The Business Interview: Richard Brown Director Of Yorkshire Office At Kleinwort Hambros
The events of this year have been unexpected to say the least.
Coronavirus aside, even at a political level the last-minute change in Chancellor before the Budget in March presented a surprise and so did the announcement of the Chancellor’s Summer Statement last week.
We were due to meet the week that lockdown was imposed but postponed picking up now just as things are beginning, to return to some semblance of normality.
The private bank, owned by Société Générale, was recently awarded ‘Best Private Bank for Digital Marketing and Communications’ by Professional Wealth Management.
According to Richard Brown, digital transformation has been a major industry trend over recent years and the wealth management team at the bank is proud to be recognised for its attractive digital engagement platforms.
Chatting with Richard, using a well-known video platform, we kick off by discussing the importance of responding to changes in his sector, especially as Kleinwort Hambros has a traditional banking heritage behind it. How do you, I wonder, balance and blend tradition with modernity?
“It’s been challenging for all of us. From our perspective it is really important to get the balance right between our heritage and remaining relevant to our clients from a digital perspective.
“More so, with regards to future generations, who as potential younger clients, are clued up about presentation. Hence keeping on the front foot with digital transformation.
“We have spent a lot of our time improving our IT platforms so that when we spend time with clients we can demonstrate and assess risk to meet their expectations. At the end of last year, we announced the launch of EVA, an interactive tool for exploring investment solutions with prospects and clients. EVA is a digital reinvention of traditional document-based proposals, replacing them with an interactive application containing the entire range of Kleinwort Hambros’ standard discretionary investment solutions. It allows us to work with clients in real-time to find the right solution, in a highly personalised and accessible way.
“For example, take the 2008 crash and the 2000 to 2003 dotcom bubble, by looking at how different scenarios and types of portfolios, played out during those testing times enables us to give clients a better feel and understanding of what to expect, rather than just looking at a risk chart and working out what the relevant risk is from there. It’s about being relevant.”
Another area Kleinwort Hambros has grappled with is societal change and a focus on responsible investment. This is certainly a discussion topic for clients planning ahead, wanting to pass wealth down the generations.
“Responsible investment is becoming more important. We have found an increasing number of investors, particularly the younger generation, are mindful of the concept.
“We’ve spent a lot of time putting together a responsible investing programme, to help clients navigate the jargon. Traditionally, individuals may have looked at it just from an ethical point of view, but the world has moved on and there other positive aspects to consider: environment, social governance, sustainable and impact investing.
“We have our own core portfolios and the process involves measuring individual firms across environment, social and governance indicators. it is our job to navigate all of it to help our clients understand the scoring we have given those firms,” he said.
Richard gives the example of the IT /technology sector, looking at ESG [Environment, Social and Governance) scores, which are key in helping Richard and the teams verify funds.
“Microsoft has a very good low carbon neutral ESG score. So, good from an environment perspective but on the other hand, from a gender equality point of view, the company doesn’t have many women in top jobs.”
It’s fascinating to talk through how society has changed. Kleinwort Hambros is also investing time for example, looking at trends in gender investor patterns.
Understanding the Diversity of Women’s Wealth
I learn that there is a difference between how females and males manage their wealth. “It wasn’t that long ago when women who may be grandmothers now, didn’t have their own pensions, savings or property in their late 20s or early 30s, as many females do today. It is all part of the adapting and adjusting to our times. Kleinwort Hambros is making a point of understanding these society trends.”
Kleinwort Hambros is a founding partner of the WealthiHer Network, which champions the transformation of the financial services industry's approach to female investors. There is a commitment to furthering understanding of the diversity of women’s needs and empowering our female clients with the knowledge and confidence they need to grow and protect their wealth in new ways.
In addition, as we get wealthier, we are seeking out information on how to make our first investments and Richard likes to think that the bank is getting ahead in this area.
However, with everything that’s been going on in the world since the beginning of the year I’m keen to take stock of the financial markets. What is it that Richard’s clients are looking for across the investment landscape and the challenges that everyone faces in relation to coronavirus and its impact on the global economy?
“Well, the long-term view is that we need to adapt to how clients, and we as wealth managers, see things evolving, certainly in how we give advice in the future. Kleinwort Hambros is remaining cautiously positioned in its risk allocations, however we note the economic regime and the momentum signals we follow have shifted towards increasing risk in our investment portfolios.
