Coutts Bank von Ernst

Thomas Schmidt, Coutts Bank von Ernst’s head of private banking, says, “Wealth management is a service offering for people who are wealthy. And in general, they want to have a hassle-free environment. Although for everybody 'hassle-free' means something different, in the broader context and for us, it is essentially about meeting the client’s needs through specific and skilful solutions. When a client comes to us and says that he or she has a particular investment need, we take it on as our responsibility and go back with the best-suited solutions or proposals on how to meet those needs. Our aim is to make this experience for our clients as effortless as possible. The other key point to remember is that one of the secrets of success in services is to under-promise and over-deliver. The worst thing you can do, especially in private banking and wealth management, is to look at the client’s real or perceived need and say ‘Oh, yes we can do that for you,’ and then fail to deliver, or you deliver with a lot of pain and aches in the organisation. In such cases the client will feel it and be disappointed. For example, when a client asks our opinion on some niche investment in which we are not active, it is much more honest to say that we do not have that particular product and that we would help in finding a great fund or a good analyst and then go from there. We don’t say ‘no problem, we will come up with a portfolio proposal!’ This is not our way of doing business because it will not only be a painful exercise for the bank, but in the end it will probably also be sub-standard. For instance, when advising on art investments, we look for the most qualified external source in that particular niche. This way we tap the best resources.”

“We are one of the oldest foreign banks in Switzerland and we combine the best of Swiss and British banking.” —Thomas Schmidt

“The synergy between our operations in different countries is definitely in the way we look after investment management,” he adds. “There are also other synergies. For instance, we can use our sister company as the booking centre. So, for example, we have private bankers at Coutts & Co in the UK serving some clients in the UK, with some of the money being booked in Switzerland. We also have international clients in Switzerland who have their primary banking relationship with us for their investments, wealth management and planning, but require a banking relationship in London or perhaps just local access to money, to buy a house or make property investments. In such cases we also use Coutts & Co as a booking centre.”

This ability to use the group’s international subsidiaries is just one aspect. Successful wealth management clearly is about fulfilling expectations, building relationships and, equally important, stability.

Explains Schmidt: “We are one of the oldest foreign banks in Switzerland and we combine the best of Swiss and British banking. We have our British heritage, including the British way of thinking and managing investments, which clearly gives us an advantage over our competitors, especially in investments and asset management. What is also very helpful, especially for bigger families, is our expertise in issues related to the formation and management of trusts.”

These skills derive from both Coutts’ traditional strengths in trusts and related services, and Bank von Ernst's historical roots as banker to wealthy Bernese families. In fact, Coutts was one of the first banks to offer clients the possibility of using trusts for wealth management. One of the earliest records of a banker giving advice on the subject is that of Thomas Coutts, the 18th century partner of Coutts Bank. He advised Harriot Mellon, his future wife, to put her money in a trust and secure it in such a way that she could maintain full control over it even after she got married. Harriot followed Thomas's advice and more than doubled her wealth by the time she passed on the trust to her chosen heir.

“Trusts are an important component of estate planning and wealth transfer to the next generation,” says Schmidt. “The key element of trusts, of course, is that they are established and administered properly. This is where we have expertise that many others don't have—both for onshore and offshore trusts. Now that Switzerland has ratified the Hague Convention there is much greater clarity here and we can also form trusts with Swiss-based trustees. The most important factor, clearly, is that as all clients are different, we have to understand their individual needs and what they want to achieve with their money, especially in different time frames. The clients, on the other hand, have to understand the concept of risk—not just in the academic sense, but what it implies for different types of investments. In a portfolio consisting of 100% equities, for instance, you could have periods where you could have booking losses. Experience of the last hundred years, however, has shown that despite such turbulence, you have to remain with it. Other types of diversified portfolios, on the other hand, constructed with a mixture of equities, funds, hedge funds and fund of funds offer a smoother return. In 2001/2002, for instance, when the equity markets were down 30%, an investor with such a portfolio would have lost only 5%. So for us it is very important that our clients understand risk, both intellectually and emotionally, before deciding on the type of investment strategy to follow.”

“A key component of our investment philosophy is that no single bank or investment house can offer the best returns across all types of investments,” he adds further. “So we have a mixture of investment funds in the form of Coutts investment programmes that are managed by external asset managers. We bring the best of these into a mutual fund, which includes several hedge funds etc. This fund-of-funds (FoFs) approach has the advantage of reducing volatility. Our objective is that they should beat a total return benchmark, or meet our targets. For instance, investment products following a market neutral strategy should deliver a return of LIBOR plus 2 or 3% with a volatility (standard deviation of the change in value) of 3%. Then we have other vehicles which deliver equity-like returns but with a lower volatility. Each has a risk-return profile for different investment needs such as the time frame (investment horizon); return expectations and appetite for risk.”

Although such investment products and strategies in themselves are not unique, what is distinctive is that the bank has a clearly defined risk/return target, and also a clear target as to which benchmarks to beat and what kind of returns the investments have to deliver.

As a bank with Swiss and British roots, Coutts Bank von Ernst has established a reputation based on stability and continuity. The importance of this cannot be underestimated. It is not surprising, therefore, that it has continued to strengthen its position internationally. Looking ahead, growth for the bank is coming from several directions. In addition to the three growth regions—Eastern Europe, Latin America and the Middle East—Asia is clearly one of its high-growth markets. So, whereas many of its competitors have recently publicised their entry into Asia, CBvE has been operating there for 12 years. Its parent, The Royal Bank of Scotland, has established a private banking joint venture under the Bank of China brand and already has offices in Beijing and Shanghai—one of the key components for onshore wealth management in China.