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Oct. 13, 2009
Advice: Should You Really Become a Private Banking Client?

Private Banks Lowering Entry Hurdles

Hurdle

At the latest Reuters Wealth Management Summit leading Private Bankers announced that they would lower the requirements for accepting new clients. Historically in Switzerland a minimum of 1 million Swiss Francs was required to open an account at a private bank. The CEO of Julius Baer declared at the Summit that the bank would now accept clients with invest-able assets as low as 800,000 Swiss Francs (instead the previous minimum of 1 million). Likewise, the private banking service of the Spanish BBVA said that it would lower the minimum requirement for becoming a client from 2 million Euros to about 1.5 million Euros.

These are not strategy shifts caused by a new egalitarian thinking, but merely responses to the declining wealth caused by the financial crisis as well as from the pressure of competition. Leading wealth managers such as Credit Suisse and UBS already offer private banking services starting from minimum invest-able assets of 250,000 Swiss Francs. As the bankers themselves admit that this client segment is far more profitable than the upmarket clients, delivering a gross margin well above 1%.

What should potential new clients with relatively lower investment sums keep in mind when considering private banking services?

  • Do not choose a private bank only because it flatters your ego. An exclusive name, sophisticated looking reception area and well-fitted suits are the strongest marketing tools of private banks, but do not necessarily mean a superior performance of your portfolio. Question yourself if you really require private banking services to meet your investment objectives.

  • Request flexibility to accommodate your investment needs. The higher gross margin of clients with a lower investment sum does have a simple reason: The services are more standardised with fewer options available for client to influence the asset allocation and products in the portfolios, thereby leaving the doors wide open for banks to use expensive in-house products, burdening the clients with indirect costs. 

  • Resist private banking offers if you have just made the minimum limit. You would want to make sure you have enough investment left to ensure that you do not drop out of the priority list if markets tank and your portfolio fall below the minimum limit. Check in your initial talks with the adviser on how high the average invested assets of his clients are.

  • Shop around and negotiate the fee. Many wealth managers and private banks have opened their range of services to investors with lower investment sums. Take advantage of the increased competition and talk to several providers. Never take their fees as a given, but always ask for a reduction. Research shows that clients can easily negotiate fees down by at least 10%-20%.

My Private Banking



Advice: Should You Really Become a Private Banking Client?

Private Banks Lowering Entry Hurdles

  Oct. 13, 2009

Hurdle

At the latest Reuters Wealth Management Summit leading Private Bankers announced that they would lower the requirements for accepting new clients. Historically in Switzerland a minimum of 1 million Swiss Francs was required to open an account at a private bank. The CEO of Julius Baer declared at the Summit that the bank would now accept clients with invest-able assets as low as 800,000 Swiss Francs (instead the previous minimum of 1 million). Likewise, the private banking service of the Spanish BBVA said that it would lower the minimum requirement for becoming a client from 2 million Euros to about 1.5 million Euros.

These are not strategy shifts caused by a new egalitarian thinking, but merely responses to the declining wealth caused by the financial crisis as well as from the pressure of competition. Leading wealth managers such as Credit Suisse and UBS already offer private banking services starting from minimum invest-able assets of 250,000 Swiss Francs. As the bankers themselves admit that this client segment is far more profitable than the upmarket clients, delivering a gross margin well above 1%.

What should potential new clients with relatively lower investment sums keep in mind when considering private banking services?

  • Do not choose a private bank only because it flatters your ego. An exclusive name, sophisticated looking reception area and well-fitted suits are the strongest marketing tools of private banks, but do not necessarily mean a superior performance of your portfolio. Question yourself if you really require private banking services to meet your investment objectives.

  • Request flexibility to accommodate your investment needs. The higher gross margin of clients with a lower investment sum does have a simple reason: The services are more standardised with fewer options available for client to influence the asset allocation and products in the portfolios, thereby leaving the doors wide open for banks to use expensive in-house products, burdening the clients with indirect costs. 

  • Resist private banking offers if you have just made the minimum limit. You would want to make sure you have enough investment left to ensure that you do not drop out of the priority list if markets tank and your portfolio fall below the minimum limit. Check in your initial talks with the adviser on how high the average invested assets of his clients are.

  • Shop around and negotiate the fee. Many wealth managers and private banks have opened their range of services to investors with lower investment sums. Take advantage of the increased competition and talk to several providers. Never take their fees as a given, but always ask for a reduction. Research shows that clients can easily negotiate fees down by at least 10%-20%.

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