PRIVATE GOES PUBLIC

Private banking is becoming increasingly popular, but is the high-service, high-rolling option right for you?

IT HAS LONG BEEN REGARDED AS LITTLE MORE THAN A LUXURY FOR the super-rich, yet modern private banking is far more inclusive than it may seem. Swapping assistants behind glass screens for one-on-one service, and dropping help lines in favour of a personal banking manager’s mobile phone number, private banking customers are finding that a brave new world of service awaits.

And, just as private banking looks set to shed its image of elitist mystique, Europe’s established retail banks are joining the party, setting up their own internal private banking divisions and attempting to convince the wealthy that a mass-market institution can also manage money for millionaires. Betting that they can be all things to all people, they’re peddling mortgages and credit cards to their regular customers, while providing white-glove private banking to fl ush investors.

But why is private banking changing? And why now? The fact is that more people, across a broader demographic, are achieving significant wealth. And it’s not just high-earning footballers or musicians. The global property boom helped to swell the numbers of the nouveau riche, while the emergence of the internet created a new breed of entrepreneurs, many of whom have chosen London as their base, thanks to its favourable tax system for non-domiciled residents.

“The old private banks were really old firms of stockbrokers,” says Mark Hussein, head of private wealth management at Kleinwort Benson in London. “It was about relationships and families, and everybody knew each other. However, last year alone, the number of millionaires in Europe rose by around 8%. Distribution of wealth is changing. For instance, by 2025, 60% of the UK’s wealth will be held by women.”

What about the service itself? Private banking is distinguished from its retail counterparts by the private banking manager facility or ‘relationship manager’. This is generally an independent financial adviser (IFA) who is employed to micro-manage a client’s finances to an extremely high level. Private banking managers also offer advice on tax planning, wills, trusts and inheritance tax planning.

Many high street lenders such as RBS, NatWest, Lloyds TSB and HSBC have launched private banking facilities, but then there is the established old guard, consisting of the likes of Coutts (which famously boasts Queen Elizabeth II as a client), Investec, Butterfield Bank and MM Warburg of Hamburg, still going strong after 200 years in business. Some offer a full banking service, which includes current accounts, debit cards and cheque books, as well as wealth management and tax planning, while others simply focus on managing their client’s assets.

According to Mark Cheshire, director of UK private banking at Lloyds TSB, the widely held perception of a rigorous, exclusive and invitation-only regime is wide of the mark and the current wealth explosion is being driven by a number of factors, including a strong property market, a buoyant economy and an increasingly entrepreneurial culture.

“Most of our wealthy clients already have a regular banking relationship with us, so it’s usually just a case of making them aware of the facility,” he says. “We also approach people who have sufficient earning potential to make good use of private banking in the future, as we want to have as diverse a range of clients as possible.”

But of course private banking is still not for everyone, and although it is now less elitist in a social sense, you will need some serious cash to get started, as the entry requirements are quite formidable. For example Coutts looks for clients with at least £500,000 (€650,000) of investable assets. Lloyds TSB Private Banking sets the bar slightly lower by requiring customers to have at least £100,000 (€130,000) in savings or investments, but they also need to be earning a hefty salary on top of that – in excess of £250,000 (€325,000) a year.

GUY DE MARNIX OF ING The private banking business is booming across Europe, and the Belgian industry is in particularly good health, its growth outstripping the more famous banking centres of Switzerland and Luxembourg. According to a survey of private banking by McKinsey, between 2003 and 2005 the Belgian private banking market grew by 27% a year, compared with an average of 12% for the rest of Europe.

There’s a good reason for the success of Belgium’s private banks. By 2004, mass affl uent individuals in Belgium and the Netherlands had reached almost 2.9 million, and Guy de Marnix, head of private banking at ING in Belgium, says there is still more liquidity in the economy, as baby-boomer entrepreneurs reach retirement age and sell the family business. Selling up may have been a difficult and drawn-out process in the past, but the recently emerged private equity firms are now lined up and willing to do deals. “Over the past 10 years we’ve also seen more of the top executives making millions of euros from their employer’s stock options,” says de Marnix.

The 2004 Belgian Tax Amnesty also helped to free up funds in the country. It was intended to allow Belgian citizens to repatriate undeclared funds invested abroad, on the understanding that tax evaders would be allowed off the hook if they agreed to pay a reduced rate of tax on their offshore holdings. De Marnix estimates that around €10bn (£8bn) has fl owed back into Belgium as a result of the scheme, much of this ultimately finding its way into private banking facilities.

If you’re interested in taking up such a facility for the first time, Kleinwort Benson’s Mark Hussein recommends looking carefully into the level of service provided by each institution. “The main reason you should look to a private bank is better returns for less risk,” he says. “But some of the private banks will not give millionaires in the low-to-medium category an individually tailored service. A lot of the major players are reluctant to bespoke anything under £10m (€13m). A serious institution will be looking to do that at £1m (€1.3m) plus.”

MARK HUSSEIN OF
KLEINWORT BENSON Hussein says that the fine art of “asset allocation/diversification” – in other words, the balancing of risk across a broad range of different investments – is taken more seriously by some banks than others. Many of the established private banks review their investment strategy on a quarterly or six monthly basis, while others will do so daily.

ING’s de Marnix also points out that “hedge funds and private equity are asset classes that play a greater role now. Major financial institutions are better placed to access these opportunities, because of their skill.”

Private banking is still a multi-country business – what a Belgian wants from his private bank can be very different from what a German or a British person wants. But if you’ve got the money, and you’re prepared to do your research, you’ll find a private banking option that’s right for you.

WHY GO PRIVATE?

