Are you a member of the global financial elite? Part of the super-rich club? If you believe you are, then the exclusive private banks are competing for your attention – and your money.
As with most exclusive clubs, unfortunately, it’s not merely a question of showing up and being welcomed in. Some, for example, are by invitation only and involve recommendations from two existing bank customers.
And like all business sectors, there is a hierarchy. Not all private banks are equal. In boxing terms, there are lightweights, middleweights and heavyweights, so choose carefully.
It may depend on whether your wealth is ‘old’ money or ‘new’ money. Or whether you are a media star or part of the landed gentry, or even the racing fraternity. There’s sometimes a certain mindset at work, whereby clients are expected to ‘know their place’.
And if you are accepted, there’s no shortage of prestigious private invitations. These might include Royal Ascot, the RHS Chelsea Flower Show, Henley or Twickenham. But the costs can be eye watering. There is no such thing as a free Afternoon Tea.
Money, money, money
As the ABBA song lyrics remind us, when it comes to private banking, it’s a rich man’s/woman’s world.
Not only your total net-worth valuation, but the amount of your investable wealth and your annual income also get measured.
In Luxembourg, the so-called super rich with assets of over €20 million bring in more than half the money managed there.
Banking is about depositing, investing and lending money. Nothing unusual there. The appeal is all about the add-ons and the frills. Those nice little extras. And, of course, the cachet of the brand itself. Those who move in elite circles do like to make an impression. The days of owning and showing an embossed faux-parchment cheque have long gone. The same goes for black, gold or platinum bank cards. Many transactions are now done via smartphone.
Let’s face it, you feel special. Way back in 1973, Ilon Specht hit the nail on the head:
’I use the most expensive hair colour in the world. Preference, by L’Oréal. It's not that I care about money. It's that I care about hair. What's worth it to me is the way my hair feels. It feels good against my neck. Actually, I don't mind spending more for L’Oréal. Because I'm worth it.’
Catchy advertising slogans aside, it’s a fact of life that wealth opens certain doors in life, and the doors of private banks are emphatically no exception.
Here are five considerations when deciding if a private bank is right for you, and your money.
The big five
Is your money safe, and can you trust the bank?
You only have to Google ‘private-banking scandals’ to find 93.3 million results. Yes, you read that figure correctly, and just a few examples are listed below.
- Falcon Private Bank
- Credit Suisse
- Danske Bank
- ABLV of Latvia
- Deutsche Bank
- BSI Switzerland
- Julius Baer
Don’t rely on UK regulation to save your millions, because the FSCS (Financial Services Compensation Scheme) only protects up to €100,000 (£85,000). Due to Covid-19, admittedly, the Temporary High-Balance Protection up to £1m has been extended from a six-month to a 12-month window, effective from August 6, 2020.
If you make your decision based upon the thickness of the carpet pile, the valuable art hung on the wall, or the smart Oxbridge bright young things who presented to you, beware. All these expensive trappings cost money, and frankly, you and your fellow clients will be paying for them. And, as this sector tends to have high personnel turnover, expect to be served by a succession of customer-relations ‘types’ as time moves on.
With a lot (or all) of your eggs in one basket, great care is needed.
As with any luxury purchase, you should choose the brand that makes you feel good and delivers on its promise. It’s human nature for some investors to choose a brand that (they think) will make the biggest impression on those around them.
You can distinguish between truly global organisations (including US, Swiss, European, British, and Asian banks) and those that are simply international (i.e. cross border).
Increasingly, it is important to be the right client for the right bank, and here, the questions of entry criteria and entry levels for certain products and services come into the equation. Being either the most or the least important client of any enterprise carries its own pitfalls, so avoid these two extremes. In fact, finding the service levels and proposition that best meet your situation is crucial.
2. Value VS cost
It is important to be clear on what you are prepared to pay for and whether you consider that the services on offer justify the price. Remember, it’s normally the assets that you deposit with the bank that generate that bank’s fees. Or more precisely, you pay for the value of the advice you get, as compared to what would happen if you left those assets unmanaged, or managed by someone else.
If you do not consider that paying for services or advice is justifiable at the level quoted, then a cheaper, more self-serve offer may better suit you, and several private banks do give you the option to consider digital alternatives. But that doesn’t sound or feel ‘elite’ to many people.
Look beyond and beneath the headlines. Uncover the full annual cost of doing business. Count everything. If it isn’t clear, ask. After all, private banks have no special right to charge unreasonable sums, simply because they represent an elite niche market.
3. The range of services on offer
One important factor in your decision is whether you would prefer a one-stop shop, or to choose the organisation for its ability to deliver on a specific proposition. The latter could include banking, lending, investments, financial planning or even lifestyle planning through a concierge.
In a world where time is precious, it may help you to combine your private and business banking in one place. This can make life easier for you, but also allow you to benefit from possible scale economies in the services you use at the bank.
One tell-tale indicator of quality for any private bank is the service they provide for your children and other financial dependents – do they really extend their proposition to your wider family in an efficient and competitive fashion?
Often in life, it’s not what you know but who you know. Private banks can be a useful platform for strengthening your business and personal networks. It’s also helpful for your other advisers to enjoy working with the bank on your behalf, so you and they can be comfortable that you have an efficient, collaborative team.
Do you enjoy networking? If so, then the right private bank can offer the opportunity to get to know their other clients, to the advantage of all concerned.
5. And finally, conflict of interest
You need to know which side of the table you are sitting on. In poker there is a saying. If you can’t spot the sucker at the table, then you are the sucker.
Private banking can be mysterious, alluring and exciting. It can draw you in. So take care.
Learn the rules of engagement. What are you being offered? Why is it suitable? Is it best of class? Do you even need it? What does it cost?
Surprisingly, some private banks merely offer you a choice of products, catalogue style, without the safety net of independent financial advice.
If you are with a private bank, or considering one, ask us for an impartial second opinion. Call us on 0207 398 6600 or email email@example.com.
With thanks to Nick Gornall of Arbuthnot Latham for help in researching this article.