Private banking in general is a rip-off

The following applies to private banking services below Ultra High Net Worth Individual (UHNWI, $30M+ investable assets) level. UHNWI level and upwards i would not know to comment on.

Private banking services are marketed to clients who are genuinely well-off. However, most of those prospective clients tend to be people who are relatively unfamiliar with capital markets. They’re probably more knowledgable than the average person, but not by much. Having built a fortune in a specific business, and invariably being good at it, doesn’t necessarily translate to a solid understanding of how the world of investment product sales in general, and private banking in particular, works.

The pitch

The client has a personal relationship manager who is there to advise and help them conduct their financial affairs. Sometimes, the client also has a designated loans and payments official, can get advice on legal and tax affairs, and maybe has access to a strategist who can help them navigate the markets. Getting information on the general state of the economy and markets is easy, loans against assets as collateral are relatively easy to obtain and peace of mind regarding your financial wellbeing is just a phonecall and meeting away. You get proprietary research and access to products only available to the select few. Also – valet parking! Or at least validated parking. Win!

The reality

The personal relationship manager is a personal relationship manager to 70 other clients. The designated officials as well. The advice is pretty generic, the products pretty synthetic and the strategist is extremely eloquent in explaining, why your personal portfolio has such a large allocation to mutual funds sponsored by the asset management arm of the same institution. Assets without a management fee kickback loop are underrepresented or completely lacking while commodity exposure is at 10% because, well, only weirdos don’t have commodity exposure, right? Regarding loans, it’s safe to assume that if you go down a few floors in the same building and are willing to do some paperwork and wait a bit longer, you will save 50-100 bp on the interest rate.

The conclusion

Unless you can extract a fee structure below regular retail level (special attention needs to be paid to recurring portfolio management fees), which doesn’t happen too often, it’s just not worth it.

Leave a Reply

Your email address will not be published. Required fields are marked *