“MANY WHO CHOOSE A PRIVATE BANK do so because they either don’t have time to manage their own financial affairs or want some additional support to ensure they are getting the most from their cash,” says Mark Cheshire, director of UK private banking at Lloyds TSB. “These clients want to hand over the day-to-day management of their money to a professional whom they trust to offer sound advice, without relinquishing complete control of their finances.”

“Increasingly, new customers are those who might previously have looked forward to their financial futures being funded by pensions and whatever savings might be accrued during their working lives,” says a spokesman for the British Bankers’ Association. “However, now there is a growing realisation that we have to make our money work for us and that we might have to pay for access to the sort of expertise we need.”

“What private banking can do is employ the asset management techniques of professional fund managers to strike the right balance for you between risk and reward. And, of course, it will provide a personalised service tailored to your needs,” he adds.

WHAT CAN YOU EXPECT?

MANY CLIENTS SPEAK TO THEIR PRIVATE banking manager on a daily basis. As well as helping them organise often complex finances, the private banking manager’s role is to build an in-depth picture of their client’s financial needs and help them plan long-term goals, whether that’s tax and inheritance planning, investment strategies, or writing wills and bespoke lending.

With more people becoming sceptical about financial organisations in general, getting the balance right between offering sound advice and being an interfering busy body is paramount. “A growing proportion of wealthy people in the UK have made their money rather than inherited it and many are becoming wealthy at a young age,” says Cheshire. “This new breed of private banking client has different priorities. They want to play an active role in the management of their finances and are typically willing to take on more risk in order to grow their assets.”

As an example, The Royal Bank of Scotland’s Royalties Private current account is available to people over 18 earning a minimum of £75,000 (€94,000) or £100,000 (€125,000) joint income and costs £18 (€23) a month, for which the customer will get preferential rates on overdrafts, loans and mortgage deals, as well as help with bagging tables at top restaurants, tickets to worldwide sporting and music events, access to executive airport lounges and discounts on car hire.

Such perks make it clear that for many people today, private banking is a lifestyle choice as much as a financial decision. The priority is still that their money is looked after and invested in the best possible way, but if the account comes with a smart credit card and some VIP treatment, so much the better.

DO YOU NEED PRIVATE BANKING?

In private banking, one philosophy works best. Assume nothing. HSBC Private Bank believe private banking is about finding bespoke creative solutions to your complex situations.

YOUR WEALTH MAY BE GROWING WHILE YOU RELAX ON THIS FLIGHT, but like anything that grows, it requires expert attention to detail if it’s to fl ourish to it’s full potential. HSBC Group Private Bank (HSBCPB) doesn’t assume that your needs can always be addressed with standard financial products and services. Complex financial affairs, especially those with an international dimension, call for a more sophisticated approach.

HSBCPB’s goal is to provide customers with access to the worldwide opportunities provided by HSBC Group - backed up by HSBC’s balance sheet. If your requirements don’t meet the norm, with HSBCPB you’ll know you’ve come to the right place. In order to deliver the quality that your investment concerns and objectives demand, our Investment Advisory Group has established one of the most comprehensive international networks of specialists and advisers, drawing on resources available within the HSBC Group and outside.

The Private Bank achieved a profit before tax of $1.51bn in 2007, up from $1.21bn the previous year, with $494bn of assets under management. It’s the third largest private bank in the world offering local contact in the UK via regional offices in Cardiff, Birmingham, Bristol, Dublin, Edinburgh, Leeds and Manchester, and provides services to high net worth individuals and their families through 92 locations in some 42 countries and territories around the world.

With high entry requirements - £2m of investible assets are required to join, which is four times higher than the entry point set by many of the traditional private banks – you’ll know you are in the good company of people who are serious about their investments. You can expect worldwide analysis of the latest investment opportunities delivered 24 hours a day through a unique online communications network, and rigorous analysis of the risks and rewards in global emerging securities, which is enabled by HSBC’s on-the-ground presence throughout emerging markets.

As a one-stop shop for all financial advice across all jurisdictions, why not choose HSBC Private Bank as your personal investment assistant?

WHY USE HSBC PRIVATE BANK?

Private banking is about much more than the traditional banking services of deposits and loans. It’s about providing the personal one-to-one service that is essential after a certain level of wealth is achieved. It’s about finding creative solutions to complicated situations that help affluent individuals and their families manage their wealth today, and develop new sources of wealth for future generations. From international tax and investment services to specialist advice for family offices, a private bank offers a comprehensive menu of sophisticated products and services that cater for the particular financial needs of wealthy people.

PRIVATE BANKING WITH HSBC

At HSBC Private Bank, it is our global view and capability that suits our clients, who tend to have complex business and personal finances. We are well equipped to deal with that complexity both on and offshore, and enjoy the challenge of providing bespoke lending, investment and tax solutions. We can help you:

Manage your wealth: Private banking is about building relationships. Our belief is in providing a service that is both personal and personalised. Drawing on the strength of the HSBC Group and the best products from the marketplace, we work with you to develop services and strategies to manage your inevitably unique situation.

Develop and protect your wealth for the future: It is as important to manage your wealth today as it is to plan for tomorrow, and for the generations that follow you. With one of the largest trust businesses and a global network of investment services spanning six continents and all major markets, HSBC Private Bank strongly believes in securing the financial future of you and your family.

Handle the impacts of your wealth: Wealth can present unique lifestyle situations. Whether you are buying new homes, investing in art or even relocating overseas, a relationship with HSBC Private Bank opens up a range of specialist services to you and your family. Our teams offer expertise in areas including property investment, tax advisory, media, sport, philanthropy and immigration services. Most importantly, we understand that your needs are different, as will be the solutions we offer. If you are looking for the services of a private bank and would like to find out more about our services, please contact us. 0207 860 5000.

www.hsbcprivatebank.com

WORDS BY BARRY MANSFIELD
ILLUSTRATION BY NILS JAWA