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  1. Analysis
July 27, 2020

HSBC Private Banking: a big fish in a bigger ocean

By Patrick Brusnahan

Headquartered in the UK, often referred to as the home of banking, HSBC plays a big role in the financial sector. In a market that is changing rapidly, how is the private banking arm adapting? Patrick Brusnahan speaks to Charles Boulton, CEO, Private Banking, HSBC UK Bank, on the bank’s situation

As always, HSBC is never far from the action: it has committed to investments in Mainland China, and is in the middle of taking full control of its German arm. However, the group is also never too far from controversy: it plans to slash 35,000 jobs and was recently hit with a £1.3bn ($1.62bn) lawsuit over film financing. But how is the UK private banking business faring?

Charles Boulton has been in the UK private bank’s CEO role for just over two years now. He has always been client-facing in his career, and prior to this role he headed up the front office for the UK business.

Patrick Brusnahan: What is the state of private banking in the UK at the moment? What are your and HSBC’s views?

Charles Boulton: There is a lot of opportunity for wealth managers in the UK market. It’s a big market: there is around £14trn-15trn in total wealth to manage. It is also a fragmented and competitive market. We don’t yet know what impact COVID-19 will have; however, there is a healthy market for those that are in the industry. We have seen a lot of wealth creation over the last few years, through partial or full business sales. There has been a lot of interest from private equity firms in buying small and mid-sized firms, and that has created a lot of wealth for shareholders and management teams. We have seen that trend across the UK, not just in London and the South East. Over the last two years we have invested strategically in growing our regional business as we see wealth creation continuing to grow at an equally fast rate outside London and the South East.

PB: Is there more opportunity in the UK or is the opportunity everywhere?

CB: We’re part of the EMEA region for HSBC Private Banking. The Middle East is included as part of EMEA, and there is meaningful opportunity there. The drop in oil price will have an impact on the region; however, it remains a core market for us.

PB: What major changes have you noticed in the last couple of years in the market?

CB: Until relatively recently we were in a 10- 11-year bull market for equities. What clients want and are looking for has changed over the last few years.

The UK market for investments has been defined by exceptionally low interest rates, which have pushed investors towards global markets in the search for more yield, particularly in the fixed income space.

Investors have also realised the benefits of looking for alternative sources of yield, with structured investments proving popular as they can be positioned in a way that earns yields well in excess of cash rates but with some worthwhile downside protection.

Brexit has had a big impact on sterling, not just through its weakening but also through the potential volatility. This again has increased interest in a more global investment portfolio that can, in effect, hedge against sterling’s weakness.

We are also in a low-growth world, which is something that our clients very much understand and goes beyond Brexit. There has been a greater interest in thematic investments, particularly those that tap into structural growth opportunities in sectors like technology, the consumer or healthcare.

ESG has certainly been climbing the charts, especially in the last few months. Since the pandemic struck, our clients have shown increased appetite for ESG investments. We have also seen that whilst COVID-19 has disrupted financial markets, shares of companies focused on ESG issues outperformed as the virus spread. Investors have responded differently through this crisis; they are keener to understand where the risks sit in their portfolios.

We are adopting BlackRock’s Aladdin Wealth platform across various parts of the Private Bank. It is a best-in-class technology solution that provides institutional-quality analytics to give clients deeper insights into the drivers of risk and return within their portfolios, to help them make informed investment decisions.

We’re really excited about the imminent launch of our new advisory proposition where our investment counsellors will leverage the insights of Aladdin Wealth to provide truly holistic and bespoke portfolio-based advice to our clients. This offering has already launched in some other locations, and has proved particularly compelling for our UHNW clients.

PB: What do you feel HSBC’s role in the UK market? How do you see yourself?

CB: HSBC is one of the biggest commercial banks globally, and certainly in the UK. As such, one of the areas that we in the private bank focus on, and believe that we are best placed to deliver against, is looking after business owners and entrepreneurs.

We work hand in glove with our commercial bank in that respect. Working with wealth management, investment banking and other divisions is also crucial for us. Being able to offer this joined-up approach to clients is powerful. It means we can help business owners and entrepreneurs with significant transitions they make, whether that’s buying or selling businesses, planning for the future, passing their businesses to their children etc.

Being a truly global bank is appealing for our UHNW clients, particularly as they often have interests all around the world. As such we are well placed to assist them with those needs. For HNW clients, they like the fact we have a very good view of the global economy and where the opportunities are.

So when it comes to constructing portfolios and understanding risk, we are well placed, both from an asset allocation and tactical opportunities point of view, to help put their money to work effectively.

PB: How digital are you?

CB: As part of HSBC, we are able to capitalise on the significant digital spend that the group is investing in this space. HSBC Private Banking is about as digital as it has ever been, and Covid-19 has meant that we have been predominantly operating as an online bank, since our offices have been closed.

Earlier this year, we announced that our private banking business was being combined with retail banking and wealth management to create one of the largest wealth businesses in the world. One of the key benefits this provides for us is the opportunity to leverage the retail business’s existing technology and platform investment.

In the fast-developing digital space, we are investing heavily in our technology platform as well as the various digital products and features that we make available to clients. However, we also recognise that there are opportunities to fast-track how quickly we can provide an enhanced digital banking experience, by collaborating with the right strategic partners.

I have already mentioned the roll-out of BlackRock’s Aladdin Wealth in the UK in the coming months. This is a great example of how we have been able to accelerate our ability to deliver best-in-class portfolio analytics directly to our clients.

Going forward, being able to operate better digitally is no longer a differentiator: it’s going to be your ‘ticket to the game’, as it were. Client expectations are changing, and in a low-interest-rate environment, banks have to be more efficient in the way in which they deliver their services. Our clients are rightly expecting us to offer these capabilities and more.

PB: Was that from the bank or did the customers want digital transformation?

CB: I think it’s both; I have this conversation quite frequently. Private banking is led by relationships, and a lot of the interaction we have with clients is in person, but it needs to be supported by an excellent digital experience.

We need to make it easier for our clients to do business with us, and we need to make it easier for colleagues to do business within the bank. We’ve already taken great strides forward over the last year, and we have some very exciting plans to build on these even further in 2021. I believe that the digital future of HSBC Private Banking looks very bright.

 PB: How would you describe the typical HSBC Private Banking customer?

CB: There is no typical client or one-size-fits-all approach. This said, we segment our business into HNW and UHNW.

We aim to be the private bank of choice for HSBC’s business owners and entrepreneurs. We enjoy a strong flow of HNW introductions from the commercial bank and via the retail bank – clients that have grown within the HSBC group and need different services as they grow their wealth. So with that in mind, we have a lot of business owners or entrepreneurs who have built up their wealth over a period of time, or who have received a windfall from the sale of their business.

Historically, a lot of these clients were based in the South East, and particularly in and around London. However, we have seen accelerated growth in the regions over the last few years.

Generally speaking, our HNW clients tend to have first-generation wealth as opposed to second-generation or inherited wealth.

The UHNW space is more competitive. We see a lot of referrals from existing clients who are happy with the service we provide. UHNW clients tend to be a slightly more eclectic mix in terms of how they have amassed their wealth, and also tend to be more international and include a diverse range of nationalities.

PB: Do you struggle to create personal client relationships at such a big bank?

CB: Not at all. We have some amazing long-term relationships.

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