Is the term 'private banking' a thing of the past?
The blurring of the lines and business models between the different types of wealth management firms raises important questions over whether 'private banking' is still relevant. Should we stop using it altogether?
What does a 50-year old Swiss client adviser from UBS Wealth Management have in common with a 25-year old relationship manager from the VIP offering of a Lithuanian retail bank? In theory, very little. Yet in the way their respective institutions market each of them, and in the eyes of many newly-wealthy individuals, they are both ‘private bankers’.
Although a slightly extreme example, this highlights a pressing question which shouldn’t be ignored any longer – what does ‘private banking’ actually mean?
Surely there needs to be a clearer and more accurate definition of private banking in today’s environment? And how this differs from ‘wealth management’. After all, many HNW individuals still don’t know what a private bank should really stand for.
Various types of organisations – not just private banks – are trying to service HNW customers. These include insurance companies, IFAs, multi-family offices, independent (or external) asset managers, just to name a few. And the existence of multiple providers is a good thing in terms of broader customer choice.
The flipside is that it leads to greater confusion in the mind of a customer about who offers what, why and how.
Some organisations have been called private banks for over 100 years, throughout which they have served wealthy family’s interests in Europe, the US and Asia. They use well-trained, experienced RMs to tailor centralised investment themes and other solutions to individual client preferences.
At the other extreme, some local retail banks have set up ‘private banking’ divisions that are staffed by young, inexperienced salespeople, employed to sell a handful of high-margin funds.
Both types of institution can call what they do private banking, employing RMs as client managers. Yet their approaches, and the resulting client experience, are poles apart.
In the meantime, the current uncertainty leads to an understanding of what a private bank is and what it is supposed to do. Most organisations are then tarred with the same brush by the clients they serve and are trying to attract. Arguably, the concept even becomes irrelevant.
The challenge has also come from those local retail banks carving out an offering targeting HNW clients exclusively. They tend to describe what they do as ‘private banking’ because they think the term possesses cachet.
Yet while some clients value quality brands, they are not short-sighted or easily fooled. If self-described private banks don’t offer the substance of quality advice and service they claim in their marketing brochures, they are unlikely to retain much client business.
Private banking is certainly less ‘private’ these days than it ever used to be. The compliance spotlight that has started to shine ever-brighter in the wake of the 2008 financial crisis and the race among governments to re-fill their coffers is only likely to further sharpen.
The allure of ‘secrecy’ which once surrounded private banking is gone, with the most credible institutions going to great lengths to ensure client assets and any new accounts are from legitimate sources and have valid objectives for needing a private bank. At the same time, the drive towards greater fee transparency and the elimination of retrocessions over time should encourage true private banks to reinforce the value of their discretionary offering.
The purpose of private banking should be simple: to offer relationship-based advice and tailored financial solutions to meet specific client needs. With HNW clients becoming increasingly global, this advice needs to be offered on an increasingly international basis, and increasingly through digital means. Banks that employ professionals who are dedicated to getting to know their clients, and then meeting their financial needs in a product-agnostic, transparent manner can rightfully point to their credentials as a private bank. And they can demonstrate the differences they offer.
Either way, client education has to play a key role. People who think a private banker just processes transaction orders have the wrong understanding. But if they understand what they can and cannot get from their private bank, everyone will benefit.
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