Top 3 Coutts Wealth Management Interview Questions

Coutts, until a few months ago, was one of the many prominent wealth management shops that flew under the radar: known primarily as a discreet wealth management and private banking business with a rich history that served a relatively select group of clients. But this all changed when the “de-banking” saga involving Nigel Farage occurred that led to the resignation of Coutt’s CEO, Peter Flavel, and resulted in a sizeable drop in net income for the past few quarters. The saga itself was tabloid fodder for months.

Coutts is the wealth management and private banking arm of NatWest. NatWest itself has both a complicated and intriguing history: in the midst of the 2008 Financial Crisis a £45.5bn bailout resulted in the Treasury taking an 84% stake in the business (the “business” included a long list of entities including Coutts and more well-known entities such as the Royal Bank of Scotland). This stake has slowly dwindled down over time, but the Treasury still owns 39% of NatWest although, per the recent Autumn Statement, the Treasury will begin exploring reducing down its stake in NatWest still further.

All in all, Coutts still has an excellent reputation and despite net income falling in recent quarters, it’s AUM has remained stable (as would be expected since wealth management and private banking clients tend to be notoriously sticky).

Coutts Wealth Management Interview Questions

In interviewing at Coutts, similar to other more regional-focused wealth management practices, it’s important to keep in mind that many of the questions will focus on UK markets and the broader economic backdrop of the UK.

As in all wealth management interviews, there will questions on markets more broadly (since client assets will be invested across a diverse asset and geographic spectrum). But in all interviews it’s important to appreciate who your audience is and what they care most about, and in the case of Coutts they will care most, but not exclusively, about domestic affairs.

1. What impact do you think the most recent Autumn Statement will have on monetary policy and markets?
2. Would it make sense to allocate more heavily into commodities next year?
3. If you think we’re in a late portion of this economic cycle, then what kind of equities should you look to for clients?

What impact do you think the most recent Autumn Statement will have on monetary policy and markets?

The Autumn Statement was delivered on November 22 by Chancellor Hunt, in what was a much anticipated pronouncement given the volatility in the gilt market over the past year. In the end, there needed to be a careful balance between trying to stimulate sluggish growth and trying to prevent a reignition of inflationary pressures.

This latter point is particularly relevant as UK inflation has not fallen nearly as quickly as in the US, so the UK is far from being out of the woods on the inflation issue as Governor Bailey has recently noted. Therefore, any fiscal policy measures that were overly stimulative, and that could lead to the BOE being forced to hike again, could end up increasing economic fragility and the risk of a hard landing scenario.

The initial analysis of most is that the Autumn Statement doesn’t move the needle too much (the three main things done were cutting the National Insurance main rate by 2%, allowing a full expensing of capital allowances that was going to be phased out in future years anyway, and implementing tighter work requirements for the long-term sick). For example, Goldman believes that the Autumn Statement is unlikely to stimulate the demand side of the economy too much – adding around 0.1% to GDP over the next two years – and that at most it may delay when the BOE begins to lower rates by one meeting.

With this said, there are some who think that more fiscal cuts should have been announced because fiscal policy is still too stimulative and therefore working against the BOE’s attempts to get inflation down through a more restrictive monetary policy stance. In other words, the Treasury isn’t doing the BOE any favors in trying to slow economic growth and make sure inflation continues to fall.

But, given that an election will occur next year, it’s hard to imagine any government cutting spending too much – even if, from a macro perspective, it’d allow the BOE to not do so much of the heavy lifting in combating inflation.

Would it make sense to allocate more heavily into commodities next year?

The S&P GSCI – commonly used as a benchmark for commodity markets – has been roughly flat for the year due to two primary concerns. First, that an increase in oil prices above their current levels will be met by a robust supply response, so the upside to oil is quite limited. Second, that a recession in the next twelve months is still quite likely and would result in the demand for commodities (i.e. oil, metals, etc.) falling significantly.

