Wealthy Investors Shift Funds from Global Banks to Reduce Risks

June 19th, 2008

Via: Bloomberg:

High-net worth individuals, those coveted financial-services customers with at least $2 million to invest, are shifting assets from brokerages and large global banks to smaller, more conservative alternatives.

“For the first time in my career, I saw concern about the location of one’s assets,” said Robert Balentine, the head of Wilmington Trust Corp.’s investment management group. “We’ve seen tangible evidence of very wealthy clients shifting assets out of brokerage firms in great numbers.”

Trust companies like Wilmington are benefiting from record subprime-infected losses at companies led by Zurich-based UBS AG, the world’s biggest money manager for the rich. UBS clients probably withdrew a net $39 billion during the past three months after the company reported more than $38 billion of writedowns and credit-market losses in the past year, London-based analysts at JPMorgan Chase & Co. estimate.

Clients may say “if UBS can’t manage its own capital, then what the hell are they going to do with mine?” said David Maude, a financial services consultant in Verona, Italy, who calls UBS the “Rolls Royce” of the industry. “It does tarnish their reputation, certainly.”

UBS contacted 2.5 million Swiss consumer and wealth- management customers last month after losing 11.5 billion francs ($10.9 billion) in the first quarter and seeing a net withdrawal of 12.8 billion francs in its asset and wealth-management units.

The company has responded with “proactive, ongoing communication” with clients, said Jim Pierce, co-head of UBS’s U.S. Wealth Management Advisory Group, in an e-mailed response to questions. UBS is “willing to have the difficult conversations,” Pierce said.

U.S. Market

“UBS is fully committed to the U.S. market,” Pierce said. “Approximately 30 percent of the world’s wealth is located in the U.S., therefore as a global wealth manager, the U.S. is of great importance to UBS.”

Wilmington Trust was founded in 1903 to oversee the fortune of the DuPont family. Trusts, unlike brokerages, have fiduciary obligations to their clients.

The Wilmington, Delaware-based firm had about 80 advisers in its family office practice at the end of last year, up from 45 in 2006, who concentrate on clients with at least $10 million of assets. The company’s wealth advisory and planning services unit reported a 14 percent increase in revenue in 2007.

Even before the Bear Stearns collapse in March, some clients were questioning the wisdom of Wall Street firms losing billions of dollars on subprime mortgages, then seeking cash infusions from overseas sovereign wealth funds, said Balentine, Wilmington’s investment executive.

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