A ray of sunshine

David Coombs gets his grump on about the state of global politics. But our head of multi-asset investments is refreshed by the approach of a pragmatic and thoughtful businessman.

A hand holding a jigsaw piece in the sunlight

By David Coombs

I am angry – bloody angry. The world’s leaders are behaving like they are at a toddler’s birthday, while the rest of us are trying to plan our lives and investments with almost no certainty.

We have to allow for the irrational behaviour of those leaders – and let’s face it, they are mostly men – who appear driven by personal philosophy rather than the good of people around the world.

Meanwhile, German bonds yield -0.2%, UK gilts have fallen below 1% to 0.9% and Japan drifts back towards the gloom of deflation and recession. If the current behaviour continues the world is heading for recession and quickly. I feel like I am witnessing a slow car crash (and I should know!).

In the UK, both sides (extreme Remainers and Brexiteers) seem willing to destroy livelihoods to achieve the pure result they crave. In the US, Donald Trump is taking a sledgehammer to every debate. He hasn’t yet realised (or perhaps doesn’t care) that by doing so he loses even if he is right in principle. In Europe, the elite remain in denial about the effects of globalisation on their populations. More of the same is the mantra, but we’re not sure that’s tenable.

So it was a joy to meet with the chief executive of First Republic Bank, of San Francisco, last week in our offices. We’ve owned First Republic in the multi-asset portfolio funds for two years. First Republic’s boss and founder, James Herbert, is 75 and still obviously in love with the private bank he built over 30 years. And, more importantly, he seems to care just as deeply about his customers and staff. His approach is at once refreshing and as old as time: think things through, give people the right support and incentives, and let them crack on.

This is a bank that wins business primarily from referrals and hardly ever advertises. On average, its customers purchase nine products from the bank (chequing accounts, investment products, mortgages, etc.). First Republic’s customer approval scores are through the roof. How? No automated telephone operators, no whizzbang tech, no chat bots, no staff turnover (actually 1.5% in front office, including retirements) and no gimmicks.

Its managers take the long-term view regarding their employees and customers. They talk about households rather than clients and hope to have a relationship with everyone under the roof, not just the breadwinner.

Like many private banks in the UK, First Republic’s client base is ageing. It needed to attract Millennials, that elusive catch-all we talk about so often around here . First Republic’s approach to this was very impressive and sadly unique. They thought about what their customers might need.

First Republic went into the student loan refinancing business for the young C-suite executives of tomorrow. They targeted those people with the very best credit ratings, offering them a decent discount to the interest rates charged by the government. Once they were in the door, they could offer them other products and services too. First Republic saved its customers tens of millions of dollars in loan interest as a result and attracted a whole new generation of customers.

When the demand for this exceeded their expectations and existing bankers, they offered the role of private banker to millennials working in back-office who had the culture of the bank ingrained in them, but a personal understanding of what their generation would want. First Republic promised them a “no harm, no foul” agreement: they could try the new job and if it didn’t work out their old job and salary was waiting for them, guaranteed. The vast majority succeeded. The programme has been repeated for the last two years. About 60 Millennial private bankers were given a separate office and empowered to drive their part of the business as best they thought.

The answer wasn’t just, “Let’s throw gazillions of dollars at digital to get Millennials.” It was more nuanced and just replicated the personal approach appreciated so much by their older clients. What is it that these people need? Ask them, and deliver it.

That’s a lesson the world’s politicians would do well to heed!