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Thursday, May 24, 2018

What makes someone “Private Bank” Rich has changed dramatically in past two decades.

How Much Money Do You Need To Be Rich According to Bankers? - Bloomberg
In 1994, "$3MM was largely considered ultra-high net worth across the industry. Fast-forward almost 25 years, and $25MM is how we define ultra-high net worth."

Here's How Much Money You Need for Bankers to Think You're Rich

In an era of hyper-wealth, economy-class rich starts at $25 million.

Illustration: Joel Plosz

Just how rich is "rich?"

The answer, of course, depends on who's asking—and these days, many are.

In rich-tropolises such as New York and London, 1 percenters moan that living on $500,000 a year feels Dickensian. With a pot of $40 million—and private schools, a Hamptons retreat, a horse and a charity to feed—a hedge funder on the Showtime drama "Billions" exclaims: "F---! I'm broke!"

Here, then, is a real answer, courtesy of the hush-hush world of private banking: $25 million.

Twenty-five million dollars in investable wealth. The kind of money you could afford to see dip into the red for a quarter or three, maybe even a year or two, without breaking a sweat. With $25 million, maybe, just maybe, you're starting to be rich.

Because in this era of hyper-wealth and hyper-inequality, that is simply where rich begins—a ticket, in truth, to the first, lowly rung of rich. For most of the planet, $25 million represents unfathomable wealth. For elite private bankers, it buys their basic service.

Call it economy-class rich. Business class? That's $100 million. First class? $200 million. Private-jet rich? Try $1 billion.

We all know the wealth gap between the rich and poor, and the rich and the really rich, is only getting wider, due in large part to the bull market in stocks and wealth generated in private businesses around the world. 

What may be less apparent, at least outside financial circles, is what all that money is worth to the bankers who discreetly tend those fortunes.

No private bankers worth their wingtips will say they don't care about clients with "only" a few million. Northern Trust Corp., which works with many of the world's richest families, stresses that in recent quarters more than 50 percent of new clients have had investable assets in excess of $10 million. But "to get the highest level, companies have raised the bar," said Brent Beardsley, who leads Boston Consulting Group's work in asset and wealth management globally.

The measure of what makes someone rich has changed dramatically in the past two decades. In 1994, when Peter Charrington, global head of Citi Private Bank, first joined the firm, "Three million was largely considered ultra-high net worth across the industry," he recalled. "Fast-forward almost 25 years, and $25 million is how we define ultra-high net worth."

Wealth managers like to frame the type of client they target in terms of the services needed. For example, a married couple with an estate valued well below $22 million, held largely in a diversified portfolio of publicly traded stocks, may not need a lot of fancy trusts-and-estates work, since about $22 million can go to heirs without worrying about estate and gift taxes. (That $11.18 million per person is up from $5.49 million in 2017, and sunsets in 2025.) 

A much wealthier family with homes and assets in multiple countries and currencies might require more cash flow management, customized financing for mortgages, yachts or planes, and the ability to borrow against art or investment portfolios. It may make sense for a client to house business interests in a trust, with the adviser as trustee. 

At a private bank with an investment banking arm, "sometimes the investment bank collaborates with the private bank client in doing a recapitalization of the company, or maybe sells a non-core division to create liquidity so a family member can exit the business," said John Duffy, global head of Institutional Wealth Management for J.P. Morgan Private Bank

"Getting rich is complicated," said Steven Fradkin, president of wealth management at Northern Trust. "It's just a good complication to have."

Placing investable assets of at least $25 million with a wealth manager—and clients with that amount or more tend to work with a few firms—can bring access to initial public offerings, and having at least $5 million in investments moves a client past one regulatory hurdle to taking part in private offerings.

Elite wealth managers invite clients to networking events where they can mingle with like-monied clients. 

Not long ago, the actress Lucy Liu, of "Elementary" fame, spoke at an intimate dinner held for wealth advisers and clients of UBS Wealth Management USA. At UBS's annual Philanthropy Forum for clients, held in 2017 at the Fairmont San Francisco hotel, Andre Agassi spoke about his impact investing, as did UBS client and former Goldman Sachs Group Inc. partner Mike Novogratz and his wife Sukey. In 2016, Hilary Swank, Adrian Grenier and Kimbal Musk (Elon's brother) were brought in to speak at restaurant Blue Hill at Stone Barns; the non-profit Stone Barns Center was founded by late philanthropic giant David Rockefeller and his daughter Peggy Dulaney.