“We run a very rigorous selection and investment process looking at the economic situation. I also pay a lot of attention to valuations in the market place, analysing momentum and sentiment. This gives a feel for how we see things developing, which has obviously had a rebound in equity markets over the last few months following the crash in March.
“I don’t think anyone really knows how things are going to play out or if we are going to have a second wave. Even whether we will see a huge increase in unemployment later in the year. From our perspective it is navigating a fine line between maintaining a risk for clients with regards to their investments and obviously being a little bit more cautious in our approach, given the current uncertainty that lies ahead.
“We came out of certain high yield bonds i.e. those that pay higher interest rates because they have lower credit ratings than investment grade bonds, when the crisis started and also reduced equity content, taking a little bit of risk off the table. And that is where we are at the moment; we are taking the view that we still have an element of risk in our portfolio for the time being having to keep a little bit of defensiveness in case we see anything unforeseen in the coming months. We are in a low inflationary environment probably for the foreseeable future and the low yield on bonds or the return an investor may realise on a bond and the uncertainty on equity dividends in the short term means we are maintaining a relative high exposure to gold in our portfolios.”
Richard is keen to point out that the bank’s investment committee meets regularly to which the portfolio managers are invited, “in that way there is consistency.”
But there is a question around future taxation.
Musing on the issue Richard tells me: “There is a sense of inevitability that in the long-term taxes will increase. In the run up to the Budget in March there was discussion of a wealth tax that never materialised however it will be interesting to see whether the government’s preferred method of recouping funds will target the wealthy and tie into a wider agenda of wealth equality.
The effectiveness of targeting the wealthy however is a matter for debate as there is no clear evidence such a strategy has been successful in other countries that have adopted such a method. However, with income tax, national insurance and VAT accounting for the majority of tax revenues it is perhaps only a matter of time before these taxes are re-evaluated, along with oft-discussed changes to pension tax relief that have as yet been left alone.”
A Vibrant and Prosperous Region
Richard, a Yorkshire man, has worked in wealth management in the region for over 30 years. He likes the culture and the fantastic countryside on the door step, especially as he is a keen road cyclist. This, he believes, will be a huge attraction to employees in the future, as post Covid-19, we all reassess how we work and get that balance right between office and home.
He welcomes the Northern Powerhouse initiative and the Government’s focus on investing in UK regions.
“The North has been identified as part of the Government’s Industrial Strategy in the form of the Northern Powerhouse and there is a huge amount of investment in infrastructure and skills. It’s good to see the region as part of a wider political agenda, identifying the North as a place for huge investment,” he said.
“From our perspective, there is a great entrepreneurial spirit in the region. Culturally, in terms of an entrepreneurial perspective, we have a lot of long-standing family-owned businesses that I am proud to say, remain family-owned. A great achievement given the demands of the present day. This is also reflected in the businesses coming out of our great universities.
“I think we will continue to see that Yorkshire entrepreneurial spirit continue in our region and we want to be part of that, working with our clients and obviously future clients to manage their wealth during these times.”
There are challenges and turbulence still to come and I pick up on events due to happen at the end of the year when the UK will transition out of the EU.
“I suppose, in the short term, like everything else, it comes down to individual challenges such as supply chain uncertainty. Then you have the costs and overheads, and maintaining staff in a very difficult environment. It’s important to keep the expertise and skills in the region to retain intellect and knowledge in sectors.”
According to Richard the markets have priced in the uncertainty and does not want to become political but suggests the biggest risk hinges on a no deal scenario, which would have a big impact on supply chains. If you are looking at the runes from a market perspective a structured exit, one that will be costed, is the most favourable and looks most likely at the moment. But yet again who knows how that might develop in the months ahead.”
“It adds to that uncertainty when firms don’t know what the end of the year will look like they will not invest so you have seen for the last few years firms holding off investment in terms of construction, in terms of fitting out their HQs or expanding. All of it put on hold for the past few years.”
It is certainly thought-provoking and the whole Covid-19 pandemic has made people question their mortality.
As we contemplate that statement Richard points out that where once we would probably put things off, the current situation has made people focus on the here and now.
And that’s why Kleinwort Hambros is constantly adapting and taking the best of its heritage to make it relevant to today’s modern investor.