However, based on how low the index is there is upside potential if you believe, as many increasingly do, that a recession (at least in the US) will be averted in the first half of 2024 due to resilient growth and central banks beginning to roll back some of their recent rate hikes as inflation falls back into the 2-3% range.

Further, some believe that based on stronger economic growth that oil demand will exceed current expectations and lead to a further tightening of the oil market due to the systemic lack of investment that we’ve seen over the last decade (in other words, there will be more oil demand than expected but that the immediate supply response many believe will occur won’t actually materialize).

Consequently, some, like Goldman, believe this anticipated tightening of the oil market will push the price of oil into the $80-100 range for a more prolonged period of time (something that future markets aren’t currently pricing in...).

Finally, the GSCI index being roughly flat this year is partly due to the rout in "green metals". This rout has taken many by surprise but occurred because of the ramp up in metal supply following the explosion in EV demand in 2020-2021. However, the rout in metals may now be overdone and belies the continued, if not exponentially increasing, demand for “green” metals (primarily those used for the production of EVs) and those that are essential for new homes (copper) that would see an uptick in demand if there’s stronger economic growth and more new-home starts than most are currently anticipating.

Ultimately, commodities are cyclical, and any bet on them should align with one’s view on the broader economic landscape (i.e. if you expect growth to be stronger than market expectations, then you should expect commodities to outperform). The one caveat to this would be that geopolitical shocks can also cause commodities (especially oil) to temporarily outperform as we’ve seen multiple times over the past two years. And it does seem like the oil market in particular isn’t pricing in too much risk that there could be more geopolitical shocks next year.

If you think we’re in a late portion of this economic cycle, then what kind of equities should you look to for clients?

There’s little question that valuations for US equities are high right now. However, the rally this year that has taken even the most bullish by surprise has been driven largely by the Magnificent Seven (Meta, Apple, Alphabet, Microsoft, Amazon, Nvidia, and Tesla) that have soared – and haven’t yet fallen – due to a combination of AI hype and a belief that a recession is unlikely to occur in the next twelve months (a belief that a recession would occur within the next twelve months was a consensus view earlier this year). But when you take a step back and look at US equities without the big tech names, valuations are high but not too out-of-step with historical ranges.

Given that equities (especially US equities) are quite expensive right now, if you think we’re in a latter portion of this economic cycle (i.e. a recession is likely within the next 12 months) then a classic approach to portfolio allocation would involve doing a barbell of defensive growth (i.e. healthcare, staples, and utilities) and late cycle cyclicals (i.e. industrials and core energy).

The combination of traditional defensive stocks and late cycle cyclicals is being heavily advocated by some at Morgan Stanley who point out that this combination has outperformed the broader market in the latter part of past economic cycles. Primarily because, as opposed to sectors like consumer discretionary, there’s more limited downside for equities in these sectors as their revenues tend to ebb and flow with economic cycles less. Further, these equities tend to either come with a high dividend or pretty regular stock buybacks due to the stability of their cash flows.

Conclusion

To say that Coutts has a long history would be slightly underselling the reality. Coutts dates back its founding to 1692, and in the ensuing centuries has served clients including Queen Anne.

There’s no doubt that the recent “scandal” wasn’t a welcome development, especially for a firm that has historically prided itself on being discrete and under the radar. However, Coutts has been around for centuries and will continue on for many more years to come. It wasn’t surprising to anyone (or at least it shouldn’t have been) that the AUM of Coutts didn’t drop significantly in the last few quarters despite the scandal. It’s hard to dislodge clients from their existing advisors and, while there’s no data on this, it’s likely that Coutts clients are sticker than normal as many will have been with Coutts for multiple generations.

As mentioned earlier, be sure to closely follow UK developments – from both a markets and politics perspective – when interviewing with Coutts as there will be a heavy emphasis on domestic developments. Likewise, because of Coutts long history, it’s worthwhile to take some time to familiarize yourself with their history, values, and philosophy – all things that Coutts takes great pride in.