That's not to say $25 million opens all doors. Abbot Downing, Wells Fargo's operation for ultra-high-net-worth families, works with clients who have at least $50 million in investable assets or $100 million in net worth. Ascent Private Capital Management of U.S. Bank sets what Martim de Arantes Oliveira, regional managing director for its San Francisco office, calls a "stake in the sand" at $75 million in net worth for multigenerational wealth. There will always be exceptions—for the family friend or a promising entrepreneur.

Competition for those fortunes is fiercer than ever. Much of investing has been commoditized, assets have poured into low-cost passive investment products and clients burned in the 2007-2008 crash are focused on preserving wealth, rather than taking investment risk. Costs of regulation, technology and talent have risen, even while fees are under pressure. Top relationship managers have been leaving companies to set up their own shops, and clients tend to be loyal to people over companies. 

All the while, with matriarchs and patriarchs aging, wealth managers are working to sell them on "softer services" such as family governance and strategies for philanthropy, said Donnie Ethier, director of wealth management at Cerulli Associates. "Two-thirds of high-net-worth investors and up [in wealth] are now over age 60, and in many cases the real concentration of wealth is with people above 70," he said. Of the 50 richest people on the Bloomberg Billionaires Index, about three-quarters are over age 60, and 34 percent of those are over 80. The 30-somethings in the top 50: Mark Zuckerberg, 34, and China's Yang Huiyan, 37.

Wealth managers are working hard to connect with what one called "G2s, G3s, G4s"—younger generations of existing clients—and to pull in new entrepreneurial wealth. So it makes sense that, when you step onto the 21st floor at Ascent's San Francisco office, you aren't greeted by banks of mahogany-paneled walls and oriental carpets. The light-filled space features primarily glass walls, sleek white furniture, art from local galleries, and a view overlooking the water of the East Bay, with Treasure Island in sight. If Apple Inc. made furniture, it would feel at home there.

In a sign of the times, Ascent's offices include a family room where client babysitters sometimes entertain kids while older family members meet in the learning lab. ("Board room" sounds so boring.) Ascent's historian might present a snippet of family history using old photos and, to make it fun for kids, stage an Easter egg hunt whose eggs hold a small amount of money, along with a bit of family lore in a picture of, say, their grandparents with their first car. (High-end wealth managers employ lots of historians; Abbot Downing hired the senior historian for the American Girl doll franchise last year.)

How much might all of that cost a client? Fees can vary widely within and across firms. Wealthy people with less than $100 million might pay from 50 to 100 basis points, said Peter Rup, chief executive officer of New York-based Artemis Wealth Advisors, an independent registered investment adviser. With an account above $100 million, a client could pay roughly 40 basis points, and over $200 million, around 25 to 30 basis points for investment advice, he said. 

At several hundred million dollars, opening a single-family office can start making more sense. Northern Trust's Fradkin said that as some fortunes reach $500 million to $1 billion or more, some clients set up their own offices—but, he added, they still turn to the bank a lot. 

More families are opting to join multifamily offices. Pooled resources bring more access to deals, economies of scale and fewer conflicts of interest from advisers eager to cross-sell products. Multifamily offices may charge a minimum annual fee. At Boston-based TwinFocus Capital, which advises on about $4.5 billion in assets, the minimum fee is $250,000, said Paul Karger, who co-founded the firm with twin brother Wesley in 2006. The stated minimum is $50 million in balance sheet assets, but Karger really wants more than $100 million. It makes more sense, given the costs—the largest of which is labor, he said, since to recruit and retain top talent compensation must cost well above industry averages.

It's direct investment in companies and buildings where the line between the rich and seriously wealthy is most pronounced. "This is a threshold differentiator among the world's wealthiest, compared to the merely very wealthy, let alone the 401(k) investor," said J.P. Morgan Private Bank's Duffy. "These very large families are investing in private companies, owning a percent of the company versus a share of a public entity." 

To meet that need, private banks and multifamily offices may offer clients access to direct investments in private companies. Some private bank clients have invested directly in luxury spin franchise Peloton Interactive Inc., said Duffy, through a partnership between the investment banking arm and the private bank. Clients also invested alongside big institutional investors in the Topgolf franchise.

In the end, the most elite wealth managers are able to provide a level of analysis and services so that very complicated financial lives become manageable. A trusted adviser should lead to that most priceless of outcomes, which can justify about any fee: peace of mind. 

— With assistance by Simone Foxman


Wednesday, May 16, 2018

Collapsing #Venezuela #oil exports, #Iran sanctions:“perfect cocktail” for oil @ $100 #OOTT

https://www.ft.com/content/fd86ae66-5504-11e8-b24e-cad6aa67e23e
ft.com

Collapsing Venezuela oil exports seen to be pushing prices higher

@FT reporters

With Venezuela's exports of crude on the brink of collapsing below 1m barrels a day to historic lows, the bull case for energy has additional support as creditors of the cash-strapped national oil company PDVSA threaten to seize overseas assets.

