Barclays is well-known the world over, of course. But here in the U.S., the giant London-based firm is not celebrated for its retail wealth management unit. That may change.
The New York-based arm of the storied global financial powerhouse is intent on making some noise on these shores, and is investing heavily in infrastructure, technology and talent to capture a larger share of the U.S. wealth management market. Just two years ago, Barclays was not even a player in the American wealth management business. That is, until Sept. 15, 2008, the fateful moment in the global credit crisis when Lehman Brothers toppled and Barclays swooped in to acquire it. At the time, Barclays already had plans to make inroads here, but its purchase of Lehman accelerated the effort, according to several people who have followed Barclays.
The firm would not disclose how much it is spending in the U.S., but the push is part of a larger five-year plan to expand its wealth management business globally; it's putting $1 billion in investment behind that effort. Like many other big financial services firms, Barclays wants to increase the share of revenues it derives from wealth management to balance out its more volatile capital markets and trading businesses, says Alois Pirker, an analyst at Aite Group.
Now is the perfect time to make a big entrance in the U.S., due to shifts in the market environment and industry landscape over the past two years, says Steve Alper, Barclays' head of market development, and the executive responsible for recruiting. Translation: The market turmoil, financial missteps of Wall Street's financial powerhouses, and resulting mega-mergers have left some of the wealth management industry's most powerful companies vulnerable to inroads by new rivals. The super-rich are watching their assets, demanding more detailed information and attention from their wealth managers. And Barclays thinks it can give them what they want.
Today, Barclays' Americas region includes 250 investment representatives and 13 offices in the U.S., including a trust company that was launched in November, plus an office in Argentina. Globally, Barclays Wealth has about $251 billion in client assets and is the largest wealth manager in the U.K. (It does not break out asset or investment figures for the Americas.) The firm caters to the ultra-rich, those with $10 million or more in investable assets. Says Alper: “Investors with $25 million to $100 million are our core focus.”
Could another acquisition be in the cards? Pirker says he wouldn't be surprised, citing UBS Wealth Management Americas as a potential target. Of course, this would require Barclays to rethink its present strategy, he noted, which is geared for a much smaller network of advisors than the nearly 6,800 at UBS. Bob McCann, CEO of the brokerage he was hired to turn around, has consistently denied it is for sale. (Financial advisors at UBS and many industry observers, however, still think the brokerage could eventually be sold.)
“Barclays is getting much more aggressive in the U.S., so clearly it is trying to scale [up] the wealth management business further,” Pirker says. “The chance is always there that UBS goes on the market.” Barclays declined to discuss any acquisition opportunities in the U.S.
A New Paradigm
Barclays is shaking up the old Lehman wealth management model. Whereas Lehman focused on non-discretionary advice and capital markets-based offerings through the investment bank, Barclays is making a shift towards portfolio construction and asset management, discretionary advice, and banking and credit, says Alper. “Over the course of the next three to five years, we expect to tilt the balance of business in favor of those things.”
It's a model that better fits the times, as many ultra-high-net-worth clients want comprehensive planning advice today, while fee-based revenues are more stable than commissions, say analysts. But it also addresses one major criticism of Barclays' U.S. wealth management division: that it does not measure up in terms of its U.S. product offering. “Earlier in the year that would have been a valid criticism because we were lacking an integrated separate account platform,” says Alper. “We did not have robust discretionary and nondiscretionary advisory programs.” Today, the offering is equal to or better than that of competitors, Alper says.
Not everyone agrees. One UBS producer, who turned down an offer recently to join Barclays, says it did not have access to the kind of annuity products his clients needed. Others complain that Barclays' sale of asset manager Neuberger Berman as well as its successful iShares ETF business to U.S. investment manager BlackRock hurt its ability to provide a comprehensive suite of products and services. On the other hand, the firm has the talent to fill in any blanks, says Bing Waldert, an analyst at Cerulli Associates. Barclays' senior team includes plenty of ex-Merrill pros, such as Mitch Cox, who have a history on the product side. “If there's a yawning gap in their services, these guys know about it and are likely addressing it,” Waldert says.
Barclays has been recruiting aggressively in the U.S. from rivals such as Credit Suisse, Morgan Stanley and UBS. Last year the firm hired 50 investment representatives across the country. Alper says the tally of recruits this year will be somewhere between 50 and 100. Under a three- to five-year business plan, Barclays aims for headcount to reach between 400 and 600 advisors, he says. He declined to specify a growth target for assets, but the firm's target advisor has at least $2 million in production, says a Barclays Wealth spokesperson.
Alper says Barclays' advisor population today is roughly equivalent to Lehman's in 2008. At the high point, Lehman had some 370. But after Lehman folded, its advisor population fell below 200. Since then Barclays has been rebuilding and re-engineering the platform. “Our aspirational goal is to eclipse that by a significant margin,” he says. “But our other goal is to take this business to a new and different level in terms of the relationships we have in the Americas with high-net-worth investors.”
In one hiring spree in late September, Barclays Wealth recruited five investment advisors in New York, two in Philadelphia and seven in the Southeast, including a former technology entrepreneur, ex-Marine and lecturer at Columbia University, Matthew Burton, of Palm Beach, Fla.
