head of business development at HSBC Private Banking, France, comments: “In the meantime, the new generation of entrepreneurs are keen to deliver sustainable growth with a positive impact to society.”
The recent HSBC Essence of Enterprise survey finds that 24% of entrepreneurs under 35 are motivated by social impact compared to just 11% of those aged over 55.
BNP Paribas Wealth Management says it generated more than €12bn of client assets in responsible investments, a tenfold increase compared to six years ago.
The French wealth manager also hosts the Sustainability Leadership Programme to deliver a “positive, sustainable impact in business”.
At Julius Baer, Bosman says she has seen clients use impact investing as part of a wider business strategy: “Many entrepreneurs see social impact as a part of what makes their businesses successful, looking at their roles as global employers, responsible investors and business mentors.
“It is then our job as wealth managers to help provide access to socially responsible investment vehicles, as well as demonstrate the financial case for impact investing”.
Can fintech and robo-advice help entrepreneurs?
All experts interviewed for this article shared the view that fintech may be revolutionising the wealth management sector, but entrepreneurs will always rely on a face-to-face relationship with their wealth manager.
A spokesperson for BNP Paribas Wealth Management comments: “More than competitors, fintech firms appear as providers and indeed partners. That is why we have made investments and acquisitions of fintechs”.
The spokesperson cites BNP’s myWealth app, a new digital platform innovated in collaboration with UK-based CityFalcon which aggregates financial news in real-time.
The French wealth manager is also working on a new digital tool for managing personal and family wealth called paxFamilia, which has been developed through fintech acquisitions.
Clarke says: “If you were to speculate, you could possibly foresee very busy start-up founders and entrepreneurs choosing to invest their wealth through faster fintech solutions.
But he reassures fintech is unlikely to end the importance of personal relationships between clients and wealth managers.
“The fintech revolution in finance is certainly a threat to many parts of the finance industry. The rise of robo-advisory, artificial intelligence, blockchain and other developing technologies is disrupting the finance industry,” comments Younger.
He cites how the Bank of England’s chief economist Andy Haldane recently warned that AI will have a greater impact on the sector than the industrial revolution did on the traditional industries of the eighteenth and nineteenth centuries.
However he adds that start-ups might not understand entrepreneurs in the same way that a traditional private bank might: “Recent wealth management entrants typically do not distinguish between entrepreneurs and any HNWI viewing it as essentially the same service. These new wealth managers show no imminent signs of changing this approach.”
Paul Upchurch, chief operating officer for Europe at Lombard Life Assurance, remarks: “The largest global actors in the field have integrated fintech in their strategies and are working to adapt their models and create opportunities rather than protect themselves from it.”
“Being able to combine digital platforms and personalised advice seamlessly will allow wealth managers to prosper against the threat of digitisation and fintech disruption,” says Paul Bentley, director of private banking and head of entrepreneurs at Kleinwort Hambros.
Didier von Daeniken, global head of private banking and wealth management at Standard Chartered comments: “We have initiated a proof-of-concept with a robo-advisory fintech that is designed to provide live views on stocks within a defined universe.”
He adds that through an automated talking feature the robo-adviser highlights key drivers and risks of each investment.
How can the industry serve entrepreneurs better?
One of the key needs that differ entrepreneurs from other HNWIs is capital: Entrepreneurs need access to it in order to further their businesses.
“Entrepreneurs driving the growth of their business find themselves restricted in their ability to borrow,” says Bentley.
According to him, entrepreneurs would rather retain profits than distribute them to “satisfy a high street lender.”
This means entrepreneurs are “opting for longer term growth rather than enjoying the trappings of their success.
“Assisting an individual with this aspect of their finances at a time when there are few other options available forms the basis of a great long term relationship,” he says.