...

A drop in both Venezuelan and Iranian supply could provide the "perfect cocktail" for oil at $100 a barrel next year or sooner, said analysts at London-based broker PVM.

troubles mount for PDVSA,Russ Dallen of investment bank Caracas Capital saying that the company faces "an avalanche" of lawsuits over unpaid bonds.

The enforcement of a $2bn arbitration award, related to the nationalisation of Conoco projects in Venezuela in 2007, prompted PDVSA to suspend oil storage and shipping from Caribbean facilities and order the return of tankers to national waters to avoid seizure.

"This shows how devastating not paying arbitrations or debts that are owed by PDVSA . . . could be for the Venezuelan oil exports," said Francisco Monaldi, at Rice University's Baker Institute for Public Policy. "This will worsen the already catastrophic situation".

...fresh round of claims by PDVSA's contractors could further stymie exports.

...

SNC-Lavalin, a Canadian engineering and construction group, filed a legal suit in New York last week for default on a promissory note that would allow it to seize assets worth $25m. SNC's claim is small, but others could follow from those holding identical financial instruments worth more than $2bn.

Mr Dallen of Caracas Capital said that SNC and the other noteholders could even get ahead of ConocoPhillips in the queue to seize PDVSA assets. "SNC doesn't have to register its claim in court, it can just go ahead and enforce," he said.

Such claims could multiply quickly if SNC's lead is followed by holders of about $23bn worth of PDVSA's eurobonds,...wave of legal actions and asset seizures could go against creditors' interests. "PDVSA doesn't have any money," "Creditors need to co-operate."


Reporting by Anjli Raval, Jonathan Wheatley and David Sheppard in London, and John-Paul Rathbone and Gideon Long in Bogotá
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Tuesday, May 15, 2018

#Cobalt: Buy the dip, says Citibank. Tight market to continue as demand surges (#Batteries, #EV’s) and supply fears (#DRC) persist. Substitution at least 2 years away

Good short note from Citi on Cobalt. 

Bottom line, current retracement is a buying opportunity. Tight market to continue as demand surges (Batteries, EV's) and supply fears (DRC) persist. Substitution is still at least two years away. 

Cobalt prices are set to rise by a further 20% over the next 2 years on the back of a sustained deficit market and anticipated stock building on the back of high levels of supply risk. 

- The recent retracement in cobalt prices from 95,000/t to $89,000/t is a buying opportunity in our view. We see prices rising to average $100,000/t by 4Q18, and increasing further over time, to average $110,000/t by 2020. We could see prices reach these levels earlier than expected should downside supply risks at Katanga and Mutanda, which together are expected to produce 35,500t (59,300/t) or 27% (39%) of global supply during 2018 (2019) materialise.

Even without DRC supply risks materialising we believe that cobalt is likely to remain scarce, with stockpiling set to continue, tightening the market more than would otherwise be the case. 

Substitution away from cobalt is an issue but is unlikely to be a game changer until 2020 


Thursday, May 10, 2018

How Artificial Intelligence #AI is reshaping jobs in #Banking

How artificial intelligence is reshaping jobs in banking | American Banker

"Autonomous Research also issued a report last week that estimated that in the U.S. alone, 2.5 million financial services employees will be "exposed" to AI technologies in the front, middle and back office — 1.2 million working in banking and lending, 460,000 in investment management, and 865,000 in insurance.

"These functions will see 20-40% productivity gains, or unemployment, depending on your vantage point," the report stated. About $1 trillion in costs will be exposed to AI transformation in financial services sectors by 2030, according to the report; $450 million of this would in banking.

From American Banker

https://www.americanbanker.com/news/how-artificial-intelligence-is-reshaping-jobs-in-banking


How artificial intelligence is reshaping jobs in banking

The idea of artificial tends to strike fear in the hearts of workers who suspect they'll be replaced by robots.

The reality is more nuanced. There is no question some jobs will be lost. But others will be created, and still others will morph into something different — bot designer, bot supervisor, soother of the most irate customers. In some cases, AI will just take on extra work nobody wants to do.

In one example of the latter, First National Bank of Wynne in Arkansas has been using robotic process automation, the lowest-IQ form of AI, to help with acquisitions.

"When you acquire a bank, one of the biggest cost expenses is the core conversion piece," explained Bart Green, senior vice president.

All customer and account information, including for cards, internet banking and cash management, has to be migrated to the acquiring bank's core system. It is time-consuming.