“We have been very successful in recruiting new investment representatives this year, as the significant global investment the firm is making to the platform and business continue to attract top performing advisors,” said Cox in a press release. (Cox previously ran Merrill's global investment solutions group.)
The firm has also filled a number of significant management positions of late, with former Merrill executives like Cox making a big splash. Other Merrill heavyweights include Steve Houston, Barclays' head of Wealth Management, Americas; Paul Morton, head of operating platforms, capital markets and business development; Tom Lee, head of global investment products; General Counsel Donald Gershuny; and Paul Mottola, head of investment products, Americas. Meanwhile, David Lewis was named in a newly-created post as head of banking, cash management, credit and debit cards, transactional banking and savings. He previously held a similar spot at UBS.
The past two months also saw a wave of regional managers hired in Washington, D.C., Los Angeles, Texas, Chicago and Atlanta. In addition, the firm hired a chief risk officer and head of global research and investment marketing as well as a head of custom credit.
While Barclays is recruiting from firms like Merrill Lynch and UBS, what the firm offers financial advisors is something different. For one thing, while it does extend some transition assistance to recruits with growth incentives built in on the back-end, it is not paying the kinds of recruiting bonuses that its wirehouse rivals do. “Everyone is competing for the same high-quality, experienced talent. The high-end financial advisor at any of the top firms is very attractive to us,” says Alper. But when asked about the 300 percent plus deals that many wirehouses offer, Alper says: “We are not striving to compete on price.” Adds a person familiar with the firm's deals: “It's not even in that ballpark.”
Barclays' payout used to lag, as well, but it seems to be improving. “They'd take a look at an advisor's book and discount it down, but not anymore,” says one person familiar with its current plans. Today, Alper says payouts at Barclays “are very competitive with the Street, with our major competitors.” One person familiar with the firm's new compensation plan, which will be phased in gradually, says that advisors doing over $3 million in production will receive a payout in excess of 50 percent by 2013. That's compared to a maximum of around 45 percent at the big wirehouses. “People I know who have worked [at Barclays] as advisors haven't complained about compensation,” says Anthony Riotto, president of Riotto-Jones & Company, an executive search firm in wealth management. “It's gotten better lately, for sure.”
With payouts increasing, so too, are the fringe benefits, says one financial advisor at UBS who is familiar with Barclays. Consider another advisor, Orin Winick in Los Angeles, who joined from Merrill Lynch, and is well known from his years as a sports broadcaster. One person who knows Winick told Registered Rep., “They gave him a black American Express card and he can do whatever he wants [with it]; he has a lot of leverage.” (Of course, big names and star performers are often spoiled rotten at many wirehouses.) Winick, reached by telephone, declined to comment, citing company policy. A Barclays spokesperson says it's simply not true. “As a firm, we have strict travel and entertainment policies to which our Investment Representatives are required to adhere. Also, the firm doesn't use American Express.” Fringe benefits “are competitive,” says another spokersperson, who declined to elaborate.
Of course, Barclays' chief rivals aren't Merrill and Morgan Stanley, but rather Goldman Sachs and Credit Suisse, say Alper and analysts. Like these giants, Barclays has the resources of a global financial institution — and one that navigated the crisis without losing its shirt — combined with a small force of wealth managers in the hundreds and a more customized, boutique offering. There are actually benefits to staying small, says a Barclays Wealth spokesperson. It means each investment advisor has a greater shot at getting a piece of, say, that exclusive master limited partnership for their client, getting the ear of the analyst who covers a particular stock or getting introductions to client prospects from senior management.
The firm says there are also fewer clients per advisor. “Our ratio of clients to financial professionals is among the lowest in the industry,” says Alper, declining to provide specifics. This competitive ratio gives clients more direct access to Barclays' array of global and institutional resources and execution services, he adds. “We do not disclose the numbers of clients per IR,” explains a Barclays Wealth spokesperson, “but with only 250 IRs across 13 offices, you can imagine that the clients will be getting a more personalized service compared to other U.S. wealth managers.” Waldert says the Barclays ratio is probably not all that extraordinary. “You can only go so low before you tip over the profitability,” he says.
Barclays is also known to have a rigorous due diligence process, with a series of quantitative and qualitative screens for third-party advisors and constant review of both, as well as a proprietary behavioral finance tool, developed over a period of four years, that assesses client risk tolerance with greater granularity than most. In fact, Barclays has a cluster of five staff PhDs in behavioral finance guiding clients. The team is overseen by Greg Davies, an honorary research fellow at the University College, London. Clients are asked to answer 36 questions, which then results in a 22-page report. Alper says Barclays' intensive and academic approach distinguishes it from the competition.
Pirker agrees that Barclays' emphasis on behavioral finance is notable. “Its capabilities here could give Barclays a certain edge,” he says. “Barclays sounds more committed to behavioral finance than other firms where outside consultants in the field are sometimes employed.”
The old Lehman core is still there, but it is a new beast. “We have inherited a lot of good things from Lehman's legacy platform,” says Alper. “That said, there is a lot that Barclays has added to the intellectual capacity, including our investment and service capabilities. It has made us much more relevant.”