By Ed Charles
COVER STORY
Qualifying is half the battle to be a customer of a private bank, Ed Charles reports
THE world of private banking consists of an exclusive club of retail bank clients and an elite club of global private bank clients.
The level of personal service you get and what you pay will depend very much on how much money you have.
At the very least for membership of this club you will need assets of about $1 million, excluding the family home, and a salary of more than $250,000.
This, in banking parlance, makes you a high net worth individual and a member of a club comprising more than 9 million people globally.
Then there are the super rich, the elite group of 84,500 individuals with assets worth more than $40 million, known as the ultra-high net worth.
Locally, you will be one of 1070 individuals identified by the Merrill Lynch/CAP Gemini World Wealth Report and your wealth increased by 16.1 per cent in 2005.
The merely rich (high net worth individuals) are still doing well in Australia. In 2005, their 140,000-strong ranks swelled by about 12,000 people, an 8.5 per cent increase. They got richer, as well, increasing their wealth by $55 billion to about $560 billion, a 9.7 per cent increase.
Little separates the language used by private banks. Both the retail version and the global players aim to offer best-of-breed investment products and service that comes at any time of the day or evening with a big smile.
On the high street, all the major banks aim to introduce the mass affluent to their full range of services from transactional banking, premium credit cards and lending right through to superannuation advice, financial planning, insurance and funds management.
The difference is that global banks focus almost exclusively on wealth management, helping design complex sophisticated asset allocation strategies that fold domestic and international investment opportunities, private equity and hedge funds into large portfolios.
Aspiring clients may also benefit by shopping around a bit first.
According to Goldman Sachs JBWere private wealth management managing director Paul Heath, each bank has a different pedigree, each with its own strengths.
“We are all moving into the private wealth management space but coming at it with a different pedigree or legacy,” he says.
“Groups like us have a very strong investment pedigree.
“The high street banks have a very strong lending background.
“Financial planners have a very strong financial planning pedigree. That is how the business is evolving here.”
Andrew Black, head of St George private bank, points to the babyboomer demographic timebomb as the reason for growth in the market. “If you look at the changes taking place in legislation and the push for people to support themselves in retirement, there is a tremendous incentive for people to comfortably grow their assets during their lifetime,” he says.
Many people in this group are also successful business owners looking to cash out or consider an intergenerational transfer.
“From the business banking side there is more demand for support from the private bank, particularly from the financial planning and advice side — in succession planning for businesses,” Black says.
“It is one of many places that is growing because of the babyboomer bulge.”
BankWest is the latest bank to bring private banking to its branches. It is rapidly expanding its service nationally and pursuing an aggressive growth plan.
“We are not really in the ultra high net worth space,” BankWest corporate and private banking head Bob Beard says.
“That tends to be domain of the global players for people who have got $50 million and above.”
The idea is to help time-poor people manage their wealth.
“Private banking is about helping them grow their wealth and keeping it safe, thus we make things easy for time-poor people who have other things to focus on.”
BankWest and St George are unusual as high street banks, as there is no strictly defined fee for the service. Fees are negotiated on services taken and the amount of money sitting with the bank.
Other banks, such as NAB, charge $750 and upwards for the privilege. Financial plans are charged by the hour and investments typically cost from 1.5 per cent of funds down to 0.5 per cent — that is, investment fees fall as the level of assets under management rises.
Global investment banks focus on the ultra-high net worth end of the spectrum.
Last year, Credit Suisse private bank opened its doors in Australia, and it plans to employ about 50 advisers over the next few years.
UBS, one of the leaders in Australia, is looking to expand its team of advisers from 90 to 150.
Credit Suisse Australia private banking head Cedric Davies confirms the focus on the super rich.
“Across Asia, the vast majority of our private banking clients are entrepreneurs or family-owned or family-controlled businesses,” Davies says.
Many private banks aim at the more conservative wealth preservation market. At Merrill Lynch, the average client’s net worth is well in excess of $10 million.