A consultant told them about RPA software from EnableSoft called Foxtrot. Other providers of RPA software include Blue Prism, UiPath and WorkFusion.

RPA software can be set up to perform tasks the way a human would — it can log into software by entering a username and password, it can click on a client record, then log into another piece of software, locate a data field and copy and paste that data into the first page. It can be set up so you can watch it on a desktop, and it looks as if a ghost were operating the computer.

"You could teach it, just like you would teach an employee, how to input information into systems, and it can do it efficiently and quickly," Green said. It's better at reporting errors and validating data.

Using the software has saved the bank 70% in conversion costs, he said.

Now the bank is beginning to find other uses for the software.

"It's a matter of thinking of what kinds of manual, time-consuming processes do we have today and how can we automate them?" Green said.

For instance, the bank recently had to mass reissue debit cards due to a breach. That could be done by bots.

The RPA software has not affected jobs so far at the bank because it is being used for one-off, time-consuming projects like mergers, Green said.

"I've yet to put it in place to replace a daily duty," he said. "I can see that occurring. I'm just beginning to start peeling away the layers of that possibility."

He could also see hiring someone in IT who has experience with RPA software to help figure out new uses for it.

"It may end up canceling out jobs — you're creating a job that does this task to remove the task required by another employee," Green noted.

What jobs will be lost, gained?

Some bankers and observers have suggested that only the boring parts of jobs, drudgery like data entry and filling out forms, will disappear so the humans will be able to focus on more interesting tasks, and that no actual jobs will be lost.

Bank employees themselves seem to think this. In an Accenture survey released last week of 1,300 nonexecutive bank employees, 67% said they believe AI will improve their work-life balance, and 57% expect it will expand their career prospects.

estimate of job losses to AI, by bank job category

But Autonomous Research also issued a report last week that estimated that in the U.S. alone, 2.5 million financial services employees will be "exposed" to AI technologies in the front, middle and back office — 1.2 million working in banking and lending, 460,000 in investment management, and 865,000 in insurance.

"These functions will see 20-40% productivity gains, or unemployment, depending on your vantage point," the report stated. About $1 trillion in costs will be exposed to AI transformation in financial services sectors by 2030, according to the report; $450 million of this would in banking.

In banking, 70% of front-office jobs will be dislocated by AI, the researchers say: 485,000 tellers, 219,000 customer service representatives, and 174,000 loan interviewers and clerks. They will be replaced by chatbots, voice assistants and automated authentication and biometric technology.

And 96,000 financial managers and 13,000 compliance officers will be laid off as AI-based anti-money-laundering, anti-fraud, compliance and monitoring software fills in. Another 250,000 loan officers will lose their jobs to AI-based credit underwriting and smart contracts technology.

However, Accenture's study last week of AI's impact on jobs in financial services presented a rosier job picture. It concluded that there will be a net gain in jobs among companies that deploy AI wisely, of 14%; they will also increase revenues by 34% by 2022.

One source of new revenue will be automated advice that helps people do things like save more or invest more lucratively, the way Netflix and Amazon recommend movies and products. This could lead to wallet consolidation and cross-sales.

"There will be roles that AI will eliminate," said Alan McIntyre, a senior managing director at Accenture and head of the company's banking practice. "But we do think that deployed properly it will create opportunities as well."

For instance, banks that use AI software to generate suspicious activity reports will most likely create new jobs around explaining AI to regulators.

"The regulators are not going to be big advocates of black box decision-making that is not easily explained," McIntyre noted.

Where will entry-level jobs exist?

As teller, AML, and other jobs become automated by RPA and AI, where will people right out of school or people with disabilities find entry-level jobs?

"It's a difficult question," said Lex Sokolin, global director of fintech strategy at Autonomous. "This is a question that has to go to the heart of every CEO of a large financial firm that hires AI software to replace human jobs, and it goes on the shoulders of the founders and developers that are building the software. If you have created real structural unemployment by building out successful software, you have to think about your employees as stakeholders in the project."

McIntyre suggested the entry-level jobs will now be in technology.

"One can see the way digital-native companies are hiring people out of college with programming capability," he said. "I do think the idea of starting as a teller and working your way to CEO is troubled."

What about people who are not good at math, science and programming?

"There still will be roles where human empathy and the ability to connect are important," McIntyre said. If someone has $100,000 to invest, for instance, an app might be able to suggest an asset allocation. But if it is an inheritance from a parent who just died, the interaction will take some sympathy.

"Those types of conversations will require people to have a high [emotional quotient], to be able to read and react to people and guide the conversation," McIntyre said.

Which has a higher EQ — human or bot?

