Firms target the new breed of private clients
31 May 1999
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Who wants the landed gentry bringing their green wellies and probate problems to sully the pristine carpet and image of one's prestigious City practice?
More than five years ago, many leading firms such as Freshfields and Slaughter and May decided that they did not and dispensed with their private client departments in order to concentrate on their "core business".
It seemed a logical move, especially given that private client work has traditionally been seen as down-market and more the domain of the high street solicitor, and not a valid source of income for a "magic circle" firm.
"It's not my definition of sexy work," says Ian Terry, managing partner of Freshfields.
And also, of course, it was not good for either party's business.
Private clients, he says, were finding it difficult to pay the firm's rates for work that could just as easily be serviced from outside London at a fraction of the cost.
The private client department struggled to keep pace with the rest of the firm. It did not fit it with the synergies of the rest of the business and could in itself give rise to potential conflicts of interest when acting for a major shareholder of an existing corporate client.
Terry is confident his firm made the right move, and neither Freshfields nor Slaughters have any intention of re-establishing the departments.
However, the world of private client work has changed dramatically in recent years. There are new names on the UK's "rich list", from lottery winners to IT millionaires, entertainers, and sportsmen and women.
As well as the work being more varied and more available, the service that a competent private client department can offer provides both a useful sweetener for the major shareholders of existing corporate clients and a lead in to new business.
Paisner & Co's senior partner Harold Paisner says the term "private client" is itself a misnomer as the work is increasingly focused on tax, estate and trust planning, and also includes the growing sphere of charities' work.
As a niche practice area, says Paisner, private client work feeds the corporate and commercial departments, both by advising on the trusts elements to a transaction and by bringing in new corporate business from individual clients.
Caroline Hedges, a partner in the tax and pensions department of Pinsent Curtis, agrees: "When the shake out happened, our view was that it was a mistake. You have a continuing relationship with them [provate clients], which produces a lot of interesting spin-offs."
It has predominantly been the second-tier London practices which have profited. For example Macfarlanes boasts such high-profile clients as John Paul Getty and Richard Branson, and Withers claims to have at least 10 per cent of The Sunday Times' "Rich List" on its books.
Charles Russell is another prime example. Two years ago the firm took on a 16-strong team direct from Norton Rose when it cut out private client work, and the expanded department now contributes nearly 30 per cent of the firm's annual turnover, or just over u7m.
Partner Catriona Syed was among those to join from Norton Rose, and says: "City firms do lose out when they don't have any trusts expertise."
She has found that when acting on corporate deals where the other side has no trusts lawyer, there have been ample opportunities for her "to pull the wool over their eyes" and steal an edge.
Quentin Poole, managing partner at Wragge & Co, says his firm has been able to attract lots of new corporate work on the back of picking up the clients from City firms that have dumped their private client departments.
At Withers the private client department contributes almost 50 per cent of the annual turnover. It is split into three teams: commercial, international and trusts.
John Riches, head of the department's commercial team, says that the work is increasingly international in both its client base and its scope.
A successful department can bring in extra European corporate work, not just because it can develop strong relationships with the individuals running the company, but because of the difference in corporate culture in countries like Germany and Italy. BMW, for example, is still in privately-held hands.
"The corporate culture there [Germany] is very different, because it is not so much focused on being quoted, it is more concerned with the retention of value and the creation of dynasties," says Riches.
With instructions coming from an increasingly varied number of sources and locations - from Swiss private banks to wealthy Middle Eastern businessmen - Withers has created a network of European and US firms to deal with the complex web of tax and trust issues that are created.
However, Riches says that because the firm's clients are so numerous and diverse, this network is unlikely to merge or become an alliance in the same vein as Linklaters & Alliance.
Despite the apparent boom in private client work and its new fashionable image, those firms who pulled out maintain that they made the right move.
Nick Brown, chairman of the executive committee of Bircham & Co, agrees. His firm recently expanded its private client department by poaching two partners from Rowe & Maw.
"The Rowe & Maw experience is that they cannot give clients what they want at the right price. And from a strategic point of view, you can't be a jack of all trades," he says.
Middle-weight firms are best placed to give focused service at a price the individual can afford, he says.
However, one magic circle firm stands out. Allen & Overy has always maintained a highly-respected private client department, and charges the same rates as its corporate department.
Clifford Chance is also now promoting the existence of a successful "cross-border" practice. A spokesman was keen to dispel the popular misconception that it was among the firms which ditched private client work.
Private client departments, particularly in London, are also proving a useful foil to the major accountancy firms which are struggling to service their private clients at an economic rate.
Bircham & Co and Lawrence Graham are members of the recently established Association of Investment Managers (ASIM) and are now acting as the stockbrokers for their clients.
Although this is not as profitable as big ticket corporate work, it provides a substantial part of the income of many second-tier London firms. It is also a useful addition to big City firms like Allen & Overy, which are looking to provide a complete service to their clients.
Norton Rose's Syed sees the number of players in private client work shrinking over the next five years. There will be more shedding from the commercial firms, she says, as they increase their emphasis on international work.
"Traditional firms like Farrer & Co will suffer because so much of their work is concentrated on old money," she says.
"They are already slipping down, and it is difficult now for them to change," she adds.
Macfarlanes, Charles Russell, Lawrence Graham and Withers are already poised
It may not give them a place in the top 10 but it is a multi-million pound business that is not to be sniffed at.