“Typically what we do for these people is act as their iron box,” Merrill Lynch Global Private Clients investment first vice-president Peter Opie says.
“We are the people these people come to with assets they don’t want to lose. We are quite conservative.
“Fortunes are made in one asset and they are preserved in many, so we are very much of the view that there is value in compound interest, diversification and taking time.
“Most of our people are wealth preservers rather than wealth accumulators, so compound interest has become their friend.”
Opie says Merrill Lynch doesn’t invest its clients’ money in managed funds, except for global hedge funds. Rather, investments are held directly. “We do all the investment management ourselves, so when people talk to us about how their portfolio is going they are actually looking into the eyes of the guy who is handling the money.”
The high-street banks target the wealth accumulators rather than established wealth.
BankWest’s Beard says everybody’s needs are different.
“Some of them have wide-ranging needs and some more specific, and some are happy to look for a one-stop solution, while yet others are looking for best of breed.
“In the main we find that that the basic core staple that people have is debt first and foremost — either for their own residence or that of a family member, or debt for investment and gearing purposes.”
Typical of this is one client, Peter, who wished to stay anonymous. Around three years ago he moved from ANZ to BankWest on a recommendation.
His main reason for using private banking is the personal service. He has his manager’s direct and mobile phone numbers and can contact her at any time, even outside business hours.
“For me, the important thing about private banking is having a one-on-one liaison with somebody in the bank who knows what my needs are, as opposed to just being a number in a bank and dealing with a different person every time you call,” he says.
“Private banking does provide preferential rates and reduced fees on some services, which certainly helps.
“It is not the be-all and end-all, but first and foremost for me is the personal service.”
BY INVITATION ONLY
Private banks and their services
Retail ………………………………………………….. Entry requirements
ANZ ……………………………………………………. $1 m of investible assets. Income of $250,000
Bank West …………………………………………… $1.3 m on investible assets. Income of $250,000
Commonwealth ……………………………………… $2.5 m of assets. Income of $250,000
nab …………………………………………………….. $1 m of investible assets. Income of $250,000
St George ……………………………………………. $1m of investible assets. Income or $250,000. Or $2.5m combined equity and debt
Westpac ……………………………………………… Either a combined salary of over $250,000 or $1 m of investible assets with Westpac
Services offered
All retail banks offer personalised banking, transaction accounts and premium credit cards. A cornerstone of the retail bank service is lending facilities, including mortgages. They also offer financial planning (charged on complexity of plan) and investment advice
Costs
Depends on level of services taken up and can be negotiable depending on borrowings and level of funds invested. Upfront fees charged for financial plans.
Commissions are disclosed and in some cases rebated
Global …………………………………………………. Entry requirements
Citigroup ……………………………………………… $50 million plus
Credit Suisse ………………………………………… High net worth individuals
Deutsche Bank Private Wealth Management … $2m-$5m of funds under management
Goldman Sachs JB Were ………………………… n/a
Macquarie Bank …………………………………….. $5 m of investible assets
Merrill Lynch …………………………………………. $2m for discretionery funds; $5m advisory
UBS Wealth Management ……………………….. From $250,000 to invest
Services offered
High level investment advice including on alternative asset classes such as art. Also financing and cash management.
Asset and liability management.
Wealth management, include tax planning; pension planning; life insurance; wealth and inheritance advice, trusts and foundations
Customised portfolio management, investmenet strategies, risk management
Financial planning. General and personal advice covering most investments
Comprehensive investment advice. Tax planning and wealth protection. Takes deposits and lends
Discretionery and advisory investment advice and portfolio management
Discretionery portfolio management, wealth advisory, asset advisory and cash management
Costs
n/a
n/a
Percentage of funds under management
Financial planning on hours worked. Percentage of funds invested
Depends on services taken. About 1 per cent of assets invested
0.5 to 1.5 per cent of funds managed
1 to 1.5 per cent of investments
Source: financial institutions
Illus:Â Photo
Table
Column:Â Wealth
Section:Â FINANCE
Type:Â Feature