Not everyone believes that humans are better at emotional work, like dealing with a sad or irate customer.

Sokolin argued that AI systems are good at emotional labor. He pointed to the debt-collection fintech TrueAccord, whose AI engine handles collections work for banks and card issuers.

"All they do is emotional labor, and they're much better at it than people who call you during dinner," he said.

Ohad Samet, CEO of TrueAccord, said technology is good at avoiding tense situations in a way that humans are not.

"People in the collections industry like to say that people collect from people, but the reality is that collectors are human and subject to human biases: they get angry, they get tired," he said.

"If the person in debt is abusive on the phone, which is not uncommon, they have an emotional response. The software is not subject to that," Samet said. "It uses the best channel, the best content, the best offer at the right time, and it doesn't get offended or misbehave if somebody yells at it or writes something nasty back, which happens." And the software does have some empathy built in.

Though using AI requires fewer human collectors, Samet pointed out that such jobs are little fun and pay badly. And customers do not want to talk to human collections agents anyway.

"The world is changing," he said. "We're not the ones making that change. The preferences of consumers are changing the collections industry."

TrueAccord is an example of some of the new jobs being created by AI. It has a growing customer engagement team, who help people who call in or email. Some employees write the content the chatbots present. Others are data scientists who work to tune the experience to the needs of consumers.

Chatbot backlash

A few banks have introduced chatbots to do work that might otherwise be done by customer service people. Bank of America's erica is one example. USAA's Alexa skill is another.

There has also been some chatbot controversy and backlash. There was Microsoft's Tay, which spewed racist nonsense to customers. The fintech startup Digit, which offers automated saving and credit card debt paydown, no longer makes a chatbot the primary means of interacting with its app. For the simple tasks Digit customers do, it did not seem to be the right approach.

Sokolin noted that different tools make sense for different purposes. To obtain an account balance, a simple login and tap is logical. Opening Facebook Messenger and asking it is not.

Like many bankers, Green has hesitated to deploy a customer-facing chatbot, comparing this to replacing a front-desk receptionist with an electronic menu that has to be navigated.

"You may still get the results you need, but the question will be, how well will AI differentiate the party on the other line's emotional feelings on their problem?" he said. "If the customer is upset, happy, or excited, how will AI be able to accommodate that situation? It's impressive to see Amazon Echo understand different dialects, but will it be able to understand emotional aspects of that conversation?"

Green said there is also reputational risk.

"If a person makes a mistake, you can fire them," he said. "If the AI keeps making mistakes, you have a huge reputational risk that's hard to overcome. Are you going to fire your AI?"

Partly for these reasons, some banks are making chatbot technology available to their employees, to help them be more efficient. For instance, Morgan Stanley has equipped its financial advisers with AI software that sifts through client data and records to help suggest recommendations.

Retraining the workforce

Accenture's survey of bankers found that only 3% are investing in retraining their workers to prepare them for the AI-riddled workplace.

McIntyre said this is because the technology is still new and banks are just testing the use of AI in areas like trading, lending, and customer service; they are not yet looking at the bigger picture.

Banks need to help employees make the transition to AI, Sokolin said. They might implement software that enables blue-collar workers to be programmers with the use of visual tools, for instance.

Colleges may need to do more to prepare people for AI.

Royal Bank of Canada has called for a national review of college programs to ensure they place more of a focus on "human skills" like active listening, critical thinking and social perceptiveness.

The bank's research has found these skills will help position future workers to complement increasingly pervasive technologies like robots and machines, rather than compete with them.

Sokolin is less worried about the younger generation than the older generation that might have a harder time shifting to AI-assisted work and who have more at stake with high debt and low savings.

"It becomes a fairly anxious picture," he said. "That is the responsibility of the employer. People have to raise their hand and say we'll do something to fix or soften it."

Executives safe for now

Bank executives' jobs appear to be safe from AI for now. Vendors are not suggesting their software can do C-suite work.

And AI is bad at context switching, according to Sokolin.

"Today AI is very narrow," he said. "You pick a direction you want it to hammer. You teach it the outcome you want, and it can generally create that outcome."

An executive might use a spreadsheet for a little while, then manage a relationship, then run a business development meeting, then deal with an upset client whose LLC is going bankrupt.

"All these things require a lot of different skill sets," Sokolin said. "In today's institutions at the senior management levels, there's a lot of that type of context switching."

But as AI gets more broadly adopted, managing people will take different skill sets at the senior level.

And an interesting question may become: If you're managing fewer people and more bots, what does that do to your power base in an organization?

Editor at Large Penny Crosman welcomes feedback at penny.crosman@sourcemedia.com.