|The Bahamas Investor Magazine
January 1, 2016
January 1, 2016
In recent years, the global banking industry has developed something of a David and Goliath complex. Growing more wary of big name banks–whether due to specific scandals or the volatile economic landscape in general–high-net-worth clients are increasingly turning to smaller firms, and it is no different in The Bahamas, where the growth of boutique banking is transforming the financial sector.
According to a 2014 report from the Luxury Institute, which surveyed more than 500 consumers with a net worth of at least $15 million, more affluent clients prefer dealing with boutique firms, and these clients appreciate the close relationships they form with smaller companies. A typical wealthy client prioritizes expertise, trustworthiness and generosity, the report explains.
“You need results to understand your clients needs and wishes and to be accessible and attentive,” says Damian Forbes, senior investment and portfolio manager at Deltec Bank & Trust, agreeing that these three elements are crucial. “My clients have all my contact information. If they need to reach me, they can. You need a level of personal interaction, to be able to sit and have a conversation and be sociable.”
A strong relationship between wealth manager and client, something boutiques excel at, is not only advantageous for the client, it enhances the banks’ reputation and can help generate further growth.
“Having a credible reputation is very important,” says Forbes. “That feeds into organic growth and a natural referral process. We get references from existing clients who know us well and are very satisfied. All of that stems from a strong reputation and generating results.”
This word-of-mouth marketing is an effective way for boutique banks to overcome one of their greatest challenges–brand recognition. While most multinational firms have a strong presence in the market and almost instant recognition thanks to their extensive marketing dollars, boutiques can sometimes struggle for visibility. Forbes, who previously worked at Citigroup and Deutsche Bank, says this is a real difficulty for boutiques and suggests that small firms should play to their strengths, saying: “It is important for boutique banks to focus on areas of excellence and specialization that they have expertise in, and can deliver exceptional results.”
D Gilbert Cassar (pictured, above), chairman of the wholly Bahamian-owned Equity Bank and Trust Ltd, believes there is room in the industry for everyone if banks cooperate rather than compete. Equity celebrated its 30th anniversary in 2015 and Cassar says the bank’s success is partly due to its willingness to exploit opportunities by partnering with bigger firms. “We get most of our business from major banks,” he says. “We are not competitors, we work closely with them. We provide a more personal service so we complement them. We fit right into that niche.”
Equity’s managing director Dillon Dean echoes this, saying: “We see the larger banks as partners. As a boutique bank, we are flexible so we can do different things. Reputation is very important because if a large institution wants to partner with you, they will present you to their clients and you have to be squeaky clean and your image top notch.”
Boutique banking may be a current buzzword, but will that buzz last? Forbes at Deltec says yes. “Boutique banking has seen a resurgence and I think it will continue. It may not continue at the same pace, but the shift in perception of larger firms versus smaller firms will continue.”
Forbes says the economic slowdown of 2008 opened up the market and boutiques were able to capitalize on those opportunities, and prove themselves able competitors. “Since the financial crisis a lot of boutique banks have been created and they stack up just as well competitively as their larger counterparts.”
Now, graduates in the financial sector, looking for that crucial first job, are considering their options with banks of all sizes and Forbes believes boutique firms can offer a level of “exposure and experience” that huge global operations cannot. “Boutiques provide a great opportunity to round out your skill-set,” he says. “Before, you might have considered a larger organization to give you career opportunities, but now there is no stigma attached to banks of different sizes. If you are at a smaller organization you get to see much more of the firm so you get exposure to more areas. It is a more holistic view. If you are a young person looking to grow your career, that creates potential for mentorship and career progression.”
But the next generation should not make the mistake of thinking boutiques are the easy option. Forbes says these institutions usually have very rigorous hiring policies because the stakes are higher in a smaller team. “Every organization wants to grow, but as a boutique you have limited resources, so you want to ensure you get the best person you can. If you get the wrong person, the impact is amplified. You have an obligation to ensure that the talent is the best suited for the firm and the atmosphere at the firm.”
Securing the future
As the Ministry of Financial Services looks to new products and new markets to further the sector’s development, boutique banks have a role to play. With wealth managers highly experienced in providing tailored services to meet complex needs, new products such as the Investment Condominium Fund (ICON) are eagerly welcomed by boutiques.
Equity Bank was the first to establish an ICON Fund in The Bahamas and applauds the government’s efforts to gain a foothold in Latin American markets as well as those in the Far East. “The Ministry of Financial Services is very progressive. It is quite in tune with the demands of the market,” says Ivylyn Cassar, Equity’s vice chairman. “It is making inroads in Asia and China, but need to target more of Europe and uncharted regions.”
Ivylyn Cassar wants to see a greater effort to engage emerging markets in the Middle East, India and South Africa. Equity has satellite offices in Dubai, Panama, Switzerland and the British Virgin Islands. The bank also plans to expand into New Zealand in the near future.
With Equity spreading its wings worldwide, the challenge now is how to retain the level of intimacy clients desire while scaling up. Dean says the answer lies in unbundling the business and notes that as Equity grows into other areas it will separate its private banking arm from the firm’s other operations, which are set to include asset management and a new trading platform. “We have 40 staff and we can almost reach out and touch every client. It is very important to us to maintain that boutique mindset even if we have 70 staff. That is the essence of who we are and what we do. That is what our clients expect. We are quite happy being boutique, flexible and customized.”
A stabilizing force
Boutiques can offer the sector stability in uncertain times, according to Forbes, who says that while global operations may downsize and move out of The Bahamas, small firms can fill the gap. “Given the fact that some larger banks have retrenched, it is great that there are boutique banks that can step in terms of retaining business,” he says. “Boutiques have been great at keeping longstanding business; they are the natural beneficiaries of larger banks leaving. Most of that business there is a level of trust and credibility. That client base is ongoing and lends stability and growth to the industry.”
Forbes adds that the size of boutique banks gives them an advantage in navigating changes. “A lot of boutique banks try to be very innovative and current. They try to be ahead of the curve. They have a natural flexibility and adaptation that translates into the sustainability of the industry and implementation of best practices.”
As the industry evolves, however, the changes are coming thick and fast. Greater emphasis from global bodies on transparency and compliance can prove an onerous burden to smaller firms, which are often ill-equipped to absorb the costs of the growing regulatory burden. “The cost of doing business is very high,” says D Gilbert Cassar. “Our cost of operations has increased substantially and the compliance side of things has increased considerably.”
“Regulation is definitely something to contend with. You have to put the resources in place to do that,” agrees Forbes, who believes that consistent and effective communication between government and the private sector is key to helping boutiques keep pace with the industry. “The various bodies within the industry have done a decent job of making sure participants are aware and informed. Dialogue is always important. It keeps industry prepared for change.”