Editor's Letter: July 2015

Editor's Letter: July 2015

How Barclays Lost Wealth Management in the U.S.

When Stifel Financial Corp. agreed to buy U.K. bank Barclays’ wealth management unit in the U.S., it put a final cap on a long, strange story of how an international bank stumbled badly trying to find a footing in managing the assets of wealthy Americans, and provides a cautionary tale of how corporate culture, as vague and amorphous as it can be, is really the oxygen of any business. 

In the wake of the financial collapse, Barclays, the U.K.-based firm that started as a bank for goldsmiths over 300 years ago and more recently was making a global push into wealth management, swooped in and bought Lehman Brothers’ brokerage business out of bankruptcy.

Barclays hired Mitch Cox to lead the expansion in the U.S. A former Merrill Lynch manager who came up on the investment side and worked in hedge funds and derivatives at Bankers Trust’s private bank, Cox went on a recruiting spree. Over 2010 and 2011, he pulled in some 100 advisors to join the team and told Reuters his goal was to get to 600. “We are finding our name resonates well,” Cox told the wire service. “Barclays has been attractive to investment representatives from private banks, asset managers and from wirehouse competitors.”

But during that same time frame, according to the Securities and Exchange Commission, the firm was failing badly at keeping the back office functioning. Specifically, according to the commission, Barclays underreported its assets by $754 million on an ADV filed in March of that year, and clients suffered overcharges and losses of almost $500,000. The firm was fined $15 million.

Compared to Barclays’ larger issues over LIBOR rate rigging, this isn’t much more than a slap on the wrist. The bank paid the fine, made its customers whole and agreed to an “internal review.” Andrew Tinney, at the time chief operating officer of the bank’s wealth division, commissioned outside consultants to study the operation in the U.S. What they found was, according to published reports, damning. Some choice findings:

“The current leadership team have pursued a course of ‘revenue at all costs,’ taken a conscious decision to ignore support functions, reinforced a culture that is high risk and actively hostile to compliance, and ruled with an iron fist to remove any intervention from those who speak up in opposition.”

“A conscious choice was made to ignore compliance until an issue was raised by the regulators—actively inviting intervention. There has been a total lack of accountability by the senior team.”

“Management have created a culture of dominance and fear…Issues do not flow up but are buried, stopping any solution ever coming to light.”

“The senior team portray themselves as all-powerful and all-knowing… and people chose to disagree with them at their own peril.”

“Stories circulate of individuals who have been fired because they brought issues to the management’s attention. It is culturally acceptable at BWA, from the top of the organisation down, to ignore, put off, and even deride risk and compliance issues.” 

To make matters worse, Tinney, according to the Daily Mail of London, was so horrified at what he read he had the document shredded, thinking he held the only copy. Of course it was eventually found after a whistleblower suggested to higher ups that they look for the report. While Tinney and Cox eventually left the firm, so did many of its wealth managers in the U.S. It is unclear Barclays Wealth could shed the reputation.

Stifel’s CEO Ron Kruszewski is getting a firm that is about half the size of what it was at its peak three years ago, when it had some 300 advisors. He clearly has ambitions to move upstream to wealthier clients but has his work cut out for him in assuring the Barclays managers who are still with the firm that this time, things will be different. 

I’d welcome your thoughts on this, or any other matter, at [email protected].

 

David Armstrong

Editor-In-Chief

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